Washington Research Council Blog

GASB Proposals for Public Pension Accounting and Reporting

Earlier this summer, the Governmental Accounting Standards Board (GASB) released proposed new standards for state pension accounting and financial reporting.  One of the reasons GASB has proposed these changes is the "increasing need among the users of governmental financial reports for comparable information about pensions."  The WRC looked at public pensions in a policy brief this spring.

Some of the GASB proposals include:

Tax increase proposals showing up on state ballots...

Stateline.org reports that taxpayers in more states will be voting on revenue increases. Tight budgets, several years of spending cuts and continued economic sluggishness explain part of the trend. But, more important than these, in several states voters have tied lawmakers hands by requiring legislative supermajorities or voter approval for tax increases. Also implicated is a changing political dynamic.

Those obstacles [to tax increases] include supermajority requirements and other rules that make it particularly difficult to raise taxes. They also include a Republican Party that has become more united in opposition to tax hikes at the same time that it enjoys control of either the governorship or at least one house of the legislature in 39 states. In that context, supporters of higher taxes have begun to wonder whether going directly to the ballot is now the easiest way — and perhaps even the only politically plausible way — to raise taxes.

"Easiest" doesn't mean easy, as Washington state demonstrated.

For example, in Washington State last year, voters comfortably rejected an initiative to create a new income tax. At the same time, they easily approved an initiative to require a two-thirds threshold for tax increases to pass in the legislature.

In California, the last tax increase to pass on the ballot was a 2004 initiative to raise income taxes on the rich to pay for mental health services. Since then, several efforts have failed including a package in 2009 supported by then-governor Arnold Schwarzenegger. That measure only managed to win 35 percent of the vote, even though it was coupled with a state spending cap and enjoyed the support of the state chamber of commerce.

The frame for the Stateline story is an upcoming Colorado vote to raise both the income and the sales tax. If the plan succeeds in the state with the most stringent tax and spending limits, interest groups in other states - California and Nevada are cited - may follow suit.

The supermajority requirement here faces a court challenge. Still, I'd expect legislators to refer any significant tax increase to the voters.

Washington missing growth opportunities...

Think it here, make it there. A typically thoughtful column by Bill Virgin in Seattle Business suggests that's the path being taken by key innovators in our state. Virgin's column, Losing Ground, looks at what may be a troubling pattern. He acknowledges Washington's competitive advantage in research and development, particularly in emerging industries.

Washington does well in idea generation. Yet, he notes, it's not enough. Virgin cites several examples like this one.

Dendreon is a Seattle biotech company and a rarity in its industry for seeing its product—Provenge, a prostate-cancer treatment—through years of testing and regulatory review to commercial sales. But when it came time to scale up manufacturing, Dendreon announced it was building a production facility in … Georgia. It later announced plans for another plant in … California.

He sensibly suggests that state officials investigate why local businesses are expanding or relocating elsewhere.

If there’s a pattern to the reasons businesses based here move or spend elsewhere, Washington will have to face up to those problems. The same factors that motivate companies to leave also deter others from coming here.

Right. House Democrats linked to some good news, showing Washington ranking first in new business creation. We need to understand how to make sure the businesses that start here stay here.

City and County Classifications in the News

If you liked our policy brief on local initiatives and referenda, you may be interested in a few stories today from around the state regarding city and county classifications.  A locality's classification is the starting point in determining whether its residents have initiative and referendum powers.

First, in a blog post in the Kitsap Caucus, Chris Henry writes about Port Townsend potentially becoming a non-charter code city.  It is currently a second class city; as such, Port Townsend residents do not have the powers of initiative and referendum.  If the city does eventually become a code city, it would be able to adopt those powers.  The post includes examples of what it means, practically, to be a code city (as opposed to a second class city).

Second, the Yakima Herald-Republic reports that Yakima County voters will decide in November whether to begin the process of becoming a charter county.  If they do, they could adopt initiative and referendum powers as part of the charter.  Because Yakima is a commission county currently, they do not have those powers.  (Residents of the city of Yakima do, however.)

State Supreme Court should rule on supermajority

Another year, another challenge to the voter-approved supermajority requirement for tax hikes. In my column in the Everett Herald, I say it's time for the Court to put the issue to rest.

The justices may again decide the case on procedural or technical grounds, ducking the threshold question. For example, they could conclude the group bringing the suit has yet to be harmed or find that lawmakers had other options. A better outcome for taxpayers would be a final determination that the initiative passes constitutional muster.

Your thoughts?

WA has Highest Workers' Comp Benefits per Covered Worker

Last week the National Academy of Social Insurance released its report on workers' compensation for the year 2009.  Based on the state-specific data in the report, 2009 benefits paid per covered worker in Washington were the highest in the nation at $857.32.  The state with the second highest benefits per covered worker was West Virginia at $754.79, followed by Alaska at $719.04.

Additionally, the report includes significant revisions to benefits data from 2005-2008.  Last year's report (the original 2008 data) put Washington at second highest in benefits per covered worker ($778.36) behind West Virginia ($902.13).  Incorporating the revisions, Washington actually paid the highest benefits per covered worker in the country in 2008.  Although Washington's number didn't change, West Virginia's was reduced to $730.01.  

When you look at benefits as a percent of covered wages, Washington was the third highest in 2009 at 1.82 percent, following West Virginia at 2.10 percent and Montana at 1.89 percent.  Washington was also third highest the past few years.  Washington's benefits as a percent of wages were 1.69 percent in 2008 and 1.57 percent in 2007.

New Brief: Initiatives and Referenda at the Local Level

Today we published a new brief on the local initiative and referendum process in Washington.  Washington has 281 cities and 39 counties.  Depending on the type of city or county, residents may or may not have the powers of initiative and referendum locally--in 59 cities and six counties, they do.

Workers' Compensation Reforms in Other States

Apparently Washington wasn't the only state to make significant changes to its workers' compensation system this year.  An article in Stateline today discusses cost-cutting measures that were enacted in several states.  The article also includes a handy sidebar with the key changes made in Montana, Illinois, Oklahoma, Washington, Kansas, and North Carolina.

Like Washington, Montana has a highly costly workers' compensation system. In 2008, Washington ranked 2nd in benefits paid per covered worker ($778.36); Montana ranked 5th ($595.88).  Washington ranked 3rd in benefits paid as a percent of covered wages (1.69 percent); Montana ranked 2nd (1.83 percent).

The article notes that this year's reforms in Montana have already been effective:

Insurers in the state have lowered premiums by 20 percent, and a further reduction of 10 to 15 percent is expected within the next five years. The new law shortens the period in which workers can receive medical benefits, and specifies which doctors they can see and how well those doctors are compensated. If an employee is injured on a break while away from the workplace, the employer is no longer likely to be on the hook for lost wages and medical expenses.

In Washington, changes made by the legislature included allowing a settlement agreement option for certain workers and creating a medical provider network.  (For more on this year's reforms in Washington, see here; and for other briefs on workers' compensation, see here, here, and here.)  It remains to be seen how the changes made in Washington will play out, but we expect that they will help reduce the costliness of our system.

Pessimistic State Economic & Revenue Update

Economic and Revenue Forecast Council (ERFC) staff today released the monthly Economic and Revenue Update for August. Here are the document's summary bullet points:

• The national economic outlook has weakened significantly since our last forecast. There is now an even greater chance of slipping back into recession.
• Washington’s economic outlook has also dimmed as consumer confidence has plummeted in the wake of U.S. budget wrangling and renewed European sovereign debt fears.
• Washington State revenues reported later in this publication correspond to economic activity in June, and their closeness to the last forecast unfortunately masks how much the economic outlook has weakened since then.
• Major General Fund-State (GF-S) revenue collections for the July 11 – August 10, 2011 collection period were $9.4 million (0.8%) below the June forecast. Cumulatively, collections are $30.8 million (1.3%) below the forecast. Due to the recent deterioration in national economic conditions, the shortfall is likely to increase in the remainder of the year.

Expect a significant downward revision to the revenue forecast at the ERFC's next meeting, which is scheduled for September 15.

On Monday, Governor Gregoire, through Office of Financial Management Director Marty Brown, instructed state agency heads "to prepare for possible cutbacks by submitting 5 percent first-priority reductions and a second 5 percent for a total of 10 percent in GF-S reduction options as part of their 2012 supplemental budget requests."

First media coverage of our impact analysis of I-1183 liquor privatization

Credit to Erik Smith at Washington State Wire for his report on the revenue impact analysis Special Report we released yesterday.

An initiative that would shutter the state liquor stores would generate huge revenue for state and local governments – an extra half-billion dollars over the first five years alone, according a new report from the Washington Research Council.

Initiative 1183, the liquor-store privatization measure that appears on the November ballot, would generate an additional $443 million for state and local governments between 2012 and 2017, the report says.

I also appreciate this:

It should be noted that the Research Council, a business-oriented think tank, produced its report with support from Costco and its business membership. But the non-partisan organization maintains a 79-year tradition of independence and strict attention to economic modeling.

We work hard to maintain that reputation. As they say, RTWT. Both of them, actually, Smith's story and our report.