Washington December employment report shows first monthly job loss since May; down 9,900 jobs. Hospitality hardest hit.

Washington lost 9,900 jobs in December, the first monthly decline since May 2020, according to the Employment Security Department’s December employment report. The table below shows the monthly gains and losses, along with the unemployment rate for the current and prior year.

The bleak December figures reflect the reimposition of business restrictions during the COVID-19 resurgence.

“The renewed efforts taken to contain the spread of COVID deeply impacted industries that provide high-contact services,” said Paul Turek, economist for the department. “Nowhere is that more apparent than in leisure and hospitality. Beyond that, employment in other industries is mostly holding up better.”

The year-over-year figures trace the uneven impact of the COVID recession.

Washington lost an estimated 189,300 jobs from December 2019 through December 2020, not seasonally adjusted. Private sector employment fell by 5.0 percent, down an estimated 147,100 jobs, while public sector employment fell by 7.1 percent with a net loss of 41,900 jobs.

From December 2019 through December 2020, eight major industry sectors contracted while five industry sectors expanded.

The three industry sectors with the largest employment losses year-over-year, not seasonally adjusted, were:

  • Leisure and hospitality down 97,900 jobs
  • Government down 41,900 jobs
  • Manufacturing down 26,700 jobs

Accelerated distribution of the vaccines will help in time, but the December numbers are a clear reminder of the ongoing toll the pandemic has imposed on the state economy.

House Democrats propose ambitious transportation plan, including 18 cent gas tax increase and carbon fee.

House Transportation Committee chair Jack Fey has unveiled  an ambitious transportation investment package. (The link takes you to the LEAP documents detailing the investments and revenues.) 

The Seattle Times reports key features of the plan, including an 18-cent-per-gallon gas tax increase phased in over two year.

Washington state drivers could wind up paying $1 per gallon for fuel taxes if lawmakers approve an 18-cent gas tax boost and carbon fees proposed Tuesday by state House Democrats.

The $27 billion, 16-year program would invest more in maintenance than previous statewide packages did. It would fund replacement of fish-blocking road culverts and the electrification of diesel ferries, a top priority for Gov. Jay Inslee.

Fey is quoted:

“There’s no good time,” said Rep. Jake Fey, D-Tacoma, who chairs the House Transportation Committee.

Fey said a dip in state income poses a risk of cutting road projects. “We knew going into this, that doing nothing was not an option,” he said.

The gas tax increase is not the only element of the package that would impact fuel costs.

A total 18-cent gas tax increase phased over two years, along with existing state and federal rates, would raise the total to 85.4 cents per gallon, the highest in the U.S. (Diesel would be taxed 3 cents a gallon more.)

A fee of $15 per ton of carbon dioxide emitted, if passed from companies to motorists, might add another 15 cents per gallon. Carbon fees would begin in 2023, escalate to $20 per ton in two years, then $25 two years after that.

There’s no question that transportation funding is a priority this year. Last week we noted a letter signed by more than 100 organizations urging increased infrastructure investments. They wrote,

Based on the most recent revenue forecast, the State’s Transportation budget has a projected shortfall of $758 million for the next three years. To address that issue, to support the full reopening of our economy as well as spur economic activity and support local jobs, we urge the Legislature to pass a comprehensive transportation funding package in 2021.

So far, the Republican lead on the committee, Rep. Andrew Barkis, is not on board with the proposal, the ST reports. Yet.

But Barkis also said late Tuesday his relationship with Fey is good, so he’ll look for areas to compromise.

The coalition letter to lawmakers said,

We understand that new revenue streams will likely be necessary in any new transportation package. We look forward to working through these options with you.

With the House proposal, the conversation has begun.

 

“”Path to 70% Credential Attainment: Recovery & Reimagining” report released today.

A new report from the Washington Roundtable and Partnership for Learning documents how the pandemic is exacerbating pre-existing inequities in education and points to strategies educators are pursuing to improve outcomes. “Path to 70% Credential Attainment: Recovery & Reimagining” is the latest in a series of reports the groups have published in recent years in furtherance of their goal of 70% post-secondary degree attainment. 

In announcing the report, the Roundtable writes,

The pandemic is exacerbating educational inequities as the impacts of learning loss grow among K-12 students, hitting students of color and students from low-income backgrounds particularly hard. Additionally, postsecondary institutions are under intense pressure from pandemic-related enrollment declines, loss of on-campus revenue, and the threat of state funding cuts.
 
The bright spot: a commitment from postsecondary institutions in Washington to reaching the goal that, by the high school class of 2030, 70% of Washington students will attain a credential that is increasingly essential for success in our state. We’re at 41% today.
Key findings from the report shine light on the challenge ahead:
  1. A persistent educational equity crisis and a COVID-19 health and economic crisis are magnifying educational disparities in Washington and threatening progress toward the goal of reaching 70% credential attainment for Washington students by the high school class of 2030.
  2. The COVID-19 pandemic, projected state revenue shortfalls, and loss of auxiliary and on- campus revenue are putting added pressure on postsecondary education resources.
  3. Washington’s postsecondary institutions are expanding their commitment to the 70% credential attainment goal and, for the first time, are making public, aligned institution- level commitments to increase enrollment and completion.
  4. Individual institution-level commitments and strategies to grow enrollment, increase credential attainment in high-demand fields, and better support students to credential completion are unprecedented and ambitious. These strategies can drive half the growth in postsecondary enrollment that is needed to reach the 70% credential attainment goal.
  5. Additional, system-level transformation across Washington’s postsecondary sector, as well as its K-12 system, is necessary to fully reach the 70% goal.
The following chart from the report documents the disparate outcomes by demographic group.
The authors write,

These outcomes contribute to limited career opportunities, affecting earning potential, the ability to purchase a home, generate wealth, or pass inheritance to the next generation. Compounding disparities widen the equity gap over the course of a lifetime and set the next generation up for persistent disadvantage.

The impacts of Washington’s equity crisis affect many communities of color as well as students from low-income backgrounds. These students are not equitably served by Washington’s education and workforce development systems and are thus underrepresented at each stage of the education experience.

Noting the budget stress experienced by postsecondary institutions, the report identifies priorities:

We worked closely in 2019 with the leaders of the state’s private not-for-profit and public four-year institutions, the State Board for Community and Technical colleges and two-year college presidents, and leaders from the
state’s education agencies to develop principles for investing and measuring impact of the state’s new Workforce Education Investment Account (WEIA). The same principles apply for making postsecondary investments during the recession and in recovery.

POSTSECONDARY INVESTMENTS SHOULD BE:

STUDENT & OUTCOME FOCUSED: Help achieve the goal that 70% of students in Washington’s high school class of 2030 complete a postsecondary credential by age 26.

COLLABORATIVE: Improve statewide systems, policies, and innovation that can be replicated across institutions.EQUITABLE: Provide access and support for systemically underserved students.
COST-EFFECTIVE: Focus on the most efficient and cost-effective approaches.
INDUSTRY ALIGNED: Help Washington employers fill the jobs of the future with qualified, home-grown talent.

It’s important to acknowledge the commitments made by the state’s postsecondary institutions, summarized in the infographic below and applauded in the report.

There much more detailed analysis in the 13-page report. We recommend it to you. The conclusion is optimistic:

As we look to the future, there is opportunity to reimagine how postsecondary education is delivered in Washington state. Such exploration can include comprehensive, inclusive planning to determine statewide postsecondary system needs; funding model redesign to produce credentials across institutions and programs; work to make data more broadly available and support informed decision-making; and better coordination among the various higher education and workforce development institutions and programs. In beginning these conversations, we all have a shared opportunity to not only recover from the current crisis, but to inspire more Washington students and support them through to earning credentials that will open doors to life-long opportunity.

Yes.

New Research Council policy brief says unemployment tax increase would be “a headwind for the state economy.”

As the COVID recession led to high and persistent unemployment rates that drained the state unemployment insurance trust fund, the prospect of a steep hike in UI taxes became a major employer concern. State government, business and labor representatives considered ways to mitigate the impending tax increases. Editorial writers called on the state to act to reduce the anticipated increase. And Gov. Inslee has proposed some UI tax relief.

The Washington Research Council has published a new policy brief examining the UI tax dynamics. Unemployment Insurance Taxes Will Be a Headwind for the State Economy makes clear why it’s critical that lawmakers this session ease the projected UI tax burden on employers.

Unemployment insurance (UI) tax rates are adjusted annually and under current law will be much higher this year due to the COVID-19 pandemic. According to the U.S. Department of Labor, for Washington state, regular benefits paid under the regular state UI program totaled $3.36 billion from April to Sep- tember 2020, a dramatic increase from the $429 million paid out in the corresponding months of 2019 (DOL, see Chart 1). The state UI trust fund began 2020 with a balance of $4.99 billion. It was forecasted to end 2020 with a balance of just $1.37 billion. The forecasted balance at the end of 2021 under current law is $566 million (ESD 2021).

Because of the automatic adjustment of UI payroll tax rates, the amount of UI tax paid by Washington businesses is expected to increase dramatically, from $1.12 billion in 2020, to $2.11 billion in 2021, and then to $2.99 billion in 2022. This rising UI tax burden will be a significant headwind to the recovery of the state economy.

The WRC report is short and clear, breaking down the components of the UI tax calculation. The bottom line impact under current law is shown dramatically in the graph below.

Chart 2 shows forecasted UI tax collections in calendar years 2020–2025 if no changes to the current law are made. The numbers come from ESD’s November trust fund forecast. Employers’ UI tax payments are projected to rise steeply over the next two years, from $1.12 billion in 2020 to $2.11 billion in 2021 and then to a peak of $2.99 billion in 2022. From that point, the amount of taxes paid gradually declines. The amount paid in 2025 is still projected to be twice that paid in 2020. For reference, businesses are expected to pay $4.79 billion in business and occupation taxes in state fiscal year (FY) 2021, $5.08 billion in FY 2022 and $5.38 billion in FY 2023.

The WRC also analyzes the Inslee proposal. We’ll quote liberally here, rather than attempt to paraphrase.

Experience tax. Benefits paid between March 22 and May 2, 2020 (the period of Gov. Inslee’s Stay Home, Stay Healthy order) would be excluded from the calculation of firms’ benefit ratios. Beginning next year, employer benefit ratios would be calculated by dividing total benefits charged to the employer’s account by the employer’s taxable wages over a 60-month period instead of the current 48-month period. (For taxes on wages paid in 2022, the benefit-ratio period would be July 1, 2016 to June 30, 2021.)

Social tax. The cap on costs to be recovered by the social tax would be reduced from 1.22% of taxable wages to 0.50% of taxable wages in 2021, 0.75% of taxable wages in 2022, 0.80% of taxable wage in 2023, 0.85% percent of taxable wages in 2024 and 0.90% of taxable wages in 2025.

Solvency tax. The solvency tax would be suspended for five years (2021–2025).

Minimum weekly benefit amount. Under current law, the minimum weekly benefit amount is 15% of the average weekly wage. As a result, Washington’s current minimum is the highest in the nation (ESD 2020b). Gov. Inslee proposes raising the minimum to 20% of the average weekly wage beginning on July 1, 2021. This would raise the projected minimum benefit in July from $201 to $270. Over time, higher benefit payouts would push some businesses into higher rate classes, increasing the amount of tax they pay.

The WRC also shows the tax impact of his proposal.

UI tax payments are forecasted to be lower in each year from 2021 to 2024 under the gover- nor’s proposal than they would be under current law. The tax savings in 2021 would be $790 million; over the four years the savings would total $2.50 billion. However, under the governor’s proposal, 2025 tax payments would be $537 million higher than under current law and $1.297 billion higher than the amount paid in 2020.

The forecasted December 31, 2025 ending balance for the UI trust fund is $2.834 billion under the gover- nor’s proposal, compared to $5.848 billion under current law. The reduction in trust fund balance id the sum of three parts: Under the governor’s proposal, tax revenues received would be $1.963 billion lower, benefits paid would be $804 million higher and interest earned on reserves would be $257 million lower than would be the case under current law.

ESD’s forecasting model does not presently extend beyond 2025. It is certain, however, that taxes in 2026 and later years would remain higher under the governor’s bill than under current law until the trust fund is replenished.

The Council concludes:

Under current law, businesses’ UI tax burden will increase dramatically over the next two years. This will be a headwind to the recovery of the state economy. Increasing rates on other existing business taxes or adding a new business tax would only compound the problem.

Under current projections, the balance in the UI trust fund at the end of 2025 will be $859 million more than the balance at the beginning of this year. It should be possible to provide some relief to businesses by restraining the near-term increase in UI rates.

Gov. Inslee’s proposal to increase the minimum weekly benefit is ill-timed. The state currently has the nation’s highest minimum weekly benefit. Right now the focus should be on restraining the UI tax bur- den and supporting economic recovery.

Right. Expect more on this as the session continues.

 

Weekly unemployment claims drop 8.4 percent in Washington.

After the recent spike in unemployment insurance claims, the state Employment Security Department reports a dip last week.

During the week of January 3-9, there were 27,147 initial regular unemployment claims (down 8.4 percent from the prior week) and 515,561 total claims for all unemployment benefit categories (down 7.5 percent from the prior week) filed by Washingtonians, according to the Employment Security Department (ESD).

  • Initial regular claims applications remain at elevated levels and are at 203 percent above last year’s weekly new claims applications.
  • Initial claims for regular unemployment, Pandemic Unemployment Assistance (PUA), Pandemic Emergency Unemployment Compensation (PEUC), and continued/ongoing claims for regular benefits all decreased over the week.
  • Reductions in seasonal layoffs in construction and agriculture drove a decrease in new regular jobless claims last week. Regular initial claims in the construction sector decreased by 1,742 over the week to 3,199 total regular initial claims, while initial claims in the Agriculture, forestry, fishing and hunting sector decreased by 422 over the week to 739 initial claims.

Here are the comparative data for recent weeks.

Still extraordinarily high.

Coalition of more than 100 business, government, labor and environmental groups urge Legislature to fund transportation.

Lawmakers have received a letter signed by more than 100 business, labor and government groups urging action this session to fund transportation. The letter states,

Based on the most recent revenue forecast, the State’s Transportation budget has a projected shortfall of $758 million for the next three years. To address that issue, to support the full reopening of our economy as well as spur economic activity and support local jobs, we urge the Legislature to pass a comprehensive transportation funding package in 2021.

They identify priority issues:

We look forward to being part of the conversation and working toward a broad-based solution that includes:

• Prioritization of maintenance and preservation projects…

• Critical projects. There is an ongoing need for important projects such as replacements for the current I-5 bridge over the Columbia River, the Highway 2 trestle, the West SeattleBridge and other projects necessary to meet transportation policy goals.

• Culverts. The need to fund removal of fish passage barriers is not an option, it is a legal obligation mandated by a federal court order of approximately $3.4 billion between 2021 and 2030.

• Invest in a strong interconnected multimodal transportation system…

• Finish what we’ve started. In 2015, the Legislature adopted Connecting Washington – a $16 billion, 16-year transportation investment plan ,multimodal investments and projects in key economic corridors. Many of those projects are already underway or set to begin soon. We should prioritize keeping those projects on track and protecting the jobs they support.

• Include new revenue streams. We understand that new revenue streams will likely be necessary in any new transportation package. We look forward to working through these options with you.

Read the short letter, which includes the list of groups calling for action. Among them (and, yes, it’s tough to narrow it down):  Association of Washington Business, Alaska Airlines, Amazon, two dozen local governments, the Washington State Labor Council, Washington Roundtable, PEMCO Insurance, Microsoft, many local chambers of commerce, Transportation Choices Coalition and the Washington Environmental Coalition.

These groups have a long, successful record of working together to promote responsible transportation investments, as they point out in the closing paragraphs of the letter.

Our coalition – business leaders, labor unions, local governments and environmental and transit advocates – has worked together for more than 15 years for investments in our transportation system. We know that a healthy transportation system supports economic activity, jobs and quality of life for all Washingtonians.

We urge action in 2021 to support our economic recovery as well as local jobs.

We wish them success again this year.

 

Sharp increase nationally last week in initial unemployment claims filings.

Unemployment claims jumped sharply last week, reports the U.S. Department of Labor.

In the week ending January 9, the advance figure for seasonally adjusted initial claims was 965,000, an increase of 181,000 from the previous week’s revised level. The previous week’s level was revised down by 3,000 from 787,000 to 784,000. The 4-week moving average was 834,250, an increase of 18,250 from the previous week’s revised average. The previous week’s average was revised down by 2,750 from 818,750 to 816,000.

The advance seasonally adjusted insured unemployment rate was 3.7 percent for the week ending January 2, an increase of 0.2 percentage point from the previous week’s unrevised rate.

The Associated Press reports,

The number of people seeking unemployment aid soared last week to 965,000, the most since late August and a sign that the resurgent virus has likely escalated layoffs.

The increase ties directly to the recent surge in COVID cases and efforts to contain it.

The high pace of layoffs coincides with an economy that has faltered as consumers have avoided traveling, shopping and eating out in the face of soaring viral caseloads. More than 4,300 deaths were reported Tuesday, another record high. Shutdowns of restaurants, bars and other venues where people gather in California, New York and other states have likely forced up layoffs.

The pandemic continues to control the pace of recovery. 

Economists say that once coronavirus vaccines are more widely distributed, a broader recovery should take hold in the second half of the year…

Yet many analysts also worry that with millions of Americans still unemployed and as many as one in six small companies going out of business, people who have been hurt most by the downturn won’t likely benefit from a recovery anytime soon.

“While prospects for the economy later in 2021 are upbeat, the labor market recovery has taken a step backward,” said Nancy Vanden Houten, an economist at Oxford Economics, “and we expect claims to remain elevated, with the risk that they rise from last week’s levels.”

As has been the experience for most the past year, the impact is uneven, falling heavily on the hospitality and arts sectors.

 

Editorial: “Less spending, not more taxes.” Also, another look at the unpopular capital gains tax.

The Walla Walla Union-Bulletin offers lawmakers prudent counsel as the COVID-recession continues to plague the state economy: Less spending, not more taxes, is recipe for state budget.

The midst of a pandemic, which has already slowed the state’s economy, is not the right time to add to the tax bill of citizens.

But it is the right time to curb spending to ensure a balanced budget if the economy dips further. Washington’s economy has slowed because of the COVID-19 shutdown that started in March and continues today.

Many are suffering financially.

The editorial notes the significant growth in spending proposed in the governor’s budget (see our blog post here), which includes a 9% capital gains tax. The editorial board calls the tax what it is:

Inslee and Democratic leaders who control the House and Senate are itching for new taxes, including a capital-gains tax. While we believe it’s the wrong time for any tax hike or new tax, a capital-gains tax is particularly onerous as it is an income tax, which is not allowed under the state constitution.

The Washington Research Council also reviews and comments on the proposed capital gains tax.

Indeed, a capital gains tax would make Washington’s tax structure much more volatile, as we showed in a 2019 policy brief. To manage that volatility, the state would need to increase savings during boom times in order to better smooth out revenues through downturns…

As we wrote in 2019, if the bill is passed, it will certainly be challenged as an unconstitutional income tax. Thus, it should not be relied on to balance the budget.

As we’ve noted, for some, the legal challenge is a feature not a bug; they would like the state Supreme Court to use the challenge to the capital gains tax as a vehicle for overturning the long-standing ruling that a progressive income tax is unconstitutional. The WRC points out that the public continues to oppose capital gains taxes.

On top of that, a recent Crosscut/Elway poll found that just 41% of voters support a capital gains tax.

The U-B concludes:

Now is the time for a state budget that calls for prudent spending and no new taxes.

Public opinion appears to concur.