Search Results for: inflation

During remarks last year before the Washington Policy Center, a conservative think tank funded by wealthy, right-wing donors, King County Exec wannabe Susan Hutchison took a moment to plug their Policy Guide for Washington State, a collection of policy proposals for key areas of government.

“I’d like to put in a plug for a book that you have on your tables. It’s called the Policy Guide for Washington State and it’s published by the Washington Policy Center. Let me tell you about this book. I have read it cover to cover and it is one of the most extraordinary pieces of work about Washington State and the policies that make our government run. It hits on 10 different subjects from health care, education, transportation, tax policy and others. But let me tell you, folks… if you started this book tomorrow morning and read it through you would be smarter by dinnertime tomorrow night. This book makes you smart. So I highly recommend that you take it and that you read it.”

So… what exactly are these “smart” ideas that have Hutchison so excited?

On transportation…

Manipulating transportation policies to force a particular behavior coerces people into abandoning their individual liberties in favor of a socialistic benefit where supposedly a greater collective good is created.

[…] Reduce spending on costly, ineffective fixed-route mass transit. Policymakers should change spending priorities that heavily favor mass transit systems despite chronically low ridership. Riders of these expensive systems, like light rail and the Sounder Commuter Train, are being heavily subsidized by automobile commuters, yet research shows that fixed rail does nothing to reduce traffic congestion.

[…] The problem is that transportation spending is based on other agendas rather than congestion relief. As a result, the cost of bringing goods to market rises and consumers end up paying more for products.

Sound Transit’s East Link proposal is a good example. Reconfiguring the center lanes across Interstate 90 (I-90) for light rail, as agency officials propose, would not only fail to reduce traffic congestion, it would, according to the state Department of Transportation, worsen traffic congestion by 25 percent.

On the environment…

Proclamations about the risks from climate change have been revised again and again, always downward, and other information has been shown to be more about politics than science.

[…] Eliminate the mandated “green” building standards for public buildings…

On science…

Even when the science is accurate, it does not indicate that the problem ought to be addressed or that particular policies should be followed.

On I-1033…

Adopt a constitutional amendment to limit the growth of spending to inflation and population growth.

[…]

Colorado’s spending limit, in contrast, was enacted as part of the constitution and has proved much more effective at protecting citizens from aggressive state spending. Passed by the people in 1992, Colorado’s Taxpayers’ Bill of Rights (TABOR) limits the amount of tax revenue the state can keep each year to the sum of inflation plus population growth.

That’s right, in enthusiastically embracing Washington Policy Center’s recommendations (and in giving them over $100,000 from the foundation she ran), Hutchison was for I-1033 before she was against it, only worse, as the Policy Guide calls for the population-plus-inflation limit to be cemented in the state constitution, just like Colorado’s disastrous TABOR measure.

Hutchison can talk all she wants about being a moderate nonpartisan, but these are the policies she’s endorsed, these are the policies she’s helped fund, and these are the policies we must assume she’d pursue. If Hutchison wins in November, right-wingers will hail it as a huge victory, because she is one of them.  But her only path to victory is to hide this fact from voters.

Tim Eyman accuses I-1033 opponents of spinning scare-stories around the initiative’s potential impact, but it doesn’t take much imagination to see how the measure would unravel funding for state services and infrastructure when we only need look to Colorado. There a similar TABOR initiative pegged revenues to population-plus-inflation back in 1992, and the results have been devastating.

Joining Washington state educators at yesterday’s No on I-1033 press conference (you know, the one that Timmy so rudely crashed) was Colorado Education Association President Beverly Ingle, who explained how TABOR has eroded education funding, both at the K-12 and state university level. And, as I explained yesterday, as state education funding shrinks, so will local funding, despite Eyman’s uninformed and insincere assurances.

This isn’t rocket science. I-1033 will shrink the size of state and local government, and quite dramatically. That’s Tim’s goal. And by shrinking government I mean it will reduce the quality and breadth of government services, and defer crucial infrastructure investments.

So, if what you think we need to do is spend less money on education, I-1033 is for you. Because that’s exactly its intended result.

Following up on yesterday’s post in which I explain for reporters why population-plus-inflation does not result in a stable revenue stream necessary to maintain government services at constant levels, I thought I’d quickly raise one more question in the minds of the press before they attempt to cover I-1033 in an objective and even-handed manner: what problem, exactly, is I-1033 intended to solve?

It can’t be because Washington is a high tax state. Even by the measurement of the conservative Tax Foundation, the organization whose stats Tim Eyman has long cherry-picked to support his tax cutting initiatives, Washington now ranks 35th in terms of state and local tax burden, and has climbed to 9th on the list of states with the best business tax climate.

And it certainly can’t be because government spending is out of control. Again, according to the Tax Foundation, Washington’s state and local tax burden (the percentage of one’s income one pays in state and local taxes, on average) has steadily dropped over the past 15 years from 10.4% in 1995 to 8.9% in 2008. And as I have pointed out on numerous occasions, per capita state tax revenues, adjusted for inflation, have also sunk to a 15-year low… and that’s before most of the impact of the Great Recession kicked in.

So what exactly is Timmy trying to fix? Certainly not out-of-control government spending. And certainly not potholes.

A No on I-1033 campaign staffer recently related to me a conversation he had with a local reporter, who repeatedly challenged him as to what was wrong with population-plus-inflation as a limit on government growth? “He was playing devil’s advocate,” the staffer explained.

Hmm. Maybe. Or maybe not.

This is a really complex issue, further complicated by the fact that population-plus-inflation does indeed sound like a reasonable and intuitive metric for maintaining government services at current levels, as it reduces spending to a simple per capita formula, that is easily adjusted for population and inflation: if we spend x amount of dollars per person in 2009, simply multiply x by the 2010 population, adjust for inflation, and voila… a new budget that reflects a constant level of per capita spending.

Rinse. Wash. Repeat.

In fact, this formula is so obvious and so intuitive, that rather than playing devil’s advocate, I think it a safe bet that the reporter in question was genuinely confused as to why population-plus-inflation, as implemented in I-1033, would steadily and inevitably erode government spending and reduce the level of services provided over time. So as a service to my friends in the media, I thought I’d attempt to explain the issue with a handful of bullet points.

I-1033 uses the wrong inflation index.
One of the core problems with the population-plus-inflation formula is the thorny question of how we measure inflation. I-1033 uses a broad measure, the Implicit Price Deflator  (IPD) for the gross domestic product, an index that both ignores regional variations in the inflation rate, and more importantly, dramatic differences between different economic sectors.

As I’ve previously explained the cost of delivering government services rises significantly faster than the general rate of inflation, largely because the kind of highly-trained, labor-intensive services governments tend to provide (doctors, police officers, teachers, etc.) do not benefit from the same sort of productivity gains that technological advances have bestowed on economic sectors such as manufacturing. The more accurate index would be the IPD for State and Local Government Services, which when applied to recent state budgets shows a precipitous decline in spending when contrasted with the Consumer Price Index.

Quite simply, providing a constant level of services per capita requires a constant level of purchasing power. I-1033 doesn’t provide that, and will inevitably result in steadily declining per capita revenues, properly adjusted for inflation.

Different populations require different services…
… And of course, different services carry different costs. For example, an aging population has higher health care costs, while a baby boom would increase the cost of providing public education. The population-plus-inflation formula simply cannot account for the associated costs (or savings) of demographic shifts, as it treats all individuals exactly the same. Likewise, the formula cannot account for changing behavioral patterns within demographically stable populations… for example the unexpected rise in public school enrollment during the current recession, as families sought to cut private tuition costs.

Consider this ironic Catch-22: if our current K-12 education reforms succeed in raising both graduation rates and the rate of college attendance, it would inevitably increase demand for slots in our heavily subsidized state college and university system. Quite simply, a well educated student becomes even more expensive to educate, a reality that I-1033 and its strict per capita cap, doesn’t anticipate. Lacking the ability to raise per capita spending to accommodate the increased demand its own policies helped to create, the state would be forced to either deny these students a higher education, or shift money from elsewhere… perhaps even K-12 budgets.

Growth in personal income is the measure that best tracks growth in demand for public services.
As explained in the Gates Commission report, and numerous other scholarly works on the subject, the economic number that most closely tracks growth in demand for government services is growth in total personal income, that is, total economic growth.  This is because (and perhaps counter to popular misconceptions) the majority of state and local government services are commodities, and we tend to increase our per capita consumption of commodities as our income grows.  Roads, sewers, schools, courts, public safety, libraries, parks, public health… these and other government services are all things we consume more of the wealthier our society gets, and thus personal income, not population-plus-inflation, is the best measure for tracking growth in demand for these services. It also is the best means of accounting for regional differences in the inflation rate, as wealthier states tend to have higher costs of living.

This is why comparative studies of government revenue, spending and debt always focus on government spending, revenue and debt as a percentage of the GDP. Government spending as a percentage of personal income not only broadly measures the ability of government to meet the demand for public services, it also measures the ability of the economy to afford the government services provided. In this context, population-plus-inflation is virtually meaningless.

Colorado.
Yeah, sure, nobody in our state media has written at greater length or greater depth on tax structure and revenue issues than I have over the past few years, but still, I’m just some foul-mouthed blogger, so why should you believe me?

Well, don’t. Just look to Colorado where the experiment with TABOR has proven to be a complete and total fucking disaster. Population-plus-inflation simply does not provide government the revenue necessary to maintain a constant level of services. It didn’t in Colorado, and it won’t here. That’s a fact.

Population-plus-inflation also doesn’t provide government the flexibility necessary to respond to the changing wants and needs of its citizenry, but that’s a topic for another post.

Unfettered by the need to win votes from voters, interim King County Executive Kurt Triplett is making the tough budget cutting choices, choices that are unlikely to win him many friends outside of the local politicians who are currently using him as a human shield. Yet the toughest choice of all — what to do about the county’s chronic long term revenue deficit — well that, nobody’s allowed to even talk about, especially not during an election season.

Slashing budgets is hard, but not impossible, because unlike most tax increases, budget cuts don’t require the prior approval of voters, and there’s no automatic mechanism for vetoing them via ballot referendum. Sure, plenty of voters will be plenty pissed off by shuttering parks, eliminating animal control and raising Metro fares countywide, but there’s nothing any of us can do about any of it… at least not directly, and certainly not directly against Triplett. So with nearly three quarters of the county’s general fund dedicated to criminal justice, so-called “non-essential” services must necessarily bear the brunt of this year’s cuts.

And next year…?

The cuts would come on top of several years of cost-cutting. For 2009, the county executive had to close a $93 million general-fund deficit, and between 2002 and 2005 $137 million in deficits had to be bridged.

Without new sources of revenue, Triplett forecast general-fund deficits of $54.2 million in 2011 and $88.2 million in 2012.

“There’s nothing left to spare,” he said. “Counties have to be funded differently.”

Yeah, well, Triplett can say that, because he’s not running for office. But as for the rest of the county’s political and media elite…? Shhhhh… voters might hear you.

So if we’re not going to fix a revenue system that has been intentionally monkey-wrenched to prevent county revenues from growing as fast as even population-plus-inflation, let alone growth in demand for public services, what’s the solution?

Republican executive candidate Susan Hutchison is running on the tried and true “waste, fraud and abuse” platform, claiming she can save popular services simply by wringing greater efficiencies from bloated government bureaucracy, mostly at the expense of the evil unions. Whether she really believes this or not, I don’t know, because like most other issues, she’s not sayin’. But the point is it can’t be done, at least not to the extent necessary to keep county services anywhere near their current level.

It’s not that there aren’t inefficiencies in county government, and it’s not like our bureaucracies don’t need to be scrutinized, squeezed and reformed from time to time; that’s the nature of bureaucracies, both public and private sector. It’s just that, as I’ve pointed out before, expecting to address long term structural deficits via productivity gains is a losing and illusory proposition:

But researchers long have recognized that the services provided in the public sector, such as education, health care, and law enforcement, tend to rise in cost faster than many other goods and services in the economy in general. This analysis was first put forward by economist William Baumol, who pointed out that technology and productivity gains may make goods cheaper to produce, but the services that government provides are different. Baumol said public services typically rely heavily on well-trained professionals — teachers, police officers, doctors and nurses, and so on — and technology gains do not make these services cheaper to provide. It may take far fewer workers to build an automobile than it did 30 years ago, but it still takes one teacher to lead a classroom of children.

The problem facing county governments statewide is simple: they have been forced to rely on a tax structure that over the long run guarantees that revenue will grow at a slower pace than the economy as whole, at the same time that the cost of providing government services is virtually assured to rise faster than the cost of most other goods and services in the economy. No doubt there are some productivity gains to be had, and we should attempt to squeeze them out where they make sense, especially in these trying economic times. But relying on productivity to address our long term deficit is wishful thinking.

Since we can’t actually outsource parks, animal control, Metro buses and other services to China, that leaves budget writers with only two real options: cut services and or raise revenues, neither of which is particularly popular, but only one of which appears to be even possible given the revenue constraints placed on the counties by the Legislature, and of course, our friend Tim Eyman. Timmy and the rest of the anti-government crowd don’t really mind watching local governments slowly drowned in a bath tub… indeed, that’s their goal. But the majority of voters — you know, those of us who actually use and rely on these services (and admit it) — we’re going to be sorely disappointed if the budget debate continues to focus on spending priorities to the exclusion of tax reform.

County government simply isn’t sustainable, anywhere in the state, and no amount of focus on budget priorities is going to fix this over the long term.  At some point, voters are going to have to accept that the level of revenue they are providing simply isn’t sufficient to support the level of services they’ve come to want and expect. But we’ll never have that painful conversation until our elected officials are willing to start it.

The podcast makes another surprise return from its summer vacation, giving Goldy and his panel of bloggers a chance to attack the political issues of our day over beer and nachos. The panel takes delight in the splendidly bewildering surrender of Gov. Sarah Palin. After a brief sojourn into rumors about imminent indictments, the panel delves into the big question of whether Palin has spoiled herself politically.

[14:01] It was a big day as Senator Elect Al Franken shortened his title to just Senator Al Franken. Goldy finds in this great hope for foul-mouthed politicos everywhere. The panel wonders when the sobered former satirist will again be able to get his humor back on.

[24:01] Finally, the panel examines Initiative 1033 that would limit future state spending to inflation plus population growth. Two major flaws of the initiative are discussed—the downward ratchet from economic dips and use of the wrong inflation index. If passed, will I-1033 cause Washington State to follow in the dreadful fiscal footsteps of California? A raucous debate ensues over whether angry scare tactics are the right approach for fighting the initiative.

Goldy was joined by Group News Blog publisher Jesse Wendel, Peace Tree Farm’s N in Seattle, and Horses Ass’ Will Kelly-Kamp.

The show is 47:04, and is available here as an MP3:

[audio:http://www.podcastingliberally.com/podcasts/podcasting_liberally_jul_7_2009.mp3]

[Recorded live at the Seattle chapter of Drinking Liberally. Special thanks to Confab creators Gavin and Richard for hosting the Podcasting Liberally site.]

Assuming his numbers can be trusted (and that’s a huge assumption), Tim Eyman has apparently turned in enough signatures to qualify Initiative 1033 for the November ballot, his most vindictive, dangerous and mean-spirited initiative yet.

I-1033 is a “TABOR” initiative, one of many, similarly constructed spending-cap measures that have been peddled in the initiative states nationwide, and have been funded by a shadowy network of ultra-wealthy, right-wing extremists. Thus, unlike most of Eyman’s initiatives, don’t be surprised to see a fair amount of out of state money flooding into Washington to fund the “Yes” campaign.

The Washington State Budget and Policy Center has a great analysis of I-1033 and its consequences, and I encourage you to watch their slideshow, but don’t think it an exaggeration to summarize the measure as the end of Washington state government as we know it.

I-1033 caps government spending at the previous year’s spending, plus population growth and inflation, and while that may appear to be a formula for fiscal stability, it is in fact entirely and intentionally the opposite.

As I’ve previously explained, Implicit Price Deflator (IPD) for Personal Consumption Expenditures, the inflation index I-1033 uses, comes nowhere close to measuring the rising costs of providing government services. For example, according to the federal Bureau of Economic Analysis, the cost to consumers of durable goods has plummeted 14 percent since 2000, while the cost of consumer services has risen 29 percent.  Over that same period of time the IPD (generally accepted to be the most accurate measure of inflation) has risen 21.6% for Personal Consumption Expenditures as a whole, but over 42% for State and Local Government.

So why has the inflation rate for state and local government services risen at nearly twice the rate as that for consumer expenditures?  According to a report compiled by the Washington D.C. based Center on Budget and Policy Priorities, it mostly comes down to productivity:

Proponents of TABOR-type tax and expenditure limits sometimes contend that a growth formula based on population plus inflation would be adequate to maintain public services at a roughly constant level. But researchers long have recognized that the services provided in the public sector, such as education, health care, and law enforcement, tend to rise in cost faster than many other goods and services in the economy in general. This analysis was first put forward by economist William Baumol, who pointed out that technology and productivity gains may make goods cheaper to produce, but the services that government provides are different. Baumol said public services typically rely heavily on well-trained professionals — teachers, police officers, doctors and nurses, and so on — and technology gains do not make these services cheaper to provide. It may take far fewer workers to build an automobile than it did 30 years ago, but it still takes one teacher to lead a classroom of children. (In fact, as education has become increasingly important, the trend is toward more teachers per pupil, not fewer.) Doctors generally still see patients one by one, and nursing care remains labor intensive despite technology.

Even in a stable economy, population plus inflation just can’t keep up with the rising costs of providing government services, resulting in government spending power dropping year after year after year (as is already happening in WA state under our current unfair and inadequate tax system these past fifteen years). But of course, our economy is not stable, and here is where I-1033’s true destructiveness comes into play.

I-1033 would limit annual spending to that of the previous year adjusted for population growth plus IPD, which means that during every economic downturn, the base level of spending from which future increases are calculated will be ratcheted down to the lowest revenue point, creating an ever widening gap between projected spending increases, and those actually allowed under I-1033.

Of course, Eyman chooses the trough of our worst economy since the Great Depression on which to base future revenue increases, but even if he hadn’t, the inevitable result would still be a dramatically smaller government, and in short time. For example, had I-1033 been implemented in 1995, revenues during our current, already squeezed biennium, would have been $6 billion lower than they are now.

How much is $6 billion? That’s the current state budget for higher education, natural resources, public health, early learning, corrections and the Basic Health plan… combined!

Like I said, it’s not an exaggeration to describe I-1033 as the end of state government as we know it. In fact, the consequences would be so unbelievably dramatic that there is almost a sense of complacency amongst the opposition—we simply can’t believe that the majority of voters could be so stupid as to pass such an incredibly irresponsible measure.

But it’s ignorance, not stupidity that frightens me.

If I-1033 draws in national money from the usual pro-TABOR suspects, this could be an awfully tough fight. The TABOR camp has spent years honing their rhetoric and talking points, and Eyman has been dutifully aping their instructions since filing. It’s going to take a lot of voter education to defeat this measure, and with the weakened state of our local media, and the generally timid demeanor of our political leaders, I’m not entirely confident that we’re properly prepared to defend against this latest assault on our quality of life.

Hey… apparently, I’m a genius…

“Everyone who owns GET plans, they’re starting to look like geniuses,” said Joe Hebert of TrueNorth Financial Services in Seattle.

We prepaid our daughter’s tuition when she was five years old, back in 2002, when the cost was only $42 a credit. After this week’s GET price increase, the cost is now $101 a credit. That’s a pretty damn good annualized return. But I’m no genius.

Washington’s in-state tuition costs were bizarrely low at the time we bought in, and there seemed nowhere to go but up. The GET program was only advertising (but not promising) a projected 6 percent average annual return at the time, but that seemed impossibly low considering rising costs and stagnating state tax collections. Besides, the “G” in GET stands for “guaranteed,” so it wasn’t much of a gamble to plunk down $16,800 in 2002 for four years of college tuition our daughter wouldn’t finish redeeming before 2019. I suppose it might have turned out to be a conservative investment, but it also bought us peace of mind.

But, as is my wont, I digress, for it’s not the virtues of GET I planned to blog about, but rather the first comment on the story in the thread on the Seattle Times, in which rawdibob asks:

Why has the cost of college tuition increased faster than inflation?

Yes, I understand that part of the government-run college tuition increases represents a decrease in the taxpayer subsidy but that is not all of the story.

No, the recent budget cuts aren’t all of the story, but this question gets to the heart of one of the basic misunderstandings many taxpayers have about the cost of providing government services… a misunderstanding I’d argue is intentionally perpetuated by many of those in the smaller government crowd.

Government critics often point toward population plus inflation as a formula for constraining government growth, and while that’s not the best metric (growth in demand for government services most closely tracks growth in personal income), it does appear somewhat reasonable, at least on its face. Problem is, there are multiple measures of inflation, and the familiar Consumer Price Index is perhaps the least applicable when it comes to measuring rising goverment costs.

Why? Because as a broad index of the economy as a whole, the CPI reflects productivity gains resulting from technological and policy efficiencies (such as trade) that simply aren’t available to state and local governments, for whom the bulk of the services provided rely on highly trained professionals.  Think about it.  You can automate a factory floor, resulting in fewer workers producing more and better product, but you can’t comparably automate a doctor’s office or a fire station or a police precinct.

Or, a classroom.

The only way to dramatically increase the productivity of a university professor is to either increase class size, or require the professor to work longer hours for less money, neither of which is a tenable alternative if your goal is to attract and retain quality students and faculty. And even if one were to head down that route, the productivity gains could not possibly be sustainable compared to those achieved in the broader economy, even compared to many industries that also rely on a highly skilled labor force. For example, Microsoft can exploit the global economy by outsourcing engineering to India and China, but the University of Washington simply can’t outsource its faculty.  (It can outsource its students perhaps, but not its faculty.)

Republicans point to year over year spending increases and argue that state government has grown too fast, but the fact is that the cost of providing most government services simply rises faster than consumer prices. Indeed, when adjusted for the Implicit Price Deflator for State and Local Governments (the IPD is widely accepted as the most accurate measure of inflation for various industries), Washington state taxes per capita were already at a 15-year low heading into the Great Recession that sent our budget off a cliff.

Just look at the widening gap between CPI and IPD. What that represents is a decline in government spending power.

And that, rawdibob, is one of the main reasons why the cost of college tuition has increased so much faster than inflation.

In reporting that Sen. Jeanne Kohl-Welles will hold a hearing on the high-earners income tax tomorrow in the Ways and Means Committee, the TNT’s Joe Turner adds…

I’m not sure what the purpose of holding a hearing will be…

Well Joe, um… maybe the purpose is to debate the merits of a high-earners income tax?

This, for me, is what has been most infuriating this session… the absolute refusal of most in the media and political establishment to even consider discussing the issue itself.  Here we are in the midst of our state’s worst economic and budgetary crisis since the Great Depression, and Kohl-Welles is being mocked for daring to discuss the highly regressive and inadequate tax structure that is at the heart of Washington’s long term budgetary problems.

Make the argument that it is a sound policy to tax our state’s poorest families at six times the rate we tax our wealthiest.  Explain why it is in the best interest of our citizens and our business community to stand by and watch our state government’s spending power gradually and steadily erode as we continue to rely on an ever shrinking portion of our economy to provide the bulk of state revenues.  Offer even a little bit of evidence to suggest that if we only ride out this recession, state revenues will ever return to pre-crisis levels, adjusted for population and inflation.

Go ahead… try to make an actual argument as to why the income tax is unfair, unworkable, and unrealistic, for chrisakes.  But no… you’d just rather mockingly dismiss it out of hand as an unserious proposal because voters rejected one iteration of it some thirty-five years ago.

My God.. there are two sides to the budget equation—expenditures and revenues—so why is it that the only responsible, reasonable and serious thing to do, is to debate the former while ignoring the latter?  Shame on all of you.

[youtube]http://www.youtube.com/watch?v=VKyqtSOYucs&feature=player_embedded[/youtube]

As I’ve written before, I’m rather agnostic about the specifics of HB 2261, the education reform bill that supposedly expands the definition of basic education, but includes no funding mechanism to actually pay for it.  In fact, at the same time legislators are patting themselves on the backs for bucking the teachers union to pass this bill, they’re also preparing to cut $2 billion from K-12 education.  And that’s an odd definition of reform.

I know there’s a lot of mumbling in Olympia about how this reform bill will serve as a necessary roadmap for setting funding priorities once the economy, and thus the budget, recovers, but I’m not so sure I buy the thesis that the budget will ever fully recover.  Rather, without some sort of structural revenue reform, I think we’ll more than likely look back on this crisis as marking a permanent ratcheting down of state spending power, and thus a permanent ratcheting down of state services and infrastructure investments. Even under a run of the mill economic recovery (and few economists expect even that) it’s hard to imagine state coffers recovering to pre-recession levels as either a percentage of personal income, or inflation-adjusted per capita revenue, let alone increasing to the level necessary to support the type of new spending promised.

So where will the extra money come from?

As the Washington Education Association angrily points out, the backers of this education reform bill can’t tell you, because to be honest, they don’t really have a plan to pay for these reforms.  But rather than just putting together angry YouTubes (however righteous), perhaps the WEA might want to accept their legislative defeat, and then fill the void by proposing a funding plan themselves.

I think you all know where I’m going with this.

As the Seattle Times’ Andrew Garber reports today, yet another poll shows a high-earners income tax, while far from a sure thing with voters, is anything but DOA:

A recent survey by Seattle pollster Stuart Elway found that 53 percent of voters questioned were “inclined to favor” an income tax on individuals making $250,000 or households earning $500,000.

The poll also found that 51 percent of voters questions favored small increase in the sales tax increase to help fund the Basic Health Plan.

Writing about the poll results, Elway said, “Although Washington voters are open to the discussion of tax increases to help close the $9 billion state government budget gap, they remain to be convinced. It will not be an easy sell, but most will not slam the door in your face if you bring up the subject.”

By my count that’s the third poll to show a high-earners income tax polling in the low to mid 50’s, and while one generally wants ballot measures to start off at least 10 points higher, it’s a damn sight better than anybody had expected going into this debate.  And to the “experts” who insist that’s not good enough, I say tell me… when do you ever expect conditions to get any better?

Remember, an income tax was approved at the polls in 1932 by a 70% margin, yet a similar constitutional amendment was handedly rejected by voters just two years later.  Sometimes, the time is just right.

So, yeah, that’s my advice to the WEA… the time is right.  If the Legislature won’t show you the money, then be proactive and show it to them:  a high-earners income tax.  It’ll never happen without your support… and without some sort of substantive revenue reform, these education reforms will never be fully funded.

There are two main arguments against seeking new revenue to help close the current budget gap.  The first—that an economic downturn is exactly the wrong time to raise taxes—comes down to an argument over economic philosophy, and it is certainly reasonable to debate the anti-stimulus impact of tax hikes versus the anti-stimulus impact of reduced government spending… the cost in human suffering aside.

But the second argument—that our current budget crisis is largely due to out-of-control spending, and thus should be solved by slashing the same—well, that ultimately comes down to facts… facts that upon close evaluation, simply don’t support the thesis.  In fact, as I’m about to show you, far from ballooning, Washington state government tax revenues have actually shrunk over the past 15 years, when adjusted for population growth and inflation.

The heart of the out-of-control spending argument comes from the simple fact that the state’s “near general fund” spending jumped from $25.6 billion during the 2003-2005 biennium to about $32.6 billion for the 2007-2009 biennium that ends in June… an undisputed 27.2 percent increase over four years.  (Or so says the conservative Washington Policy Center.)

That’s a big jump, and it doesn’t take a spreadsheet jockey to intuit that it far outpaces population growth or inflation or even overall growth in the state economy over same period.  During last year’s gubernatorial campaign, Dino Rossi repeatedly argued that such spending growth was unsustainable, and he was right.  That’s why nobody was arguing to sustain such growth rates.

In fact, the jump was an anomaly made possible by a spurt of real estate bubble fueled revenues, and largely exaggerated by the fact that the starting point, the 2003-2005 budget, embodied a substantial dip in both revenue and spending growth as the state struggled to recover from the previous recession.  Spending did jump 27.2% during the first Gregoire administration, but only relative to the low point that immediately preceded it.  This four-year snapshot may have been useful to Republicans for rhetorical purposes, but it doesn’t take into account population growth or inflation, and it hardly says anything about long term budget and revenue trends.

So, if the anti-taxers are going to argue that the current budget crisis is the result of out-of-control spending rather than a revenue shortfall, let’s take a look at long term tax revenue trends, and see what the data tells us.  And since the TABOR crowd absolutely insists that population plus inflation is the proper metric for limiting growth in government, let’s start by tracking state tax revenues over time, and adjusting as such.

The chart above tracks WA state government tax revenues per capita over the 15 year period between 1994 and 2008, indexed to year 2000 dollars.  The red line tracks per capita taxes, adjusted for the commonly used Consumer Price Index All Urban Consumers (CPI-U), while the blue line tracks per capita taxes adjusted for the Implicit Price Deflator for State & Local Government Consumption (IPD).  Tax revenue and population totals were drawn from US Census Bureau data.  And for those doubting my math, you can download my spreadsheet here.

As you can clearly see, even using the less applicable CPI-U index, per capita state taxes in Washington have remained relatively flat over the past fifteen years, ranging from a low of $1,978.42 in 2001 to a high of $2,265.47 in 2007, and currently hovering damn near its fifteen-year average.

But as I’ve previously explained, the CPI is the wrong measure for tracking the growth in cost of government, as the highly-educated, labor-intensive services governments tend to provide (doctors, nurses, teachers, etc.) do not benefit from the same sort of productivity gains that technological advances have bestowed on economic sectors such as manufacturing.  That’s why the IPD is widely accepted as the most accurate measure of inflation, even by the conservative Heritage Foundation, which insists that “the IPD measures inflation more accurately than the CPI.”

The US Bureau of Economic Analysis also breaks down the IPD into various economic sectors, and it is per capita state taxes adjusted by the IPD for State and Local Government Consumption that is tracked by the blue line… data which clearly shows even the 2005-2007 jump in revenues as nothing more than a spike in a trough, and our 2008 revenues having come in at a fifteen year low.

The trend is clear even adopting the anti-tax frame: adjusted for population growth and the most accurate measure of inflation for the types of products and services governments consume, state tax revenues have consistently trended down over the past fifteen years. And that’s before the dramatic drop in revenues resulting from the current economic crisis.

Quite simply, Washington state suffers from a long term structural budget deficit, that while masked by the good times and exacerbated by the bad, continues to drive down per capita revenues in real dollars over time.  Even the conservative Tax Foundation, Tim Eyman’s think tank of choice, shows WA’s state and local taxes plummeting from 10.4% to 8.9% of personal income over the past 15 years, ranking us dead even with Mississippi.

So where is the evidence of a state government out of control?  Apart from a four-year snapshot taken entirely out of economic, demographic and historical context, there is none.  Zero.  Zip. Nada.

Our economy will eventually recover, but unless we address our long term revenue deficit, our state government will emerge smaller than it was before the crisis, and its ability to provide services and invest in infrastructure will continue to shrink over the decades hence.

On Thursday The Big Picture had some excerpts from the January newsletter of GMO, a global investment firm. The comments were written by Jeremy Grantham, the chairman of GMO’s board, and are absolutely fascinating, if not easily quoted on a blog like this.

The excerpts at The Big Picture were run under the title Grantham assigned the first section of his newsletter, “Greed + Incompetence + A Belief in Market Efficiency = Disaster,” and they are worth a moment of your time. If you want to worry about the people Obama has picked to pilot the boat during this storm, check it out.

But the the part that really stunned me was Grantham’s discussion about the scale of the economic disaster, especially when it comes to write-downs and private debt. Keep reading for more. [Read more…]

I’ve had some complaints that it’s really not fair to chart the performance of the Dow Jones Industrial Average under George W. Bush compared to other presidents, as the DJIA isn’t all that broad a measure of market performance.  So here’s a chart of the S&P 500… which has done even worse under Bush than the Dow.

FYI, had you invested $100 in an S&P 500 index fund on inauguration day of 2001, it would now be worth less than $46 in inflation adjusted dollars.  So much for the CEO president.

An item from Clark County I missed last week while on vacation strikes me as emblematic of the problems facing Republicans up and down the ticket. They’re really scraping the bottom of the barrel in a suburban swing district that traditionally should be full of likely Republican candidates.

It seems the candidate the GOP found to take out Rep. Jim Dunn, R-Vancouver, who was disciplined by Republican leadership for inappropriate comments to a female staffer and subsequently lost in the primary this year, has some issues of his own.

Last Wednesday The Columbian reported that Republican Joseph James, who is on the general election ballot along with Democrat Tim Probst in the 17th LD, is accused by a local couple of improperly listing a payment made to James’ dog boarding business as a contribution to his political campaign. From The Columbian on Oct. 22:

Thomas and Beth Baker boarded their dog at Joseph James’ dog boarding business in Stevenson several times last year, and usually paid by check.

But the last time they used the service, the Camas couple put the $200 fee on a credit card. When their statement came, they were surprised to learn that the payment had gone to an organization called Complete Campaigns, which offers Web-based services to help campaigns track supporters, votes, fund-raising and volunteers.

James, a Republican who is running for an open House seat in the 17th District, paid the San Diego company $311 in credit card processing fees between Dec. 24, 2007, and Jan. 15, 2008, according to state campaign finance records.

On Jan. 2, James’ campaign reported a $200 contribution from Thomas Baker.

Baker said he never intended for his dog care payment to end up in James’ campaign chest.

James did not return calls to his campaign office and mobile phone seeking comment.

I’ve heard of a lot of lowly actions by Republicans, but taking a customer’s money and trying to make it appear as a campaign contribution without the customers’ knowledge is a fascinating twist. How would anyone want this guy voting on a state budget?

This isn’t the first time James has drawn attention to himself for questionable campaign activity. In February Aneurin at Politics is a Blood Sport ran down James’ claims about having an “MBA” from a place called “Almeda” University.

Who’s Almeda University? Almeda, a website with a post office box located in Boise, Idaho, offers online distance learning and confers degrees based on “life experience”. And there’s the slight issue of accreditation, in other words, there is none from any recognizable accreditation organization.

And in August of this year Chris Mulick took a look at some of James’ spurious claims on transportation and apparent gross over-inflation of fundraising totals.

By claiming a $3,000 monthly in-kind contribution for use of personal space as a campaign and a $700 in-kind contribution for use of a personal vehicle the James campaign haul has been bolstered by $41,000.

Mulick also posted some highly entertaining videos James put up on the YouTube, if you wish to click through.

Contrast James as a candidate with Democrat Tim Probst, a former Republican who once worked for the governor of Illinois and is well versed in economic policy. Which party is actually a big tent and which party is attracting talent and leadership? Maybe we once could (sorta kinda) afford to have buffoons like Jim Dunn or Joseph James in office, but with hard times on the horizon we need all the smart people we can get doing the public’s business.

Being a quality candidate or public official, it turns out, requires more than money and pre-fabricated dogma. In the 17th LD you can chalk up another EPIC FAIL for the GOP Party on that score.