Washington’s fiscal health ranks 30th in the country

Washington is the 30th most fiscally solvent state, according to this year’s ranking from the Mercatus Center of George Mason University. The top five states are Nebraska, South Dakota, Tennessee, Florida, and Oklahoma.

The report uses data from fiscal year 2016 in the ranking, but it includes a 10-year analysis of each state’s performance as well: The “ranking highlights the relative performance of the states in one year, but understanding financial health requires looking at the underlying objective performance of each state over time.” There is also a spreadsheet with ten years of data for each state so readers can dig in to the details.

The paper defines fiscal solvency as “whether a state is able to meet its short-term and long-term obligations without incurring excessive debt, engaging in budget gimmicks, or using other evasive tactics.” It summarizes the results for Washington:

On the basis of its solvency in five separate categories, Washington ranks 30th among the US states for fiscal health. Washington has between 1.33 and 2.48 times the cash needed to cover short-term obligations. Revenues exceed expenses by 4 percent, with an improving net position of $229 per capita. In the long run, a net asset ratio of 0.02 indicates that Washington does not have any assets remaining after debts have been paid. Long-term liabilities are higher than the national average, at 64 percent of total assets, or $8,169 per capita. Total unfunded pension liabilities that are guaranteed to be paid are $134.26 billion, or 34 percent of state personal income. OPEB are $13.75 billion, or 4 percent of state personal income.

Washington’s rank varies across those five separate categories:

  • 29th on cash solvency, which measures “whether a state has enough cash to cover its short-term bills.” The paper notes, “Although Washington has sufficient cash relative to minimum benchmarks, it still performs below the mean performance of the states.”
  • 19th on budget solvency, which measures “whether a state can cover its fiscal-year spending using current revenues.” (Washington is above the U.S. average in this category.)
  • 36th on long-run solvency, which measures “whether a state has a hedge against large long-term liabilities.” (Washington is below the U.S. average.) Washington consistently ranked poorly on this component over the ten-year period.
  • 30th on service-level solvency, which considers “whether states have enough ‘fiscal slack’ by measuring taxes, revenues, and expenses relative to state personal income.” (In other words, does a state have capacity to increase taxes or spending?) As the paper notes, “States with especially high levels of taxes, revenues, and expenses relative to state personal income are at greater financial risk should they experience a sudden downturn.” (Washington is below the U.S. average in this category.)
  • 19th on trust fund solvency, which measures “how much retirement-related debt a state has.” (Washington is above the U.S. average in this category.) Washington’s good ranking here illustrates how important it is to look at the underlying numbers and not just how we compare to other states. One component of the trust fund solvency rank is the state’s unfunded pension liability as a percent of personal income. The size of the unfunded liability depends crucially on the discount rate assumption. For example, according to the report, the funded ratio for Washington’s pensions is 84 percent under the state’s discount rate assumptions (8 percent in 2015–17). But when using a risk-free discount rate (which better reflects the true value of pension liabilities), Washington’s funded ratio is just 36 percent. Still, as our ranking here shows, that’s better than most other states.

The overall rankings this year are unweighted; in previous years, the rankings were weighted to emphasize the short term, which benefited “states with permanent trusts and a high level of cash.” On that weighted basis, Washington ranks 29th this year and 26th last year.

Many parts of Washington are significantly exposed to retaliatory tariffs

Opportunity Washington recently noted that although there is optimism about the economy, small businesses and economists are worried about trade policy. The U.S., Mexico, and Canada may have reached an agreement on a new trade deal, but several countries have imposed retaliatory tariffs on U.S. exports in response to U.S. tariffs on steel and aluminum imports.

A new Brookings Institution report shows how serious such retaliatory tariffs are for many parts of the country. According to the report, China, the European Union, Canada, and Mexico “have now implemented tariffs on about $121 billion worth of U.S. exports. While that number has grown rapidly over the past several months, it still only represents about 6.1 percent of the $2 trillion in total U.S. goods and services exports in 2017.” Brookings finds that regions specializing in agriculture and metals are most exposed to the tariffs.

Brookings provides data by state and for the 100 largest metro areas, smaller metro areas, micropolitan areas, and rural areas. In Washington, 20,609 direct and indirect export-supported jobs are under retaliation. Of Washington exports, 6.1 percent are under retaliation. (This is the 31st highest percentage among the states.) Meanwhile, of exports from rural areas in Washington, 17.4 percent are under retaliation.

The table below shows how different areas in Washington fare, along with their rankings by group. Of 281 smaller metro areas nationally, Wenatchee has the highest share of exports under retaliation (19.0 percent) and Yakima has the fourth highest (17.6 percent).

Of course, both Wenatchee and Yakima are important apple producers, and it is harvest time. The Yakima Herald-Republic considers the outlook for the crop this year, given the retaliatory tariffs the industry is facing in China and Mexico:

Amid such uncertainty, the industry is taking comfort that this year’s crop is expected to be smaller compared to past years. The 131 million 40-pound boxes estimated by the Washington State Tree Fruit Association is lower than last year’s crop of 134 million boxes, and well below the record 141 million-box crop from 2014.

A smaller crop means there’s fewer apples that need places to go.

“There’s not as much pressure right now,” [Washington Apple Commission president Todd] Fryhover said.

Still, the industry expects major hits to some key export markets.

The Washington Research Council, a member of the Opportunity Washington coalition, examines how public policy issues will affect business, government, and the community. Research is based on facts from reliable data sources and informed by economic analysis with an appreciation of the power of free markets. Council reports are accurate, relevant, and timely. Learn more at researchcouncil.org.

Are this year’s teacher salary agreements setting up another funding crisis?

Across our state, local school districts and teachers’ unions engaged in collective bargaining as the first day of school approached. Several districts experienced strikes, some still ongoing. Other districts reached settlements providing for double-digit salary increases

Last session, the Legislature provided another $1 billion in school funding, complying with the state Supreme Court’s order to fully fund basic education. The increased state funding, however, corresponded with a reduction in local levies. So, the sustainability of large pay raises this year may not be sustainable in the future. Money raised from local levies are not meant to be used to supplement state dollars for compensation.

With the uncertainty about whether districts can afford the deals they’ve made and the disruption caused by strikes, there have been suggestions that the negotiating process itself needs reform.  Teacher strikes, for example, are illegal, but the law is silent on consequences, making the prohibition on strikes toothless. Others say that with the state providing full funding, salary negotiations should be conducted by the state, rather than by local school districts.  

What do you think? Please take a few minutes to complete our brief survey. 

Do you agree with the Supreme Court’s “Janus” decision? Take our survey.

Last week, in a 5-4 decision, the U.S. Supreme Court ruled that public employees cannot be required to pay union fees to support collective bargaining. The ruling overturned a precedent that allowed unions to collect so-called “agency fees” from employees even if the employee declined membership in the union.

Unions argued the fees were necessary to avoid “free riders” who benefited from collective bargaining without paying for it. The court said compelling the fee violated employees’ First Amendment rights. Do you agree or disagree with the court’s decision? Take our one-question survey below.

How would a trade war affect Washington? Take our survey.

Washington is one of the nation’s most trade-driven states, so political and business leaders here watch trade policy closely. Many of the state’s agricultural products and manufactured goods are exported to China and other nations likely to be affected by increased tariffs. As well, retaliatory tariffs can lead to increases in prices paid by producers and consumers. 

Some are concerned that a trade war could jeopardize economic growth. Others believe that the nation’s trade deficit is a result of poor trade agreements that should be renegotiated. The tariff increases are, in this view, a step toward rebalancing trade policy to protect American jobs.

As we noted last week, experts see Washington as one of the states at most risk in a trade war. Do you agree? Do proposed changes in trade policy concern you? Let us know by taking our brief survey below.

Grade the 2018 Legislature: Take Our Survey

Lawmakers left Olympia March 8, on time and without raising new taxes, although both carbon and capital gains taxes were considered. Your evaluation of the session’s accomplishments and disappointments doubtless depends on your priorities and preferences. 

The Seattle Times recently issued its “mixed report card” on the session.  The editorial includes the Hirst water decision and capital budget among “the good.” And the paper dings lawmakers for its hasty budget rollout with minimal citizen input. If you want to know what you may have missed in the budget, the Washington Research Council provides a good budget overview.  

As many have noted, lawmakers moved a lot of legislation through the short, 60-day session.

We’re interested in your assessment of the session. So we’ve prepared a brief survey. Please take a look and let us know what you think. Although the questions touch on just a few topics, each of them leaves room for you to provide additional comments if we missed something important.

SURVEY: Should lawmakers adopt manufacturing tax relief this session?

Policies that contribute to expanded economic opportunity will help extend the run of good economic news in our state. Our 2017 foundation report updated our agenda with specific recommendations in our priority areas of ACHIEVE (education), CONNECT (transportation) and EMPLOY (economic vitality). 

To promote economic vitality, we recommended tax policies that encourage private sector investment. Last year, lawmakers advanced that ideal by passing a reduction in the business and occupation tax rate for manufacturers. Although passed with bipartisan support as part of the budget agreement reached at the end of the session, the tax relief was vetoed by the governor.

Several bills have been introduced this session to reinstate the tax relief lawmakers supported less than a year ago. The Association of Washington Business writes that the vetoed 

…tax relief would have helped roughly 10,000 small- and medium-sized manufacturers invest in their businesses and employees and create jobs.

What do you think? Should lawmakers adopt manufacturing tax relief this session? Let us know by taking our survey below:

Take Our 2018 Legislative Survey

Lawmakers returned to Olympia Monday for the 60-day 2018 legislative session. We’re interested in your priorities and expectations for the session. Please let us know by responding to this brief survey. Thank you for your participation!