Editorial: With scant progress on test results, schools and lawmakers must “act decisively to turn this problem around”

The Seattle Times editorial board weighs in on the latest round of statewide test results. We wrote about the testing earlier, noting scant progress and persistent performance gaps. The ST editorial is pointed.

State and local education officials should temper their smiles over small and spotty progress in this year’s statewide test results. Nearly half of children statewide are still failing the math and English Language Arts exams.

That is unacceptable by any measure.

Significantly – and rightly – the editorial does not fault the tests. The problem is the performance. And the tests are the best way to discover what’s working and what needs improvement. From the editorial:

The Legislature and local school officials must act decisively to turn this problem around.

The goal is to get all Washington young people to graduate from high school and be ready for college or career. They must pass the statewide math and English language arts tests or an approved alternative, earn all the required high school credits and make a plan for after graduation.

The ST writers have some suggestions, including careful investment in early learning, the state Learning Assistance Program, tutoring, AP and IB classes, and more.

In our 2017 report, we recommend several strategies for narrowing the gaps and improving overall academic performance, some of which are also sounded in the editorial. For example,

Closing achievement gaps and improving outcomes for struggling students and those attending low-performing schools is essential to a statewide effort to expand opportunity and shared prosperity. The state should:

  • Improve K-12 Financing: Lawmakers must ensure that state education investments lead to improved student and school performance…

  • Enhance Supports and Accountability: The state must be able to identify low-performing schools and struggling students, and use a robust accountability system to target resources. Policymakers should strengthen support and intervention strategies, measure and report on progress, and set clear timelines for performance improvement with concrete consequences.

  • Increase Access to Educator Talent: The state should work to increase the supply of excellent teachers and broaden their impact by attracting and retaining more high-caliber candidates, providing incentives for excellent teachers to serve in leadership roles, and expanding their reach to serve more students…

The state’s goal is to increase the percentage of school-ready kindergarteners to 69 percent by 2020. To get there, the State Board of Education advocates for expanding access to high-quality early childhood education. We agree. Today, only 40 percent of the state’s three- and four-year-olds enroll in early learning programs, a rate that puts Washington in the bottom quartile of states.

We agree with the Seattle Times editorial. It’s important that the state continue to monitor academic performance. And it’s important that education funding remains tied to reform efforts designed to improve that performance.

Panel of tax and business climate experts review Washington’s tax structure; cite strengths, weaknesses and uncertainty

Washington’s tax system, often maligned, works pretty well, according to a panel of experts speaking at last week’s Association of Washington Business Policy Summit. (Watch the TVW video.) TJ Martinell reports at The Lens,

A state House work group has held public meetings this year to discuss problems with Washington’s tax structure and potential regulatory changes. While those discussions may lead to recommendations to the House Finance and other committees, legislators should be cautious about any new tax proposals they make, as tax policy is such a key factor in a states’ business climate.

That was one of the takeaways from a Sept. 19 panel at the Association of Washington Business’ 2018 Policy Summit in central Washington. The panel consisted of Tax Foundation Senior Policy Analyst Jared Walczak, state Department of Commerce Managing Director for Business Development Allison Clark and Professor Jeffrey Gramlich at the Washington State University’s Hoops Institute of Taxation Research and Policy.

The House work group continues what may seem to many like the never-ending story of tax reform efforts, which contribute to a concern raised by Walczak.

…Walczak said he’s “not sure they (businesses) always have that certainty here in Washington” due to frequent tax discussions and debates. “Most of them go nowhere,” but “each of these I think is a concern for businesses. Will my sector be targeted? How do you plan for this level of uncertainty, which doesn’t exist for most states?” 

He also repeated the Tax Foundation criticism of the B&O tax that he made in written testimony to the work group last summer, as we wrote in July.

In his written testimony to panel members, he noted that the state’s most recent B&O tax exemption study revealed “many of these exemptions are more narrowly tailored efforts to do what the different rates are supposed to accomplish: keep the tax from becoming an impossible burden for businesses with low margins or long production chains.”…

However, he adds that “the B&O’s shortcomings notwithstanding, however, Washington has a highly competitive tax code” and “relative revenue stability.”

Again last week he pointed out the system’s overall strengths, as The Lens reports.

“There is a lot that Washington has going for it,” Walczak said. “For some it’s very affordable, it’s very attractive.”

One of the attractive features of the tax structure is the absence of a personal income and capital gains taxes, as Clark commented (video here). Jason Mercier of the Washington Policy Center writes

During a tax panel at the Association of Washington Business 2018 Policy Summit this week, the state Department of Commerce said the lack of a state income tax, including no capital gains income tax, “is great marketing” for Washington. If an income tax is imposed, Commerce said that would mean “one less tool that we have in our economic development tool box.”

This statement should come as no surprise. For years the Washington Department of Commerce has made the state’s lack of an income tax a major selling point for its “Choose Washington” campaign

“We offer businesses some competitive advantages found in few other states. This includes no personal or corporate income tax.”

The AWB Olympia Business Watch blog adds Clark’s support for strategic tax incentives.

The state’s advantages are many, she said: A great workforce, outstanding natural resources, clean and inexpensive power, and state incentives for companies that can be applied strategically.

“I would certainly say if we were to expand any number of those types of incentives that are either sector-based or location-based, that could be quite strategic in growing either sectors or industries in certain areas of the state,” she said.

We expect much more discussion of tax policy in the run-up to the November election and in the 2019 legislative session. For a good overview of how the tax system contributes to our state’s economic growth, we again refer you to this excellent AWB blog post.

State proposes 5 percent drop in workers’ compensation rates; should it be lower?

The Washington State Department of Labor and Industries is proposing a 5 percent decrease in workers’ compensation premiums for 2019.

L&I attributes the proposed decrease to several factors, including declining workplace injury rates, along with L&I initiatives that are helping injured workers recover sooner and reducing workers’ compensation costs.

The proposed rate decrease means employers would pay about $58 less a year per employee for workers’ compensation coverage in 2019. Employees would pay an average $6 less per year for their share under the proposal.

The 5 percent, the department notes, is an average; some employers could see smaller or larger decreases and some could see an increase, depending an industry and claims history.

The Seattle Times report on the proposal includes a comment on recent history.

It would mark the second straight year of decreases in the rate for an insurance system that provides medical care, disability and wage benefits for people hurt at work and for the families of those killed, and which has long been a punching bag of businesses for its costs and complexity.

The rate decrease, which would be the largest since 2007, is a far cry from what state officials were predicting half a decade ago, when lingering effects of the Great Recession threatened to cause average rates to rise into the 2020s, even after a major legislative reform package passed in 2011.

The L&I director is quoted on the 2011 reform legislation.

Sacks said programs implemented as part of the 2011 reform are also reducing the system’s long-term costs, including one that provides employers subsidies to help injured workers return to work faster with light duties during their recovery.

Association of Washington Business president Kris Johnson says in a press release that a greater reduction may be warranted.

“Employers welcome any reduction in the cost of Washington’s workers’ compensation insurance, which remains among the most expensive in the country. We have worked diligently with our members to improve workplace safety and the proposed 5 percent average reduction is a move in the right direction. But with a growing economy and growing reserve fund, the reduction could have been even greater and still maintained break-even for the state’s reserve fund.

“While parts of Washington’s economy are performing well, the recovery has not extended equally throughout the state or across all industries. We look forward to continuing to work with lawmakers and others to make Washington’s workers’ compensation more competitive, to reduce costs for employers who are still struggling and to bring economic prosperity to every corner of the state.”

In her post on the proposal, Emily Makings with the Washington Research Council writes,

The Department of Labor & Industries has proposed that average workers’ compensation rates decrease 5 percent next year. According to L&I, this means that premiums paid would drop by a total of $136 million…

Workers’ compensation benefit costs in Washington have been the highest in the country in recent years.

The link is to an October 2017 WRC report, which illustrates the system’s high costs.

Last week the National Academy of Social Insurance (NASI) released its annual report on workers’ compensation benefits, coverage, and costs across states. For 2015 (there’s a two-year lag), Washington’s benefit costs were $788.62 per covered worker. This was the highest in the country, followed by California ($751.70) and Alaska ($719.93). Although Washington’s benefit costs have been the highest in the country since 2008, they have been declining since 2010, when they reached $865.67 per worker.

Benefit costs as a percent of covered wages in Washington were 1.40 percent in 2015, the fourth highest in the country.

We consider benefit costs to be the best measure of the worker’s compensation system’s costs as well as the most straightforward way to compare costs across states, as we explain in this report

Still, as Johnson mentions, employers will welcome the relief. 

For those who want to comment on the proposal, L&I has scheduled the following opportunities.

The agency will hold three public hearings where people can learn about and comment on the proposed rates. The hearings are scheduled for: 

  • Tumwater, Oct. 30, 9 a.m., Dept. of Labor & Industries Headquarters.
  • Tukwila, Oct. 30, 1 p.m., Dept. of Labor & Industries Tukwila Office.
  • Spokane Valley, Oct. 31, 9 a.m., Spokane CenterPlace.

People can also comment in writing to Jo Anne Attwood, administrative regulations analyst, PO Box 41448, Olympia, WA 98504-4148; or email Joanne.Attwood@Lni.wa.gov. All comments must be received by 5 p.m. Nov. 2, 2018.

U.S. Chamber of Commerce: Washington state economy exposed to “extremely significant damage” from tariffs and trade war

Monday’s presidential announcement of new tariffs on imports from China  has produced new concerns about the economic impacts of an escalating trade war. In Forbes magazine, financial consultant Mayra Rodriguez Valladares reviews the implications, drawing on several recent analyses. The graph above is taken from her column.

The U.S. Chamber of Commerce lists thirteen states as being exposed to the most ‘extremely significant damage’ due to retaliatory tariffs against US exports by Canada, China, Europe, and Mexico. They are Alabama, Alaska, Idaho, Iowa, Louisiana, Michigan, Mississippi, Ohio, Oregon, South Carolina, South Dakota, and Washington.  However, there are seven other states that are close enough in the size of their targeted exports that I included them in the adjacent graph. Washington, Louisiana, and California have the largest targeted export markets.

The U.S. Chamber estimates $6.7 billion of Washington exports are threatened by a trade war. John G. Murphy, senior vice president for international policy, writes

On Monday the White House announced it had “directed the United States Trade Representative (USTR) to proceed with placing additional tariffs on roughly $200 billion of imports from China”.

While popular rhetoric suggests that tariffs are “slapped” on a foreign country, tariffs are of course taxes paid by Americans. It’s U.S. consumers, not foreigners, who are stuck with the bill – in this case, a multi-billion dollar bill that we will all have to pay.

Following Monday’s action, the Tax  Foundation updated its analysis of the economic impacts. The national impact is immense.

According to the Tax Foundation model, the tariffs planned and enacted so far by the Trump administration would reduce long-run GDP by 0.12 percent ($30 billion) and wages by 0.08 percent and eliminate 94,303 full-time equivalent jobs. If the Trump administration acts on threats to place new tariffs on automobiles and parts and additional tariffs on products from China, GDP would fall by an additional 0.38 percent ($94 billion), resulting in 0.24 percent lower wages and 292,648 fewer full-time equivalent jobs.

Other countries have also announced intentions to enact tariffs on U.S. exports. If these tariffs are fully enacted, we estimate that U.S. GDP would fall another 0.09 percent ($23.5 billion) and cost an additional 72,864 full-time equivalent jobs.

If all tariffs announced thus far were fully enacted, U.S. GDP would fall by 0.59 percent ($148 billion) in the long run, effectively offsetting one-third of the long-run impact of the Tax Cuts and Jobs Act. Wages would fall by 0.38 percent and employment would fall by 459,816.

Reporting for Capital Press, Dan Wheat points out the direct hits taken by agriculture producers

Northwest cherries were an early trade war victim, with losses estimated at $86 million in China, the only country to impose a tariff on cherries.

Though the dollar impact of the tariffs are estimates, agricultural exports are suffering losses that will top $4 billion this year and are projected to increase next year…

While the USDA says $12 billion will be forthcoming in relief to commodity growers damaged by the tariffs, leaders in every sector say it won’t be enough and is not intended to make anyone whole.

The ultimate critical resolution, they say, is for tariffs to go away through new trade agreements.

The Wall Street Journal reports on broad business opposition to the administration’s tariff policy.

…the president’s new round of tariffs drew immediate and widespread condemnation from the American business community, which has steadily opposed such duties, even as many executives say they share the administration’s complaints about Chinese trade practices.

“We are extremely discouraged by the decision to move forward on tariffs on millions of products American consumers buy every day,” said Hun Quach, vice president of international trade for the Retail Industry Leaders Association, a trade group representing large chains like Walmart and Best Buy .

The Valladares column in Forbes points out an additional risk to the financial community from the tariffs.

If even 1% of Americans in global trade supported employment lost their jobs due to the escalating trade conflict with China or any of the other countries and regions previously mentioned that would be 262,352 unemployed people. If that number were to rise to 5%, the unemployed would then be 1.3 million.  Any bank risk manager knows from personal experience that it does not take long for unemployed people to start making late payments and for defaults to start rising quickly. This is the time to start reviewing all credit portfolios carefully and hope for the best, but prepare for the worst.

Challenging times.

Research Council: Washington state budget is not ready for recession in next biennium

The Washington Research Council writes that the state budget would not be able to sustain programs were a recession to hit in the next two years. 

Moody’s estimates that 23 states have enough funds in reserve to get through a moderate recession, as reported by Route Fifty today. Those 23 states include Washington.

The estimates are based on “a downturn that happens almost immediately.” But Route Fifty also reports that Moody’s “puts the highest odds for the next recession as hitting in mid-2020.” If a recession were to occur during the 2019–21 biennium, Washington’s reserves would not be enough to make up for the revenue shortfall (at least as things stand now).

WRC analyst Emily Makings presents a table that projects a recession scenario deficit of $2.2 billion after draining reserves. She concludes,

We don’t know when a recession will next occur, or how severe it will be. It is certainly good to be among the 23 states that Moody’s judges to be well-prepared. But this may give a false sense of security—we’re not sitting as pretty when you look into the next biennium.

We recommend reading the short blog post. With the education finance challenges expected to be visited upon the 2019 Legislature, a realistic appraisal of the health of the state budget is a necessary tonic.

 

Rural counties continue to post slower job growth across the nation; Washington is no exception

Job growth continues to flow to metro areas. The Daily Yonder, from which the above map is taken, reports, 

The pace of job growth in rural America increased slightly in July but remained about half the rate of job growth seen in major metropolitan areas.

The slower growth rate in nonmetropolitan areas means that U.S. employment continues to shift toward urban markets and away from rural ones.

We’ve reported on the persistence of this trend and efforts in our state to boost employment and economic opportunity in rural areas through the Rural Jobs Summit convened by the Association of Washington Business. The map above shows too much red – job losses – in rural Washington counties. Daily Yonder reporters Tim Marena and Bill Bishop write, 

The map shows job gains across most regions of the United States. Notable exceptions to that rule are the northern Great Plains, the rural Pacific Northwest, and the western half of the Mississippi Delta.

In addition to the employment gap, there’s a substantial income gap between urban and rural areas.

In rural areas, median income in 2017 was $47,563. Metropolitan median income was $64,265, more than a third higher than rural incomes. (Note: Those figures are not adjusted for regional differences in the cost of living.)

The next AWB Rural Jobs Summit will be November 8 and 9 at Lower Columbia College, Longview.

Tumwater teachers ratify new contract with 16.7 percent raise; lawmakers look ahead to appropriate response to strikes & settlements

Tumwater teachers have ended their strike, the last in the state. The deal extends the double-digit salary increases reached in many districts. 

Tumwater Education Association and Tumwater School District reached the tentative agreement during mediated bargaining on Sunday.

The deal gives teachers at 16.7 percent raise this school year and a 2.4 percent raise next year, according to a school district news release.

Can the district afford it? Well,

The school district estimates it will run a $4.4 million deficit this year and $7.5 million next school year as a result of the agreement.

Sooner than many expected, the education finance debates are expected to return to Olympia, KOMO News reports.

“So we now have state-funded basic education and local decision making,” said state Rep. Laurie Dolan, D-Olympia. “And so what we’re going to have to do going forward is keep tweaking that so we won’t see what we saw this year.”

What you saw were teachers, like in Tacoma, who went on strike when the district offered only a 3 percent raise while other surrounding districts were offering double-digit raises. The strike ended when a 14.4 percent raise was offered.

Tweaking may not be enough.

 

Another strong state revenue report: cumulative revenues up 3.0 percent over June forecast; bodes well for next forecast.

The latest monthly update from the Economic and Revenue Forecast Council continues a summer run of positive reports (see July and August). 

Major General Fund-State (GF-S) revenue collections for the August 11 – September 10, 2018 collection period came in $71.9 million (4.8%) above the June forecast. Cumulatively, collections are now $146.9 million (3.0%) higher than forecasted.

Both the national and state economies show strength.

The national economy continues to expand with an increase in employment, record low initial unemployment insurance claims and continued expansion in manufacturing activity. However, existing home sales dipped and auto sales remained weak.

The U.S. economy added 201,000 net new jobs in August. Employment data for June and July were revised down by 50,000 jobs. Sectors with notable employment gains in August included health care (+33,000), professional and technical services (+28,000), construction (+23,000), wholesale trade (+22,000), accommodation and food services (+20,000) and administrative and support services (+20,000). Industries with net employment declines in August included clothing and accessories stores (-21,000), information (-6,000), performing arts and spectator sports (-5,000), state government excluding education (-3,000), and manufacturing (-3,000)...

We have three months of new Washington employment data since the June forecast was released. Total nonfarm payroll employment rose 24,300 (seasonally adjusted) in June, July, and August, which was 6,300 more than the 17,900 expected in the June forecast. The variance in employment growth was mostly due to the private services-providing sec-tors, which added 18,600 jobs compared to 14,200 in the June forecast. Manufacturing employment increased 1,300 in June, July, and August, boosted by an increase of 1,100 aerospace employees. Construction employment increased by 900 jobs and government payrolls expanded by 3,500 jobs.

The ERFC has also released its final September economic forecast.

It all suggest another bump in the next official revenue forecast, which will be released September 26.