Business, labor and environmental leaders: “Initiative 976 will slow our traffic and the economy.”

The case against Initiative 976 is made effectively in a Seattle Times op-ed by Larry Brown, president of the Washington State Labor Council, AFL-CIO; Steve Mullin president of the Washington Roundtable; and Alex Hudson, executive director of Transportation Choices Coalition. The three are leaders among the coalition of labor, environmental, civic, and business organizations working to defeat the initiative.

They write,

The public has been clear and consistent: We need better roads and more transportation options. As a result, investments at the local and state level are being used to prioritize road improvements, increase safety for bridges and overpasses and expand mass transit services where they matter most.

Initiative 976 threatens to undo all of that, and will slow our traffic and the economy.

This isn’t just about commute times, it’s also about jobs. Huge amounts of raw materials, agricultural goods and manufactured products move via roads and railways. That’s why our state’s business, labor and environmental leaders have all come together to oppose I-976. We agree that I-976 threatens our economy and our environment. It is far too costly.

We’ve written previously about the initiative, citing the reasons I-976 is opposed by the Association of Washington Business, the Seattle Times editorial board, and the Walla Walla Union-Bulletin editorial board

Brown, Mullin and Hudson emphasize the wide-spread economic, safety and mobility damage passage of the initiative would wreak.

I-976 cuts $4 billion in state investments in roads, bridges, overpasses, ferries and transit service over the next 10 years. That’s not all. It would also cut $15 million per year from the Washington State Patrol, and threatens services like bus passes for low-income families, dial-a-ride, disaster relief transit, and tribal transit operations. Senior citizens, youth, veterans and people with disabilities depend on these services for basic mobility.

I-976 would also cut projects that have already been approved by voters, including Sound Transit. Cutting Sound Transit funds means the agency will have to borrow even more money to deliver on projects, and it will have to pay higher interest rates. Just like a pay cut makes it harder and more expensive to get a mortgage, the $7 billion cut to transit revenue leads to $13 billion in extra borrowing costs between 2021-2041, for a total $20-billion impact.

Read the whole thing. For more information, review the fiscal impact assessment produced by the state budget office, the material at the No on 976 website, and watch these videos.

Tax Policy Center asks, “Are states betting on sin?” Well, yes, and Washington bets heavily.

A new report from the Urban-Brookings Tax Policy Center,  examines the volatility of sin tax revenues. It’s a timely reminder. The TPC abstract tells the tale.

“Sin taxes” are often viewed as budget saviors, though they play a rather small role in state budgets. Although states raise revenue from sin taxes, policymakers should be mindful of these taxes’ limitations. Absent policy changes (such as increased tax rates), long-term growth for sin tax revenue has often been weak and limited. Moreover, greater dependence on sin tax revenues can lead to odd incentives: part of the reason for taxing some of these activities is to discourage consumption and use rather than to maximize revenue.

This report reviews the long-term revenue trends from the three most common sin taxes (alcohol, tobacco, and gambling) and explores how changes in economic activity may affect future revenues. The report also reviews the current status of emerging sin taxes, examining taxes on marijuana and providing overview for taxes on e-cigarettes and sugar- sweetened beverages.

On that last point, the Seattle Times recently reported this summer that Seattle’s sugar tax is the city’s fastest growing revenue source

The authors point out that the “sin tax” label is elastic:

When people talk about sin taxes, they have historically meant taxes on alcohol, tobacco, and gambling. However, the spectrum of sin taxes has expanded in the past decade, possibly to the point that the term may no longer be useful. Depending on the state and locality, taxes are also being levied on products such as marijuana, e-cigarettes, sugar- sweetened beverages, and opioids. Although some of these newer sin taxes fit the traditional model (e.g., states and localities that tax e-cigarettes clearly want to reduce the use of e-cigarettes as a long-term substitute for cigarettes and reduce the temptation for children to start using), legalizations of other “sinful” goods and activities are designed to increase legalized activity and tax revenue through continued or expanded legal usage. For example, states that legalize and tax marijuana want consumers to consume the products in the legal market and thus generate tax revenue. And some might argue that gambling taxes should be considered an entertainment tax and not a sin tax.

As Washington sinners are surely aware, our state taxes sin heavily, despite our state ranking just 39th in reliance on sin tax revenues as a share of “own source general revenues,” according to the report. That probably says something about the size of the state budget, the effectiveness of high tax rates in discouraging consumption, and the lifestyle choices of Washingtonians. Because the rates are high.

Washington ranks first for distilled spirits taxes.

Distilled spirits per-gallon tax rates among the license states range from $1.50 in Maryland to $14.27 in Washington, with a national median of $3.77.

Washington ranks third in the state cigarette tax rate. In the relatively new world of marijuana taxation, the following chart documents Washington’s heavy play.

The Washington Research Council recently discussed the challenges associated with forecasting sin tax revenue. The TPC concludes,

In sum, sin taxes offer only limited revenue potential to governments. Expanding the consumption of sin goods and services has social and economic costs and benefits that often are hard to quantify and measure. Taxing sins is understandably appealing to officials wishing to raise revenue without raising taxes on income or sales, but the longer-term revenue picture is uncertain, and potential economic and social costs and benefits associated with these revenue sources require careful consideration. Greater dependence on these revenues can also set up odd incentives because part of the reason for taxing some of these activities is to discourage consumption and use, not to maximize revenue.

RouteFifty reviews the report and highlights an often-overlooked point.

in taxes are largely seen as regressive taxes that disproportionately target low-income households.  

If states are hard set on changing consumer behavior, Dadayan said states should look to balance a tax punishment with a reward that steers consumers toward a desired behavior. For instance, when cities have proposed soda or sugary drink taxes, they could also consider options to make free water more available or to reduce costs of healthy drink options, she said.  

“A better public policy decision would be not only punish, but also reward,” she said.

New Washington Research Council report analyzes I-976, finds it “would significantly disrupt planned transportation projects.”

For voters looking for an objective and thorough analysis of I-976, we recommend a new report from the Washington Research Council. The six-page analysis details the fiscal impacts of the initiative and its consequences for transportation planning. Here’s the WRC summary:

I-976 would limit annual state and local vehicle license fees to $30, revoke the authority for transportation benefit districts to impose vehicle fees, repeal the state motor vehicle sales tax, revoke Sound Transit’s authority to impose a motor vehicle excise tax (if possible to do so under the terms of its bonds), and specify that any motor vehicle excise tax be calculated based on the vehicle’s Kelley Blue Book value.

The Office of Financial Management estimates that, over six years, I-976 would reduce state revenues by $1.923 billion and local revenues by $2.317 billion. In 2019–21 alone, state revenues would be reduced by $478 million. Much of the state revenue reduction would accrue to the multimodal account, which funds projects including public transportation, rail, and cycling. There would also be significant impacts to the motor vehicle account and other accounts that pay for road projects and repairs. Sound Transit’s revenues would decrease by $328 million a year, and local transportation benefit district revenues would decline by $58 million a year.

Providing for the transportation of people and goods is a vital role of government. The significant funding reductions that would result from I-976, at both the state and local levels, would require lawmakers to rewrite transportation budgets—putting many projects and programs at risk.

Highly recommended.

And, as a further reminder of the infrastructure problems facing our state, see this QuoteWizard report, “States with the Worst Roads Infrastructure.” The report leads with why this is important:

The nation’s infrastructure is frequently talked about at political campaign rallies. The promise of better roads, funding and jobs created from infrastructure projects are key ticket items. They’re right about the nation needing infrastructure improvements: a Federal Highway Administration reports show 61% of the country’s highways are in fair to poor condition. Transportation for America estimates a cost of $231 billion a year to keep our existing road network in acceptable repair.

Taxpayer funded highway capital delegated for states to maintain roads isn’t enough to cover necessary repairs. Many states are spending the majority of their highway capital on expansion instead of maintenance of roads. At this rate, it becomes a never ending game of maintenance catch up. On top of taxpayer dollars, it’s estimated that driving on roads in poor condition costs motorists $120 billion in vehicle repairs and operating costs. That’s $533 per driver.

There’s more in the report. Washington does not come off well in the analysis. The Puget Sound Business Journal writes,

Washington’s road infrastructure ranks in the bottom half of U.S. states, according to a recent study.

Seattle-based QuoteWizard, LendingTree’s online insurance marketplace, ranked the condition and investment in roads for all 50 states, based on an analysis of Federal Highway Administration data.

Rankings are a composite score based on percentage of roads in poor condition, annual cost per driver due to roads that need repair and the percentage of structurally deficient bridges…

Here’s how Washington, which ranks 30th overall, stacks up in each category:

  • Roads in poor condition: 29 percent
  • Annual cost per motorist: $643
  • Bridges structurally deficient: 4 percent
  • Spending on road repairs: 21 percent

As the WRC concludes,

Providing for the transportation of people and goods is a vital role of government.

I-976 puts a lot at risk.

Business economists expect growth to slow through 2020; small business optimism declines.

Evidence of the slowing economy continues to accumulate. The most recent survey by the National Association of Business economists shows members anticipating declining GDP growth.

“NABE Outlook Survey panelists believe the U.S. economy will continue to expand into 2020, but they anticipate GDP growth will fall below 2% next year for the first time since 2016,” said NABE President Constance Hunter, CBE, chief economist, KPMG. “The consensus forecast calls for real GDP growth to slow from 2.9% in 2018 to 2.3% in 2019, and then to 1.8% in 2020.”

“The panel turned decidedly more pessimistic about the outlook over the summer, with 80% of participants viewing risks to the outlook as tilted to the downside,” added Survey Chair Gregory Daco, chief U.S. economist, Oxford Economics. “The rise in protectionism, pervasive trade policy uncertainty, and slower global growth are considered key downside risks to U.S. economic activity.”

NABE pessimism has persisted. In August, we wrote,

The National Association of Business Economists reports that 74 percent of NABE members predict a recession by the end of 2021.

The Associated Press reports recession remains likely in the next two years.

The forecasters estimate just a 7% likelihood of a recession starting this year, a 24% likelihood by mid-2020 and 47% by the end of 2020. They foresee a 69% chance of a recession beginning by mid-2021.

The risk factors cited in the recent forecast have become more pronounced. 

  • Four out of five panelists (81%) believe that risks to the economic outlook are weighted to the downside, an increase from the 60% who held this view in June. Only 8% believe risks are weighted to the upside—down from 10% in the June survey—while 10% of respondents report that risks are balanced.
  • Trade policy is perceived as the dominant risk, with 53% of panelists citing it as the key downside risk to the economy through 2020. Roughly 12% of respondents consider slower global growth to be the main downside risk. Even smaller shares of respondents view the greatest risk to be financial market volatility (10%) or the risk of a geopolitical event (6%).

The survey is “the consensus macroeconomic forecast of a panel of 54 professional forecasters.”

Small Business optimism is also beginning to lag, according to today’s NFIB release, but they remain more upbeat than the business economists.

The small business Optimism Index maintained a historically solid reading, but took a dip in September, falling 1.3 points to 101.8. September’s figure falls within the top 20% of all readings in the Index’s 46-year history. The survey shows no sign of a recession and indicated continued job creation, capital spending, and inventory investment, all consistent with solid, but slower growth. The Uncertainty Index rose 2 points, revisiting high levels of concern.

Again, public policy considerations affect the outlook.

“As small business owners continue to invest, expand, and try to hire, they’re doing so with less gusto than they did earlier in the year, thanks to the mixed signals they’re receiving from policymakers and politicians,” said NFIB President and CEO Juanita D. Duggan. “All indications are that owners are eager to do more, but they’re uncertain about what the future holds and can’t find workers to fill the jobs they have open.”

Last week we wrote that labor shortages have affected small business hiring.

Another editorial urging voters to reject I-976 car tab measure; national study says Seattle has nation’s 7th worst congestion.

“We urge voters to reject I-976,” writes the Walla Walla Union-Bulletin editorial board. The editorial makes clear the reasons. After acknowledging that much, but not all, of the impact on transit funding would hit the Puget Sound region, the writers explain the statewide importance of preserving the funding I-976 would gut.

The reality is that the transportation of goods across the state is critical to everyone. Having a solid transportation system benefits the entire state and all its residents.

If the folks in King, Pierce and Snohomish county voted to tax themselves for this project, it’s wrong to undercut their decision.  

Beyond that, a significant amount of the money collected from the annual license tab fees is used for transportation projects in Eastern Washington, including upgrading the infrastructure of Walla Walla County.

A dramatic cut in transportation funding statewide and locally is simply not acceptable.

Underscoring the transportation problems that I-976 threatens to make worse is a new study from the Texas A&M Transportation Institute. The Urban Mobility Report 2019 report finds metro Seattle commuters face an annual delay of 78 hours as a result traffic congestion. Here’s the dashboard from the Seattle page of the report.

Ryan Blethen reports on the study in the Seattle Times.

The average driver in Seattle spent more time sitting in traffic in 2017 — the most recent year for which data is available — than their counterparts in almost any other city, according to the 2019 Urban Mobility Report by Texas A&M University’s Transportation Institute. Seattle ranked seventh on this metric among large urban areas, behind Los Angeles; San Francisco; Washington D.C.; New York City; San Jose, California; and Boston…

Some numbers Seattle commuters can stew on while staring at a sea of brake lights:

  • 78: The average number of hours an automobile commuter in Seattle spent in traffic delays in 2017.
  • 167,384,000: The total number of hours of delay for the year.
  • $3.1 billion: The estimated annual cost of this congestion.
  • $1,408: The estimated annual cost of congestion per commuter.

Consider those high costs the cost of failing to address infrastructure and transit funding. In Washington, voters, legislators and local governments have adopted funding strategies to reduce congestion, facilitate mobility, and improve safety. I-976 puts that all at risk.

More news on the initiative in the Spokesman-Review and The News Tribune

See also our most recent post on the initiative. 

Today’s jobs report sends mixed messages: Unemployment rate drops to 3.5%, with modest hiring and wage growth.

Today’s jobs report from the Bureau of Labor Statistics has some good and not-so-good news about the economy. Some takeaways:

The unemployment rate declined to 3.5 percent in September, and total nonfarm payroll employment rose by 136,000, the U.S. Bureau of Labor Statistics reported today. Employment in health care and in professional and business services continued to trend up…

In September, the unemployment rate declined by 0.2 percentage point to 3.5 percent. The last time the rate was this low was in December 1969, when it also was 3.5 percent…

Total nonfarm payroll employment increased by 136,000 in September. Job growth has averaged 161,000 per month thus far in 2019, compared with an average monthly gain of 223,000 in 2018. 

The report revised upwards estimates for the previous two months.

The change in total nonfarm payroll employment for July was revised up by 7,000 from +159,000 to +166,000, and the change for August was revised up by 38,000 from +130,000 to +168,000. With these revisions, employment gains in July and August combined were 45,000 more than previously reported.

Calculated Risk offers this initial assessment.

The headline jobs number was below expectations, however the previous two months were revised up.  The headline unemployment rate declined to 3.5%; the lowest since 1969.  However, wage growth was below expectations.

This was mixed jobs report.  

The economy added 1.419 million jobs through September 2019 ex-Census, down from 1.979 million jobs during the same period of 2018 (although 2018 will be revised down with benchmark revision to be released in February 2020).   So job growth has slowed.

From the Wall Street Journal:

U.S. employers added jobs at a steady pace last month, and the unemployment rate hit a 50-year low, signaling the labor market continues to provide opportunities for Americans in search of work despite a broader economic slowdown.

…Meanwhile, average hourly earnings climbed 2.9% from September 2018, a slowdown from previous months but still higher than inflation.

Warnings from The Street.

“This is as good as it’s likely to get until the trade war is resolved,” said Ian Shepherdson of Pantheon Macroeconomics. “Leading indicators, which warned clearly of the slowdown in job growth over the past few months, now point clearly to the trend slowing to just 50K or so by the end of the year.”

“Overall, these data offer something for everyone; bulls can point to unemployment, bears will highlight (Average hourly earnings), and the unpersuaded can point to the OK payroll number. But this is an evolving situation, and the next clear move in the data will be downshift in job growth,” he added.

Earlier this week we reported on the decline in a key manufacturing index, a disappointing ADP jobs report, and persistent challenges facing small business employers. Still, Washington continues to outperform the nation, an enviable position which we should not take for granted. Given all that, today’s report should be weighted more on the ‘good’ than on the ‘not-so-good’ side. 

Analysts say our state budget might weather a recession better than most states. That may not be good enough.

As the economy slows, we’ve warned of the importance of fiscal caution and budget sustainability. A recent report from Pew examines the ability of state budgets to handle a recession. We’re indebted to the Washington Research Council for using the Pew lens to consider our state’s fiscal situation. 

WRC analyst Emily Makings writes,

The [Pew] story notes that nationally, state “rainy day fund balances have never been higher.” That’s certainly true in Washington.

She includes this graph:

Earlier this year, the Volcker Alliance gave Washington an ‘A’ grade for our state’s rainy day fund policies

We recommend reading the WRC post. Makings reports Pew identifies three potentially worrisome trends.

These trends are:

  1. Growth of fixed costs, which reduces budget flexibility.
  2. Spending cuts may be more difficult if spending is not back to pre-Great Recession levels.
  3. Recent revenue increases have been volatile.

The WRC finds that Washington is in better shape than most on all three, adding,

So long as Washington avoids adopting a capital gains tax, our tax structure is relatively stable. This means that we don’t need as high a level of reserves as many other states need to combat volatility.

This seems like a good time to plug an earlier WRC report that concluded Washington’s budget sustainability policies “work when followed.” The sustainability of the state budget is apt to be tested in the coming months. Although Washington may be in better shape than most states – possibly a weak reference point – we continue to warn of the dangers of overreach at a time of significant economic uncertainty.