Washington Research Council Blog

The Comprehensive Annual Financial Report and Workers' Comp Audit

The State Auditor's Office has released its 2011 Comprehensive Annual Financial Report (CAFR) Summary.  Total government expenses declined 7.42 percent from 2010, with the largest reductions coming from workers' compensation (-71.44 percent) and unemployment insurance (-21.97 percent). 

Unemployment compensation activity reported operating income of $171 million in fiscal year 2011 versus a loss of $985 million in fiscal year 2010.  Unemployment premium revenues collected from employers rose approximately $300 million and benefits paid decreased about $1 billion from the prior fiscal year. This billion dollar reduction in benefits reflects a decrease in the number and duration of claims, the end of a federal supplemental payment and some claimants exhausted benefits.

The Unemployment Trust Fund has a cash balance of $2.554 billion at June 30, 2011. According to Standard & Poor’s, most states do not have a positive balance in their unemployment fund and Washington state has sufficient cash to fund benefits for 15
months.

Similarly, "Workers' compensation activities reported a gain of $1.8 billion in fiscal year 2011 versus a loss of $1 billion in fiscal year 2010."  That's due to increased premium revenues as well as claims expenses being reduced $3 billion, "mainly due to the effect of workers' compensation reform legislation and the expectation of lower future claims costs." 

More information on the workers' compensation program is available in the Auditor's audit of the program during FY 2011, which was also released this week.

More points of interest from the CAFR summary:

• Tax revenues increased 8 percent over 2010: "Moderate increases in sales and business and occupation tax revenues were due to a slight increase in taxable sales largely due to an increase in the business and occupation tax rate on services and a tax penalty amnesty program."
• The state debt burden increased 1 percent.
• The Budget Stabilization Account balance as of June 30, 2011 was $564,000 (at the end of FY 2008, the balance totaled $302.7 million).
• PERS 1 and TRS 1 have significant unfunded liabilities, but the liabilities declined in 2011 thanks to the legislature's elimination of an automatic annual benefit increase.

OFM Posts 6-Year Outlook

The Office of Financial Management has posted a new six-year outlook for the state budget. OFM's analysis shows that, even with the cuts that Gov. Gregoire has proposed to close the deficit in the current biennium, the state faces budget deficits in the following two biennia under current law. The main culprits are restoration of the suspended education initiatives, I-728 (class size reduction) and I-732 (teacher pay increases), and implementation of the Basic Education bill (HB 2776).

The outlook is available as a table here and as a chart here.

Boeing contract a good deal for all Washingtonians ... bonus checks tomorrow

As part of the agreement ratified last week by Boeing Machinists, members get a $5,000 signing bonus. The checks go out tomorrow, a day I call Boeing Thursday in this morning's column in The Herald of Everett. Not quite Cyber Monday or Black Friday, but a good deal for Puget Sound area retailers and our economy generally. We've not had a lot of good news recently, so it'd be great to see this as the beginning of a long overdue turnaround. Please check out the column.

AWB Don Brunell also wrote about the agreement in his column in the Columbian.

Early ratification of a labor agreement is hugely important to Boeing, its workers, our state and nation. Boeing is one of the world’s most prominent manufacturers stationed in the Seattle area at a time when manufacturing is shifting around the world.

... The agreement means Boeing and its Washington workers are digging in to compete against aircraft manufacturers in Europe, China, Canada and Brazil.

TNT columnist Bill Virgin also notes that the Boeing news is a big deal.

Indeed.

Legislative 2012 Supplemental Budget Proposal

The legislature released a proposed 2012 supplemental budget today (PSSB 5883 or PSHB 2058).  As we discussed in our brief on the governor's proposed supplemental, the state has about a $2 billion problem to solve.  Legislators don't propose getting anywhere near that figure during the special session.  Instead, they would begin by cutting the problem by $479.7 million.

To get there, they would reduce expenditures by $322.9 million (near general fund-state plus opportunity pathways), make fund transfers totalling $106.2 million, and enact SB 5994 (which allows unclaimed securities to be sold by the Department of Revenue as soon as possible, rather than waiting three years) to increase revenue by $50.6 million in FY 2012.  (The revenue proposal is one of the options the governor included in her list of revenue increases that would require only a majority of the legislature to enact.)

For the most part, the legislative proposal does not make the big program cuts that the governor did, but the cuts it does make are mostly included in the governor's proposal.  Unlike the governor, legislators do not currently propose to eliminate the Disability Lifeline medical programs or the Basic Health Plan, or to release offenders early.  They would not fund Initiative 1163 (the long-term care training and certification initiative passed in November).  They don't reduce school days, shift apportionment funds, or reduce levy equalization.  They don't cut higher education spending.

Like the governor, the legislative proposal would delay implementation of the Involuntary Treatment Act, re-purpose Old Main at Walla Walla, change school enrollment reporting requirements, and shift school bus depreciation payments.

Below is a comparison of the expenditure reductions made in each proposal.  Clearly, the legislature will have a lot to do in the regular session next year.

Scant Good News for Budget Writers in Report on November 11 to December 10 State Revenue Collections

The Washington State Economic and Revenue Council (EFRC) today issued its December Economic and Revenue Update. Here is the summary:

• The U.S. economy continues to “muddle through.” The risk of a renewed financial meltdown stemming from the European sovereign debt crisis remains high.
• We continue to expect Washington’s economy to outperform the U.S. in the recovery. The decision to build the Boeing 737 Max in Renton is great news for Washington's future but will have its greatest impact on the economy and revenues in future biennia. Its current impact will mostly be through improved confidence amongst the aerospace workforce.
• Major General Fund-State revenue collections for the November 11 – December 10, 2011 collection period were $19.7 million (1.2%) higher than the November forecast, but the positive variance was due to the timing of property tax payments. This month’s higher property tax payments will be largely reversed by lower payments next month. Without the extra property tax payments, collections would have been $14.2 million (0.9%) below the forecast

The full report is here.

This is the first report on collections since the disappointing November 17 revision to the revenue forecast, which reduced the forecast for the 2011–13 biennium by $122 million. The next collections report, due on January 11, will include sales tax revenue on "Black Friday" Christmas purchases.

New Brief: Governor's 2012 Supplemental Budget Proposal

In a new brief, we detail Governor Gregoire's proposed 2012 supplemental budget. 

Not only does the governor propose a long list of spending cuts and fund transfers, she also recommends a number of revenue raisers -- including, of course, an increase in the sales tax.  Should voters and the legislature agree to increase taxes, the governor suggests using the new funds to buy back programs and services that would be cut under her supplemental.

2012 Workers' Comp and UI Taxes

Today the Department of Labor and Industries (L&I) and the Employment Security Department announced the workers' compensation and unemployment insurance tax rates for 2012. 

For workers' compensation, there will be no overall increase in premiums.  The L&I press release states:

In September, the agency proposed a 2.5 percent increase. The decision to hold overall rates flat in 2012 is due to public testimony about the impact of the recession and recent positive trends in claims duration, according to L&I Director Judy Schurke.

Also:

Schurke noted that the workers’ compensation reforms passed during the last legislative session will save $150 million in workers’ compensation premiums in 2012. This is part of the $1.1 billion in reform savings over four years.

While there will be no overall rate increase, individual employers may see their rates go up or down, depending on their recent claims history and changes in the frequency and cost of claims in their industry.

The full rate table is available here.  According to L&I, "In total, 171 risk classes will increase and 146 risk classes will decrease or stay the same."  This is the first time since 2007 that general rates are not increasing.

For unemployment insurance, "tax rates will decrease in all 40 rate classes in 2012."  Further, tax rates will be lower for 88 percent of employers, and the average tax rate will decrease by 13 percent.

In a press conference, the governor and the department directors credited reforms to both systems made earlier this year for keeping rates from rising.  For more information on the reforms, see here and here.

WA One of Four States with Current Year Budget Shortfall

Today the National Conference of State Legislatures (NCSL) released a Fall 2011 State Budget Update:

Better revenue performance is driving the improvement in state finances. Collections in most states have stabilized or are growing, and the general revenue outlook for the remainder of the fiscal year reflects confidence in continued modest growth. However, recent global economic volatility is generating concern among state officials about the rate of revenue growth. In fact, several states reported that revenue projections, as they enter the second quarter are not as optimistic as they were just a few months ago.

According to NCSL, Washington is one of only four states to have a budget shortfall in the current fiscal year:

Only four states—California, Missouri, New York and Washington—report that a budget gap has appeared since the fiscal year began. This compares with 15 states that had gaps this time last year.

The cumulative new budget gap for FY 2012 is $4.4 billion, compared with $26.7 billion for FY 2011 in November of last year.

As I noted briefly in this post on Governor Gregoire's proposed 2012 supplemental budget, in the hopes of avoiding some budget reductions, the governor is proposing a half-cent increase in the state sales tax that would expire July 1, 2015.

Washington isn't the only state that is considering raising taxes to deal with budget problems.  Stateline reports today that California and New York are as well.  New York's governor may propose to raise income taxes on the wealthy.  (Of course, Washington voters rejected I-1098 in 2010, which would have imposed an income tax on high earners.)

In a combination of both approaches, California's governor will likely propose to increase income taxes on the wealthy and increase the sales tax by half a cent.  Both changes would be temporary through 2016.