Washington Research Council Blog

Fiscal Year Ends at Midnight: Four States without Adopted Budgets

Stateline.org reports that Minnesota, Iowa, Oregon and Massachusetts have yet to meet the deadline for adopting a state budget.

Iowa and Oregon are likely to wrap up their work by today's deadline; Massachusetts and Minnesota are likely to miss it.

Only Minnesota, however, faces the prospect of a government shutdown, which hasn't happened on a protracted basis anywhere in the country since Pennsylvania experienced a nine-day state closure in 2007.

Massachusetts Gov. Deval Patrick signed a temporary measure buying that state an extra 10 days of operation.

The National Conference of State Legislature has a table detailing the budget status in the fifty states.

Washington handily beat the deadline, but ended the fiscal year in the red and with another big budget challenge ahead in January.

Budget Gimmicks

Stateline has a handy article today on common budget gimmicks used by the states, with copious examples.  Not surprisingly, many of these will be familiar to Washington budget-watchers:

1. Putting off payments
2. Accelerating revenue
3. Using temporary money for recurring expenses
4. Counting on savings that aren't likely to materialize
5. Counting on revenue that isn't likely to materialize

Washington is used as an example of Gimmick #2:

Washington State tried a variation of this tactic back in 1971 and it haunted the budget process for years. To balance the two-year budget that ended in June of that year, the state grabbed revenue from July. In effect, it was using 25 months’ worth of revenue to pay 24 months’ worth of bills. 

Getting spending and revenue back into alignment required writing a budget that would pay 24 months’ worth of bills with 23 months’ worth of revenue — something Washington State wasn’t able to do until 1987. This year, the “25^th month” gimmick came up again as an idea for balancing the budget, but Governor Christine Gregoire and others rejected it as shortsighted.

Washington did, however, make use of Gimmick #1 by delaying some school district payments by one day in order to shift costs from 2009-11 to 2011-13. 

June revenue forecast: Down $183 million and not much cushion

Today's official revenue forecast went according to the well-worn script. Bad news accumulates. As Kriss anticipated in our earlier blog post on the collections report, the ending balance for the current biennium, which ends in a couple of weeks, vanished.

The balance sheet distributed today shows the current biennium with a negative ending balance of $84 million. Of greater concern is the slim reserve of $163.3 million projected for the end of the 2011-13 biennium.

The math is not straightforward. State economist Arun Raha reports a baseline forecast for 2011-13 that is down $183 million from the March forecast, a dip of 0.6 percent. The balance sheet, which includes other adjustments, notes a $387.1 million drop.

When you back out amnesty revenues (which budget writers had already booked and which Sen. Joe Zarelli called "the big bogey" in the calculations), revenues through FY 2013 are expected to be down $572 million from budget -- $185 million in the current biennium and the previously mentioned $387.1 million in the next.

Press coverage in the Seattle PI, Seattle Times, Everett Herald, Capitol Record, and The News Tribune.

 

Improved competitiveness from legislative session, but just a start

That's the theme of today's column.

Employers have been cheered by some legislative outcomes. Nonetheless, it's amazingly difficult to get the right things done in Olympia. The state's abundant assets -- trade, technology, natural resources, brilliant innovators and skilled workers -- keep us competitive, but tax, regulatory and labor policies and inconsistencies weigh heavily on the liability side of the ledger.

As economic indicators stay stuck and jobs head South, Washington must step up its game. Lawmakers made a start this session -- only a start.

As this article from Stateline.org points out, Washington was not alone in making difficult budget cuts while trying to improve its business climate.

Several governors also pledged to cut taxes despite the huge budget shortfalls. Business taxes were a particular target as governors argued that lower taxes would encourage businesses to hire more workers.

With tomorrow's revenue forecast expected to show another decline, it looks like there's plenty of work left to do.

June Revenue Collections Report

The June Economic & Revenue Update issue today by the Forecast Council (available here) shows a shortfall in collections that almost completely exhausts the projected 2009-11 ending balance in the near general fund. Here are the key paragraphs on revenue collections from the update:

Major General Fund-State (GF-S) revenues for the May 11 – June 10, 2011 collection period came in $69.7 million (4.0%) lower than our March forecast due to the unexpectedly large slowdown in April economic activity. During the period there was a $40 million payment for taxes assessed on activity from prior periods. Without this payment, receipts would have come in $109.7 million (6.4%) below the March forecast.

Revenue Act receipts were $45.9 million (-5.1%) below the forecast and other receipts came in $23.7 million (2.9%) below the forecast due mainly to shortfalls in real estate excise, cigarette and property taxes.

Cumulatively, major GF-S revenues are $93.1 million (2.5%) above the March forecast due to last month’s [$200 million] receipts from the amnesty program for past due taxes as well as this month’s large assessment payment. Adjusted for the extra revenue from the amnesty program and other one-time payments and refunds, the cumulative variance is negative $142.2 million (-3.8%).

The budget recently passed by the legislature projects a $111 million ending balance for the near general fund (Balance Sheet). The calculation of this ending balance, however, assumes the $200 million booked last month from the amnesty program. Subtracting this $200 million from the $93 million by which collections have exceeded the March forecast leaves a shortfall of $107 million, which eliminates all but $4 million the projected ending balance.

The Economic and Revenue Council will meet on Thursday to adopt new forecasts of revenue for the 2009-11 and 2011-13 biennia.

Washington ranks #40 in new Economic Freedom Index

The Mercatus Center at George Mason University recently released Freedom in the 50 States. Here's how they describe the index:

This study comprehensively ranks the American states on their public policies that affect individual freedoms in the economic, social, and personal spheres.

It updates and expands on the Center's inaugural edition, published in 2009.

For Washington, the news is mixed. The state ranks No. 40, among the "least free" states.

Washington was among the states that improved the most in overall freedom and consequently moved up five spots in the rankings. Unfortunately for denizens of that state, it had—and still has—a long way to go. Washington is still among the 10 least-free states. Indeed, it only barely cracks the top half of states in personal freedom.

Follow the link and compare with other states.

As we've noted before, all of these studies combine objective data and subjective values. The Mercatus report does an excellent job of disclosing data sources, discussing the components of the index, and outlining the analysts' thinking. From a research perspective, it's a model of transparency.

Sometimes its useful to see how well the index conforms to perceptions. Well, let's see.

The top 5 states are (in order): New Hamphsire, South Dakota, Indiana, Idaho, and Missouri.

The bottom 5: Massachusetts, Hawaii, California, New Jersey, and New York.

Anyone surprised?

Policy Brief: New Reforms to Workers' Compensation

Our wrap-up of the changes made this legislative session to the workers' compensation system is now posted.  It follows several other reports on the subject and the need for reform: Employment Cost Drivers in Washington State, The Time Has Come to Fix Workers' Compensation, and Mainstreaming Workers' Compensation. 

In these reports, we have consistently called for specific reforms that will reduce the costs of the system.  Namely, we have recommended allowing voluntary settlement agreements, establishing a medical provider network, and tightening the definition of occupational disease.  Progress was made this session on each of those recommendations (to varying degrees).

WRC's 79th Annual Meeting

...was a great success last night. Thanks to all who attended and sponsored the event, the WRC board and executive committee, outgoing chair Anne Bryant and incoming chair Gary Strannigan.

We're going into the 80th year with momentum.

 

Microsoft & Boeing announce $50 million scholarship fund

Today, coincident with the governor's signing higher education bills, Boeing and Microsoft pledge $25 million each to fund scholarships for students in high-demand fields.

This is very good news, as the governor points out.

...our colleges and universities must have the resources to educate and train the next generation of engineers, scientists and workers. Tuition flexibility will allow them to set their own tuition through 2019, so it is competitive with similar colleges and universities in other Global Challenge states...

She points out that with tuition going up, additional financial aid will be required to maintain access for low- and middle-income students. And she adds,

"Thanks to Boeing and Microsoft for their generous contributions to the Opportunity Scholarship Program and for their partnership and support.”

The statement from Microsoft General Counsel Brad Smith, who chaired the governor's higher education funding task force, is here.

News stories here and here.

In our recent Thrive Washington paper, we had this to say about higher education funding.

Governor Chris Gregoire’s Higher Education Funding Task Force released its recommendations in early 2011.  The Task Force proposed that the state give public four-year universities more tuition flexibility; establish an endowment for Washington Pledge Scholarships that would be managed by a non-profit and funded with both state and voluntary private contributions; strengthen university accountability; and increase the number of graduates, especially with STEM-related degrees.  Enacting these recommendations would provide more stable and predictable long-term funding and improve retention and graduation rates.  This is important throughout the higher education system, particularly in high demand programs and STEM related fields.

A big step forward was taken today.

State Agency Reorganizations

Stateline has an article today about various efforts to reorganize state agencies, looking specifically at Kansas, Michigan, and Washington.   The section on Washington addresses the consolidation of certain back-office functions that passed as part of the budget this year:

The proposal is expected to save the state $18 million and eliminate 95 full-time employees. Stan Marshburn, deputy director of the Office of Financial Management, says there are other strategic benefits that are hard to quantify. “Those are the savings that we think we know, but they’re not the total sum,” Marshburn says. For example, the new structure is intended to create a stronger capacity for information technology planning and coordinating bulk purchasing across state government. 

Five agencies that service internal government operations are being consolidated into three. A new 1,200-person Office of Enterprise Services will pull together most transactional functions that are required to keep state government running internally, from human resources management to printing and accounting. The other remaining agencies, the Office of Financial Management and a new Consolidated Technology Services agency, will be able to concentrate on higher-level planning, oversight and policy setting across state government. 

Gregoire has put forward a number of reorganization proposals in the past, and has succeeded in eliminating numerous boards and commissions over the years as a way to cut costs. This, however, is by far the most significant restructuring to make it through the state legislature. 

Marshburn believes that the severity of the state’s budget situation and the internal government nature of the changes being proposed helped the proposal’s chances in the legislature. Government functions that interact directly with citizens tend to have vocal constituencies that make even minor organizational changes politically difficult to pull off.  As Marshburn puts it, “This created a better framework to have the discussion.”

The changes made in the budget are:

• IT policy oversight is moved from the Department of Information Services (DIS) to the Office of Financial Management (OFM).
• The Information Services Division, Risk Management Division, Contracts Office, and Small Agency Client Services are transferred from OFM to the new Department of Enterprise Services (DES).
• The Department of Personnel is transferred to OFM (except its human resource functions that serve state agencies--they transfer to DES).
• The Public Printer is transferred to DES.
• The Department of General Administration merges into DES.
• DIS administrative, budget, finance, communications, contract services, human resources, agency internal IT, legal services and procurement transfer to DES.
• IT delivery is transferred from DIS to the new Consolidated Technology Services Agency.