Author: Opportunity Washington

State Attorney General Bob Ferguson wants the state Supreme Court to take up the legal challenge to the state capital gains tax sooner rather than later, Geek Wire reports.

Seeking to overturn a lower court ruling blocking Washington state’s new capital gains tax, the attorney general’s office on Friday asked the state Supreme Court to take up the case on direct appeal.

Attorney General Bob Ferguson’s decision to attempt to bypass the state appellate court is, in essence, a legal acknowledgement that the fight over what constitutes an income tax is very likely to end up in Washington’s top court anyway. The state Supreme Court can decline the direct appeal but some legal experts said it is unlikely to.

We wrote about the superior court decision here.

Geek Wire notes that not everyone agrees that the Supreme Court will shortcut the process.

Eric R. Stahlfeld, an attorney with the Freedom Foundation who represents one of the groups opposing the tax, said the Supreme Court recently declined to hear a similar case out of Seattle. When the city tried to get the state’s top court to hear the successful challenge to its own income tax in 2017, the court declined.

“There is no guarantee at all the state Supreme Court will take this case immediately,” Stahlfeld said.

Geek Wire reporter Mike Lewis walks through the issues involved. He also writes that the court decision on this case might not be the last word.

Even so, the battle might not end with the state Supreme Court, should it decide to grant the direct appeal. Currently, there are a handful of ballot measures opposing a capital gains tax filed with the Secretary of State’s office.

None have yet secured enough signatures for the ballot. But the one likely to get the most attention has not yet been assigned a number: The Repeal the Capital Gains Tax initiative.

See our post on the Repeal the Capital Tax Tax initiative here. 

Gov. Inslee celebrated passage of the $17 billion, 16-year transportation package in bill signings Friday. On his Medium page, the governor links the package to his climate change priorities. 

Legislators this session approved a 16-year “Move Ahead Washington” transportation package unlike any other in the state’s history. It lays the foundation for a massive shift from simply building more lanes to moving people via cleaner, more efficient transportation options.

“Transportation is our state’s largest source of greenhouse gas emissions. There is no way to talk about climate change without talking about transportation,” Inslee said during the Friday morning signing event for the package. “This package will move us away from the transportation system our grand-parents imagined and towards the transportation system our grand-children dream of.”

A key to the new package? The state’s new cap-and-invest program, created after passage of Inslee’s Climate Commitment Act last year. Inslee first introduced such a policy to the Legislature in 2014.

Much more at the link. The Associated Press reported on the signing ceremonies.

A nearly $17 billion, 16-year transportation revenue package that will pay for a variety of projects across the state, including building four new hybrid electric ferries, was signed Friday by Washington Gov. Jay Inslee.

Inslee split his signing ceremonies between two cities, starting the morning at the Mukilteo Ferry Terminal to sign the revenue portion of the package. Later in the afternoon, he [headed] to Tacoma to sign the bill that covers the projects paid for by the package.

The AP points out the funding  mix and key investments.

The plan gets $5.4 billion of its funding from a carbon pricing program signed into law last year that requires the state’s largest emitters, like refineries, to purchase credits for allowed emissions if they exceed a cap set by regulators. The rest comes from several other sources, including federal infrastructure money, funding from the state budget, and higher fees on enhanced licenses and license plates.

In addition to the new ferries, it electrifies two existing ferries and provides funding for more walking and biking corridors, highway maintenance and fulfilling the state’s court-ordered obligation to replace fish passage culverts. Funding is also provided to ensure that those age 18 and younger can ride for free on public transportation, including the state’s ferries and Amtrak.

It also pays for the state’s share of the cost — $1 billion — to replace the Interstate 5 bridge over the Columbia River that connects Washington and Oregon.

Additional coverage in The Olympian and The Spokesman-Review.

Just 187,000 UI claims were filed across the nation last week, reports the U.S. Department of Labor.

In the week ending March 19, the advance figure for seasonally adjusted initial claims was 187,000, a decrease of 28,000 from the previous week’s revised level. This is the lowest level for initial claims since September 6, 1969 when it was 182,000. The previous week’s level was revised up by 1,000 from 214,000 to 215,000. The 4-week moving average was 211,750, a decrease of 11,500 from the previous week’s revised average. The previous week’s average was revised up by 250 from 223,000 to 223,250.

The advance seasonally adjusted insured unemployment rate was 1.0 percent for the week ending March 12, unchanged from the previous week’s unrevised rate.

There’s been much written during the pandemic about domestic migration. About people leaving downtown offices to work from home, even when home is in another town or state. About crime, housing affordability, and unreliable transit systems making urban living less palatable, particularly when entertain and hospitality options shut down. And so on.

Pew Stateline leads its story on domestic movement with a Seattle perspective. 

The annual Halloween party last year was a revelation for locals in Orcas Island, Washington, a scenic rural spot 100 miles north of Seattle.

“For the first time in the 10 years we’ve lived here, we didn’t recognize about two-thirds of the families,” said Edee Kulper, a photographer who blogs about life on the island. “It was startling. There’s been such a quiet influx. One of the local schools has had to build an additional classroom to accommodate new families.”

…During the first year of the pandemic, more people moved out of Seattle than moved in, peaking at a 3,400 net loss in August 2020, Rayer found. Orcas Island gained 100 new residents over the course of the year, according to Stateline’s analysis.

Those 100 new residents weren’t necessarily Seattle ex-pats, but it’s likely a few were.

Pew reports,

Rural and suburban areas within big metro areas were especially likely to attract new movers, including individuals, families and businesses.

And,

People kept moving to big metro areas during the pandemic but tended to favor more residential areas of the cities and big suburbs, said Stephan Whitaker, a policy economist at the Federal Reserve Bank of Cleveland who has studied pandemic moves using consumer surveys.

“It’s a very strong phenomenon right now, staying within the metro area but moving to a suburban neighborhood rather than central, dense neighborhoods,” Whitaker said.

The pandemic may have sped up a change already in the making, he added, as millennials reach middle age and look for more space to raise families. He also noted that commuting has become less of an issue as more employers allow remote work.

Today’s Census report confirms the change in urban population, with a more expansive analysis.

“The patterns we’ve observed in domestic migration shifted in 2021,” said Dr. Christine Hartley, assistant division chief for estimates and projections in the Census Bureau’s Population Division. “Even though over time we’ve seen a higher number of counties with natural decrease and net international migration continuing to decline, in the past year, the contribution of domestic migration counteracted these trends so there were actually more counties growing than losing population.”  

In many cases, there was a shift from larger, more populous counties to medium and smaller ones. These patterns contributed to population increases in 1,822 counties (58.0%), while 1,313 (41.8%) lost residents, and eight (0.3%) saw no change in population.

Washington Research Council economist Kriss Sjoblom notes, According to the Census, King County lost population from 2020 to 2021.

The Associated Press writes,

Demographer William Frey said he believes the growth of micro areas and decreases in the biggest metros will be temporary, taking place at the height of people moving during the pandemic when work-from-home arrangements freed up workers from having to go to their offices.

We’ll see.

In the Washington Observer Paul Queary writes that “the real capital gains tax repeal initiative appears.” That’s probably right. As his headline suggests, it’s neither the first nor only initiative filed this year that takes on the controversial and currently unconstitutional state capital gains tax. A look at the Secretary of State’s initiatives page reveals a bunch of them, not a few of them appear to be variations on a theme. 

Queary believes that the “Repeal the Capital Gains Income Tax” initiative (here’s the link; a number has not been assigned). may be the measure that qualifies for the ballot (hence the “real” initiative). It will take a lot of money just to get there, and much more to fund a campaign.

Just getting on the ballot could cost as much as $3 million7 because the pandemic and a robust initiative year in California are driving up the cost of signature gathering. Qualifying for November’s election will require 324,516 signatures from registered voters by July 8. The committee had raised less than $50,000 as of the end of February and was $100K in the hole to the aforementioned hired guns. (This presumably temporary lack of cash prompted us to rashly speculate that the campaign wouldn’t happen.) Somebody’s going to have to start writing big checks soon; those folks like to get paid.

The campaign itself could wind up costing $20 million or more. While thousands of people have millions of reasons to want this tax gone, very few would pay enough taxes to realize a positive return on investment on a five- or six-figure campaign contribution. The next round of filings to the Public Disclosure Commission, due April 11, should make for interesting reading.

If you follow the link to the initiative, after a preamble the measure simply repeals any mention of the tax. Queary writes,

First of all, it’s just a straight-up repeal, meaning that it would scrub Washington law of all mention of Senate Bill 5096 from last year, eliminating the 7 percent tax on most capital gains over $250,000, which is expected to bring in about $500 million per year when it’s fully implemented.

March 1, a superior court judge ruled that the tax is an unconstitutional income tax. No word yet on when the state Supreme Court will take up the case.

The jobs recovery continues.

The Daily Yonder (that’s their map above) reports,

Both rural and urban America now have just about as many jobs as they did in January 2020, the month we first started hearing about Covid-19.

In January of this year, rural counties had about 99% of the jobs they had in January 2020. These places still need to add about a quarter of a million jobs to get back to pre-Covid levels, but that is a fraction of the 20 million jobs in rural America.

The cities are still 1.2 million jobs shy of January 2020 employment, but that is a decline of less than a percentage point from pre-Covid levels.

Click through to the story and the interactive map shows county-by-county data. Our reading of the map shows that among rural counties in Washington only Ferry County now has fewer jobs than in January 2020. Counties in metro Puget Sound region and Whatcom County, paralleling the national experience of cities, are still below pre-pandemic levels.

Writing for the Daily Yonder, Bill Bishop reports the nation is close, but not fully recovered when compared with January 2020. But…

If we shorten the time period to one year — comparing January 2021 to January 2022 – then every geographic category shows gains in employment. Most of those jobs, however, went to the urban areas of a million or more people. These mega-cities collected 71% of the jobs created in the last year.

That makes sense to us. The biggest pre-pandemic winners were mega-cities, many of which were sharply impacted by lockdown and other pandemic-related policies and concerns. So, as things eased up, we’d expect them to see strong initial gains.

Progress.

One sign that labor market is improving is the steady decline in jobless claims. The U.S. Department of Labor reports, 

In the week ending Ma rch 12, the a dva nce figure for sea sonally a djusted initial claims wa s 214,000, a decrea se of 15,000 from the previous week’s revised level. The previous week’s level was revised up by 2,000 from 227,000 to 229,000. The 4-week moving a vera ge wa s 223,000, a decrea se of 8,750 from the previous week’s revised a vera ge. The previous week’s average was revised up by 500 from 231,250 to 231,750.

The advance seasonally adjusted insured unemployment rate was 1.0 percent for the week ending March 5, a decrease of 0.1 percentage point from the previous week’s unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending March 5 was 1,419,000, a decrease of 71,000 from the previous week’s revised level. This is the lowest level for insured unemployment since February 21, 1970 when it was 1,412,000.

As the Washington Research Council has repeatedly pointed out – while urging them not to do it – lawmakers tucked a large share of the state’s budget surplus into a shadow account,  outside the constitutionally-protected Budget Stabilization Account. Just before the Legislature adopted the budget recommended by the conference committee, the WRC wrote, 

Last year, the Legislature created the Washington rescue plan transition account (WRPTA) and transferred $1 billion to it. It’s essentially a shadow reserve account that is not subject to the BSA’s constitutional restrictions. By statute (RCW 43.79.555), the money in the account can be used to respond to the impacts of the pandemic “including those related to education, human services, health care, and the economy” and to continue activities that had been funded with federal COVID relief money.

As I wrote last week, the state should transfer this money back to the BSA, where it would be better protected. But the Senate-passed budget would transfer another $2 billion to the WRPTA.

To the treasurer’s point about increasing reserves, the charts below show reserves as a share of general state revenues by year. In chart 1, reserves include the BSA and the unrestricted NGFO ending balance. In chart 2, I’ve added the WRPTA balance. Without the WRPTA money, reserves under both the Senate- and House-passed budgets are clearly below the treasurer’s recommendation. If you include the WRPTA balance, the Senate’s proposal would meet the recommendation.

However, it is not clear whether the ratings agencies will consider the WRPTA to be part of the state’s reserves. They don’t mention it in their discussions of Washington’s reserves in the January credit rating updates. For example, in discussing the BSA, S&P writes, “We view the state’s commitment to rebuilding the reserve account as a positive credit factor.” And, “We could also lower the rating if Washington fails to replenish its budget stabilization account in a timely manner, or if we feel the state lacks a realistic plan to rebuild its reserve profile.”

The Center Square reports that the state Treasurer seems reconciled to the Legislature’s action.

The final Washington state budget leaves less than half the amount in the Budget Stabilization Account (BSA) recommended by state Treasurer Mike Pellicciotti – at least on paper.

Nonetheless,

The Treasurer’s Office defended the budget.

“Our office worked closely with legislative leaders in the last weeks of session to communicate the need for the final budget to reflect a return to pre-pandemic reserve levels,” Adam Johnson, communications and public relations director for the Office of State Treasurer, said in an email to The Center Square.

The budget meets the 10% threshold, Johnson indicated.

“When evaluating the state’s reserve, it’s important to consider the general fund’s ending balance, the budget stabilization account (BSA), as well as the relatively new Washington Rescue Plan Transition Account (WARPTA),” he explained. “After considering the funds set aside in the WARPTA account, the BSA, and the ending fund balance, the final budget did meet this 10% level. Our office now believes the state is meeting the expectations of the credit rating analysts.”

Soon enough we’ll know whether the ratings agencies agree. 

Reserves, of course, become more important during times of economic volatility and uncertainty. And the WRC writes that one major ratings firm has sounded an alarm. 

From Bloomberg:

An extended conflict between Russia and Ukraine would hit the U.S. economy broadly, with all 50 states affected by the fallout, according to an analysis by Moody’s Analytics.

…

Washington and South Carolina, the two states that export the most proportionally to Russia and Ukraine, would be hurt. Shipments affected likely would include transportation equipment from Washington and auto parts from South Carolina

The Organization for Economic Cooperation and Development has also warned of a global economic toll.