This is Carlyle’s speech at the ‘power past coal’ rally along the Seattle waterfront. Special thanks to the Sierra Club for organizing.
Today I am releasing the annual survey and analysis of how state taxes flow into and out of state government each year.
The analysis of the original data, ably conducted at my request by the Office of Financial Management (OFM), provides open transparency into where tax dollars are collected and spent in Washington’s 39 counties for the 2011 calendar year. A previous analysis released with former Rep. Glenn Anderson (R-5th District) was based on 2008 data, and generated considerable attention.
I sincerely and genuinely offer no value judgement in releasing this data: My goal is not for counties to casually boast or feel shame about their tax status, but to open the door to a courageously honest public conversation about how state government collects and spends billions of public tax dollars. This data is relevant and material to a more accurate understanding of how taxes flow because it directly counters some widely held, outdated stereotypes and clichés. And I respectfully suggest the lack of acknowledgment of this data impacts tax policy in Olympia in counterproductive and disproportionately negative ways.
Of Washington’s 39 counties, only 9 contribute more to state coffers than they receive back in benefits. Even then, only 3 (San Juan, Garfield, and King) receive $0.65 or less for every dollar they pay to the state. The other 6 are closer to the edge, receiving $0.90 for each dollar paid. On the other end of the spectrum, 13 counties receive $1.50 or more for each dollar taxed, and 3 (Stevens, Ferry, and Yakima) receive more than $2 for every $1 paid in state taxes.
Overall, according to the U.S. Census Bureau, Washington ranks 36th in the nation in the overall obligation of state and local taxes, at 9.3% of personal income, the lowest levels in decades. Related national data from the conservative-leaning but respected Tax Foundation shows that Washington State is the 13th largest ‘net contributor’ of taxes to the federal government, receiving just $0.88 for each federal tax dollar paid by residents. This comes in spite of a large military presence in the state, Hanford as well as the University of Washington which receives among the largest federal research grant levels in the country.
The state level data is important because some legislators may have distorted or factually inaccurate views of their local tax obligation or burden relative to other taxpayers statewide that impacts their public policy positions regarding taxes.
It is relevant because the current model is politically unsustainable.
The raw, aggregate level of money flowing into and out of counties may help dispel such misconceptions. King County, for example under one model, has an annual state tax contribution to state government of $5.9 billion but just $3.9 billion is reinvested back into the county. The rest, about $2 billion, is distributed for services to communities across the state that have smaller tax bases.
We are one state with one future, but we are on the march toward being a low tax, low service, low quality of life state and unless we understand the importance of investing in everyone’s education and our state’s public infrastructure we will continue to slip in the quality of our schools, parks, community services, transportation and public safety.
There is an argument that we are being forced by anti-tax legislators into an era of ‘local option’ for taxes, and yet this short sighted approach actually hurts a bolder 21st Century strategy of building a strong statewide economy. The people of my own 36th Legislative District and the City of Seattle are net contributors of taxes in every single category of public spending, and yet our busses are full and our schools lack infrastructure. Does that make us better than others or merely fools? Absolutely no to both, but it is insulting and patronizing that legislators from other areas make it next to impossible for us to at least have the freedom to vote–through our local elected officials or even directly–on additional local option taxes that are important to our community.
Being a ‘net contributor’ county should merely gain us sufficient respect, courtesy or deference to local democracy as to be able to allow our own local governments to make independent decisions relative to the services our citizens need that state government cannot or does not provide. And, perhaps, it could engender a bit more gracious rhetoric from those who play into inaccurate and counterproductive negative stereotypes about rural communities subsidizing city life.
There are those who criticize my efforts to bring transparency into the flow of taxes and, to an extent I understand the discomfort. Yet the lack of dialogue in this area contributes to a framework by which legislators who call for reduced taxes overall are simultaneously demanding additional spending for their own areas.
It is counter productive and inequitable for a legislator from an Eastern Washington county that has among the most disproportionate benefit from King County taxes–by way of Olympia–to figuratively wield more effective authority over the quality of bus service in my legislative district than the King County executive elected by the 1.8 million people of the county to run Metro.
Of course at a broader systemic level, taxes and spending should have a link with authentic needs, ability to pay and an evidence-based drive to build up our overall quality of life. The politicization of taxes and spending has, in my view, been driven by those who expect disproportionate benefits while simultaneously demanding overall reduced spending.
I am not politicizing the flow of taxes and spending merely by making the data public and calling for a dialogue.
Those who demand incremental spending in Olympia that disproportionately benefits their own communities while simultaneously leading the charge against broader state government spending are failing the test of common sense.
No one likes taxes, and no one wants to feel that they are paying disproportionately more than others, but the blind retreat into anti-tax sentiment is forcing a policy direction toward a low tax, low service, low quality of life state. We should have this dialogue in the open so that we understand the profound structural implications of disinvesting in education and other important services statewide. We owe it the people of Washington not just to appeal to the lowest common denominator of politics, but to a higher purpose of our children’s children who will not see the quality of life that we treasure in Washington unless we rethink our direction.
It is philosophically inconsistent or, less generously, hypocritical for some key legislators from counties that are among the highest ‘net recipient’ counties in the state to specifically block efforts for major urban counties to add additional ‘local option’ funding for transit services to meet local needs while those same legislators’ constituents enjoy wildly disproportionate benefit from primarily King, Snohomish and Pierce County taxpayers.
We are better than this as a state and we need to engage in a more thoughtful approach to our state’s future to lift us all up.
I know that it is uncomfortable in our state’s gentle political discourse to raise difficult issues that highlight the irony of anti-tax legislators, but our current path is simply unsustainable in the long run.
If, for example, legislation was introduced and adopted to require tax dollars collected in a county to be reinvested in those same communities our state would implode politically and economically. The same idea at the national level would be seen as an assault on the American way of life. But isn’t that, in a figurative sense, rather what is happening today in reverse?
It’s easy for some to righteously demand no new taxes budgets when their constituents enjoy disproportionate benefits from the status quo of how taxes and spending actually flow.
It’s anti-tax, anti-government, anti-public services fantasy living in a pro-tax, pro-government, pro-spending reality.
We are so much more than what we’ve become.
We can do better.
Your partner in service,
In five years I have worked hard to maintain this blog with updated, relevant and meaningful policy discussions. In the past month I have failed to live up to my own expectations by failing to post frequently. The reason, as you might surmise, is my role as chair of the Finance Committee and the hard work of crafting a 2013-2015 biennial budget and revenues needed to fund it.
As a backbencher I had plenty of time to blog. As a chair of a major fiscal committee I find myself particularly slammed and adjusting to the reality of balancing day to day work during the session with my passionate desire to blog frequently. During weekends and late nights when home in Seattle I’ve also redoubled my efforts to be fully present in my kids’ lives instead of sitting at the computer.
Still, as the regular session concludes, I do promise a number of new and relevant posts outlining major inside and outside Olympia issues, ideas and challenges. And I promise to ‘tell the real story’ of what worked, what didn’t and why.
Thanks for your understanding and, once again, please accept my apologies.
Your partner in service,
PS: As a brief side note, I was quoted in The Economist magazine this week in an article about the coal export plans.
A dialogue about tax exemptions
Two thirds of American adults are overweight and, if current trends continue, by 2030 nearly half of American adults could be defined as obese, according to a special report in Economist Magazine (Dec. 15, 2012). The trends here in Washington are in no way immune from this crisis, and our state’s lack of attention and action to this ‘systemic’ issue is one of the great public policy failures of our time.
Nationally 20.6% of the cost of health care is directly related to obesity, according to the Atlanticñ.
While a vast majority of us have a visceral opposition to state (or federal government) nanny state oversight of our weight, it is time to acknowledge that the externalities associated with obesity are central drivers of the unrelenting, unmitigated march of increases in our state health care costs. The cost in health care for public employees, Medicaid recipients and other taxpayer supported services is corroding our financial integrity. As the gray tsunami hits, the cost to taxpayers is on a one-way march upward. Obesity is like a systemic cancer assaulting our nation’s health and taxpayer’s wallets.
As the chair of the Finance Committee, I have been working with colleagues to identify some of the economic efficiency issues associated with externalities. That is, of course, a fancy way to say economic impacts of policies. Externalities around tax policy (which tax exemptions work and which don’t and why), spending policy (can we together tackle the base of spending and not merely look at the edges of new programs) and the need for an intellectually rigorous approach to transparently targeting real cost drivers.
As we move forward in raising the issue of externalities in our budget and tax policies, many of us cannot help but also raise some of the largest and most financially oppressive externalities facing state taxpayers even though it’s overwhelming in scale. And even though no one wants to touch the issue with a ten foot pole. One of the externalities most immune to exposure is the impact of obesity on health care costs.
It is well known that health care costs for public employees, Medicaid and other users of publicly-funded health care systems are impacting our financial health. It is the viscously unrelenting driver of many of our state budget challenges. Obesity is a major culprit but one that has almost no meaningful workplan associated with it. And we know it is so much more than a financial issue in our state government, of course, it is a moral issues, a physical issue and a mental health issue.
But it is also uncomfortable to address from a public policy perspective because it requires us to challenge ourselves as individuals to make real and lasting changes in our lives. (Another example, if needed, is the fact that 46% percent of the entire health care dollar is spent in the last six months of life, according to the AMA.)
The Affordable Care Act is, at its core, insurance reform more than health reform. It is an important step forward and Washington is a national leader in implementing the plan. While we face major technical challenges to implementation by October 2013, a date I do not necessarily believe is logistically realistic due to the size and scale of the IT system integration challenges, we must nonetheless begin planning for the next step. But the Health Exchange is working hard to identify the real issues and openly address the operational concerns.
But perhaps the lack of differentiation across categories of health is the bigger issue, the real issue that remains silent. Perhaps we may one day soon be forced to examine, in a more expansive fashion, obesity as one of the central drivers of health.
Our state should do more than implement the Obama Administration program, we should lead the experiment in innovation. Despite our well regarded program ‘Apple Health’ to provide care for children, for example, we choose not to include actionable plans around obesity in children.
Increasing exercise is naturally tough to regulate, but increasing walkable, dense cities is part of a strategic approach to intelligent urban planning. Reducing sugar, salt and other ingredients in foods, albeit attempts at school lunches continue, is unrealistic at a broad level without community ownership of the work itself. Labeling requirements help to a degree but research suggests only modestly so.
New York Mayor Michael Bloomberg floated the idea of a prohibition on super sized soda pop. He was uncharacteristically unsuccessful. He is often mocked for the effort. I applaud it. I suggest it has been unsuccessful because it is too limited in scope. Go big or go home is probably the only way forward.
Denmark experimented for only a year with a sugar tax before acknowledging that citizens merely went on sugar-buying binges elsewhere.
Outside of taxes on inputs of unhealthy food, the Economist report finds that a ‘crudely designed penalty will do little to change behavior. What works best is frequent prompts, not once-a-year punishment. And strict penalties assume that obesity is due to a lack of willpower, when research suggests it has as much to do with biology and socio-economic conditions.”
We all know that we cannot send a top down policy from Olympia that will effectively and responsibly change behavior—without a clumsy, nanny state overdrive–when governments worldwide have attempted and failed at the same objective.
I know of few ideas that are as economically efficient and responsible as straight financial implications for personal behavior. We need, in my view, to ensure that people are faced with the implications of the cost of publicly-supported health care in their wallet. I do not seek to unfairly punish people for being overweight or low income, merely to ensure that taxpayers reduce the subsidy for a physical life style choice so that overweight citizens realize some of the true financial implications of the issue.
Each year in Olympia there is pressure from certain circles to increase the percentage of health care insurance premium costs that state employees pay. If that does occur this year or in future years, perhaps it’s time for experimentation with a tiered system of different rates that take into consideration the weight of the beneficiary.
To those on Medicaid, it is easy to argue that making health care more expensive is exactly the wrong direction. But surely there is a way to help people own the hard work of weight reduction through a redirection of resources that they pay?
Does this mean to punish those overweight disproportionately? No. It means to courageously surface the externality of cost that we face due to obesity’s ruthless impact on our health care costs.
I am at a loss for answers and find myself distressed at the deafening silence on obesity despite its role as a major cost driver. But I do know that we as a state and nation will continue to struggle to pay more than any other nation and realize a lower quality of health until we find a more aggressive willingness to sunlight the externalities of costs of obesity.
Your ideas and thoughts would be most welcome. This is a tough one.
Your partner in service,
In the interest of good relations between the legislative and executive branches of our state government, I’ve attempted to give the outgoing Gregoire Administration and the incoming Inslee Administration some breathing room before resuming my public discussion of many of the serious systemic issues raised by our state’s weak IT oversight and other important operational challenges. I have, as you can imagine, continued my battles internally and quietly with varying degrees of success but I’ve tried to be a bit less vocal as the new governor has settled in.
As chair of the House Finance Committee I spend my time on large scale issues of budget, taxes, financial strategy and fiscal legislation. Occasionally, however, I am forcefully reminded why my frustration level regarding IT spending, executive agency operations and other issues rarely wanes.
And sometimes the public needs visibility into the inner workings of the inside game.
This summer and fall I worked with foster youth advocates to design legislation for 2013 to better connect schools, Children’s Administration, Office of Superintendent of Public Instruction (OSPI) and outside service and advocacy organizations such as Treehouse, Mockingbird Society, College Success Foundation and others to help more foster youth graduate high school. I approached the Children’s Administration for help early on by sending a first working draft of the bill to senior agency officials, but they choose not to engage or respond substantively to my proactive outreach. As the session progressed, I waited for a response to House Bill 1566.
Recently a ‘fiscal note’–a document prepared by agencies and the Office of Financial Management–reported a need for $150,000 to upgrade the Children’s Administration’s computer system in order to implement the legislation I drafted tracking and supporting the educational outcomes of foster youth.
As you can imagine, I looked closer.
The agency effectively uploads the data from excel, meaning that they are asking for $150,000 to make adjustments to the state system consisting of uploads of three to five additional columns of data. How is it even possible for a modest amount of incremental data from an excel spreadsheet uploaded to the state’s computer system to cost government $150,000? The answer, of course, is that it doesn’t, but the agencies are used to the IT portion of fiscal notes being approved without much technical rigor so its a good bucket to throw random costs in.
The Legislature is not required to fund every request in a fiscal note but it makes it more difficult to secure political support when your proposed legislation carries the perception of a large price tag.
And here our troubles began.
Another section of the bill–requiring schools to proactively meet with foster youth in an effort to more aggressively avoid drop outs (our current high school graduation rate is 46% for foster youth, up from 32% in 2003 but still far below the 76% graduation rate of traditional students)–was a total and complete disaster.
OSPI and OFM apparently decided that improved educational support (there are none today so improved is a generous term) for foster youth services is so new, untested and radical that my little bill should pay the entire cost of the existing institutional infrastructure of support services in schools and within the agency, so they wrote a fiscal note for the state’s 6,434 foster youth in school that sent an unmistakable message.
Here’s the actual language from the fiscal note: “Assuming “proactively support” means meeting with a dependent student weekly to assure the student doesn’t fall behind, and asssuming each meeting takes one-hour; the cost per student per year for meetings with one certificated staff would be approximately $2,700 (36 meetings * $76/hr = $2,733). There were 6,434 dependent students enrolled in public K-12 schools in 2011-12.”
I’ll do the math for you: $17,584,122. All for the adults. Not a penny for the kids in foster care.
According to OSPI, $17.5 million in new costs to local school districts to attempt to motivate our educational system and Children’s Administration to focus on improving the 46% high school graduation rate of foster youth. But the story behind the story is that the Gregoire Children’s Administration leadership opposed my policy vision that they should have a formal role in ensuring their kids graduate from high school. Their job, they argued, is health and safety not education.
Still, Democrat or Republican, urban or rural, government critic or defender, it’s hard not to shake your head in resentment at an institutional infrastructure of government that wants to get paid $17.5 million incremental dollars to do their day job. There are about 450 foster youth who age out of the system each year, so the actual number of students that need hands-on wrap around services is substantially smaller than the entire base of students in out-of-home care statewide.
Eventually the agencies redrafted the fiscal note partially downward, but I barely had time to get the bill out of the Appropriations Committee before a critical deadline due to the confusion it caused and the legitimate angst of fellow legislators wondering what I had hidden in the bill.
No matter how powerful, respected or influential you are as a legislator or a governor, when you promote new policies that the system doesn’t support, it has a way of sending signals respectfully suggesting you get back in line. I wonder how long it’s going to take Governor Inslee to discover this little secret.
For foster youth, no good deed seems to go unpunished.
We are so much more than what we’ve become.
Your partner in service,
Since the 2013 Legislative Session began in Olympia and I assumed the role of chair of the Finance Committee, it’s been a bit overwhelming to meet with literally hundreds of representatives from business, labor, cities, counties, non profits and others seeking support for their respective positions on tax policy. My central goal, as I have shared with business lobbyists and citizen activists alike, is to radically improve the analytical rigor with which the Legislature considers tax exemptions, credits, preferential rates and basic tax structure changes.
In nearly every case I have literally asked the proponents to come back with a business plan–rather than a verbal pitch, memo or bill draft–to make the case for their request. Some of the meetings have gone well and some have been incredibly uncomfortable, as veterans of Olympia seem perplexed as to what a business case actually looks like. To date, my request for business plans has been met with blank stares by most but not all.
I suspect it would be helpful to outline in specific detail exactly what I mean. It is my goal that any tax preference, credit or preferential rate legislation that moves through the Finance Committee must now literally not just figuratively have five key elements to the policy: Transparency, intent, metrics, expiration date and accountability.
One of the reasons the High Tech R&D Tax Credit has received so much attention is that we have accurate data about which companies receive how much in reduced taxes from the credit. In 2012 I sponsored legislation to reform the tax credit given to high tech companies in order to direct most of the resources into higher education and I publicly released the list of beneficiaries. While it had been available before no one had widely distributed the list. You can read about my proposal in the Seattle Times here, here and on my blog here.
I believe if a company or organization wants the financial benefits of a tax policy they should–in a vast majority of cases– be willing to openly share the vital data so that it is easily accessible to the public for review, study and assessment. It seems obvious but folks might be surprised at the complaints about filling out the paperwork. Without reports and surveys the Department of Revenue, legislators and the public are unable to measure results. It’s a deal breaker.
The top criticism of the Joint Legislative and Audit Review Committee (JLARC)–the group we task with measuring efficacy of tax exemptions–of the Legislature’s approach to our 640 tax exemptions is that we fail to adequately articulate the specific goals and objectives of a policy. Thus, nearly a third of exemptions can’t be easily assessed for effectiveness by performance auditors because the Legislature merely created the policy without a clear goal in mind (other, it would seem, than a desire to pass the bill). Instead of “create jobs” I suggest something a bit more measurable. The intent language must be aggressively clear, direct, understandable and simple. A made-up example: “The purpose of this tax credit is to provide additional resources to small, early-stage technology companies to help off-set the upfront personnel requirements of investing in research and development for the first 1-4 years before a company is profitable.”
Here is where the rubber meets the road. Of the state’s 640 tax exemptions, credits and preferential rates the honest grade I would assign to the metrics and measurement of results is D- without grade inflation. It’s frustrating and, frankly, infuriating that we hold ourselves to such a low bar of quality assessments. There are sincere and genuine attempts but too often the lack of quality metrics is too difficult even to attempt–or the proponents push hard to avoid being held accountable. And so we don’t even try or too easily give up. We know that in four, five or 10 years, for example, when the tax exemption expires that JLARC will conduct a review. How do we want JLARC to measure the efficacy? What metrics would make a review successful? What data would help ensure a quality performance audit? These seem like simple and obvious questions but, to date, the legislative process has efficiently avoided committing to specific metrics of success or failure.
In 2011 I introduced sweeping legislation to require an expiration date for the 251 tax exemptions that currently do not have one. I did not propose to change the date of any exemptions that have one already in statute (such as Boeing), only to require that all exemptions (with a few exceptions for food and prescription drugs) must be reviewed and reauthorized by the Legislature every 10 years. I am convinced this is a compelling public policy proposal and I believe it has merit, and my goal was to begin a serious dialogue about the core issue. Without an expiration date, a tax exemption exists in perpetuity and is literally untouched in terms of assessing whether it provides any value to taxpayers. Even if it clearly does not work. The Seattle Times editorial board has been, perhaps surprisingly, a supporter of this proposal and it generated considerable attention. The reaction from the business community was, however, fierce and borderline politically vicious. I stand by the core idea as a responsible approach to fiscal policy, and welcome a dialogue about how to embrace the idea in a thoughtful fashion.
An easy word to say but difficult to translate into reality if the Legislature is uninterested in making it happen. Accountability of a tax exemption can take a wide range of forms. Often a business interest, city or non profit makes a pitch for legislation based upon the promise of positive indirect financial returns to the public. But I have come to learn that the ‘risk’ of the deal is always–exclusively–held by taxpayers and not the other side. ‘Accountability’ means finding creative ways to reduce the risk profile of the tax exemption for the taxpayer and sharing the burden of the opportunity. For example, a bill might include an accountability provision by which an entity (public or private) needs to ‘match’ the value of the tax exemption by placing resources in escrow and if the goals are not met, the cost to state taxpayers is reimbursed. Another example of accountability is to ‘share the upside’ of the deal rather than asking taxpayers to assume the financial risk of reducing state resources while private interests and other parties such as cities and counties capture an incremental upside of the investment of resources.
In my view these five elements are key to a successful business plan. I am not opposed to tax exemptions and have supported many of them that can prove they work without reservation.
No business person would allow major, multi million decisions to be made without a strong business plan. We should expect no less from the public sector.
We are a consumption-driven sales tax and B&O tax state. It’s understandable that many interests want to be carved out of paying the full freight of sales and B&O rates (and property tax once in a while as well). But just because there is a negative economic externality on an industry because of our tax structure doesn’t mean it makes much financial sense for some taxpayers to get relief above others. Eventually everyone will be carved out.
What it really means is that we need thoughtful, responsible, balanced tax reform to broaden instead of narrow the base and keep everyone inside the tent. We’re all in this together.
Your partner in service