Governor signs $2.2 billion COVID-relief package

Gov. Inslee signed a $2.2 billion relief package Friday.

Gov. Jay Inslee on Friday signed House Bill 1368, which appropriates $2.2 billion in federal funding that has been allocated to states in response to the ongoing COVID emergency. The legislation takes effect immediately.

“Our focus this year is relief, recovery and resilience, and this legislation will help us make tremendous progress in all of those areas. Washingtonians have been exemplary in helping limit the spread of COVID-19, but it has not come without its economic and emotional costs,” Inslee said. “The process of getting to a post-pandemic era has already begun, and we will come out of this stronger because of legislation like what I am signing today.”

The Washington Research Council has more on the three bills signed by the governor and adds that the state’s rainy day fund is historically high. 

Austin Jenkins reports on the major bill signed Friday. 

The package includes:

  • $716M for schools to help return to in-person learning and address student learning loss
  • $618M for public health, including vaccine administration
  • $365M for rental assistance
  • $290M for small business and childcare provider grants
  • $70M to replenish the state’s immigrant workers relief fund
  • $26M for food assistance

More coverage of the legislation in the Spokesman-Review.

Washington ranks 2nd in nation for revenue growth since Great Recession.

Underscoring the strength of Washington’s tax revenue recovery – not quite the same thing as full economic recovery – is a new report cited by the Washington Research Council.

Pew has now released new data that shows that Washington’s tax revenue growth from the pre-Great Recession peak through the second quarter of 2020 was 36.3%. That’s the second highest growth in the nation, behind North Dakota. (Through calendar year 2019, Washington’s revenue growth ranked fourth highest.)

Additionally, Pew reports that Washington’s inflation-adjusted tax revenues for fiscal year 2020 grew by 3.8% over FY 2019. That’s the second highest revenue growth (behind Idaho) and Washington is one of just seven states in which revenues grew.

Extraordinary revenue growth, and one of the reasons that, combined with a robust rainy day fund and federal assistance, Washington does not have a budget shortfall.

Washington unemployment insurance claims decline; nationally, claims filings increased. Is the system ready for major reform?

The state Employment Security Department reports a 13% decline in initial regular unemployment insurance claims last week. 

During the week of February 7 –  13, there were 13,607 initial regular unemployment claims (down 13.0 percent from the prior week) and 447,412 total claims for all unemployment benefit categories (down 7.3 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 119 percent above last year’s weekly new claims applications.
  • Initial regular claims applications, Pandemic Unemployment Assistance (PUA) initial claims, Pandemic Emergency Unemployment Compensation (PEUC) initial claims and continued claims for regular benefits all decreased over the week.
  • Reductions in layoffs in the retail trade, accommodation & food services as well as the health care and social assistance sectors led the overall decrease in regular initial claims last week. Regular initial claims in the retail trade sector decreased by 240 claims over the week to 1,303 total regular initial claims.

In The Seattle Times Paul Roberts reports,

New unemployment claims in Washington state fell for the sixth consecutive week even as the nation as a whole saw a modest uptick in the number of people seeking jobless benefits.  …

He reports there’s some missing information.

Until recently, the ESD also reported the number of individuals receiving benefits each week.

Also missing from the agency’s report Thursday: the number of claimants who had not been paid and were waiting for the ESD to resolve an issue with their claim; the average time required to resolve a problem on a claim; and the average time claimants typically wait to receive their first payment. That data has not been posted since December.

Agency officials have said that some claims data isn’t available because newly extended federal benefits have changed how the ESD calculates who is receiving benefits and how long it takes to pay some claimants. 

As Roberts writes, the U.S. Department of Labor reported an uptick.

In the week ending February 13, the advance figure for seasonally adjusted initial claims was 861,000, an increase of 13,000 from the previous week’s revised level. The previous week’s level was revised up by 55,000 from 793,000 to 848,000. The 4-week moving average was 833,250, a decrease of 3,500 from the previous week’s revised average. The previous week’s average was revised up by 13,750 from 823,000 to 836,750.

The advance seasonally adjusted insured unemployment rate was 3.2 percent for the week ending February 6, unchanged from the previous week’s unrevised rate.

From the AP reporting,

The figures underscore that the job market has stalled, with employers having added a mere 49,000 jobs in January after cutting workers in December. Nearly 10 million jobs remain lost to the pandemic. Though the unemployment rate fell last month from 6.7%, to 6.3%, it did so in part because some people stopped looking for jobs. People who aren’t actively seeking work aren’t counted as unemployed.

Still, fraudulent claims for jobless aid in some states and other issues, including potential backlogs of claims, may be elevating the totals. Last week, for example, Ohio reported a huge increase in applications and said it had set aside about half that increase for further review out of concern about fraud. And this week, Ohio reported that applications under a federal program that covers self-employed and gig workers jumped from about 10,000 to over 230,000. That could reflect a backlog of applications, because Ohio hadn’t reported data under that program until two weeks ago.

Likewise, Illinois reported this week that jobless claims under its regular state program doubled — from 34,000 to nearly 68,000.

“The unemployment claims data remain a mess,” said Stephen Stanley, chief economist at Amherst Pierpont.

We’ve paid a lot of attention to these reports during the pandemic; it was often the only timely information available on the recession’s progress. But, well, Stanley’s view is widely shared; the data remain a mess.

Perhaps the system is reaching a tipping point. American Enterprise Institute analysts Brent Orrell and Matthew Leger make a case for “root-and-branch” reform in this brief piece. We’ll just pull a few paragraphs for you to consider. 

The root of the administrative problem with unemployment insurance is that it is mostly an early-twentieth-century law trying to serve a twenty-first-century workforce. With eligibility criteria designed for a Great Depression-era workforce, the number of workers eligible for and receiving unemployment benefits has gradually declined, leaving out categories of workers that didn’t exist when unemployment insurance was created. When debating the need to extend unemployment benefits during the pandemic, this very fact was lost on our political leaders and in the court of public opinion as millions were never able to access benefits to begin with. Just before the pandemic in 2019, studies showed that roughly 27 percent of unemployed workers were receiving benefits, consistent with the steady decline in the accessibility of unemployment insurance over the last couple of decades. Despite rule changes, emergency patches and benefit expansions created by Congress during the pandemic, one Harvard survey found that at the peak of the unemployment crisis in spring 2020 the percentage of actual recipients was 27 percent—suggesting that millions of people who qualified for unemployment insurance support hadn’t yet received it.

And,

Perhaps the greatest, and costliest, irony of our recent unemployment insurance troubles is how this complex, patchwork system failed in both its primary role of helping unemployed workers and its secondary task of fraud prevention. Billions of dollars were siphoned out of the system by computer hackers overseas while cash-strapped Americans saw their payments delayed by systems supposedly designed to keep bad actors out

And their conclusion:

Congress needs a thorough review of the challenges of the existing unemployment insurance system, with the aim of a root-and-branch redesign. Such a transformation would include updated eligibility criteria to better reflect the makeup of today’s modern workforce; simplified application processes that reduce the burden on applicants and administrators; and built-in flexibilities that will allow states to adapt to future mass unemployment events as well as helping them keep pace with the accelerating pace of labor market change. Only then should we consider investing in technological fixes that are aligned to and will effectively implement refreshed and updated policies.

Not sure about all that, but clearly, something should change.

House Republican budget proposal released. Like Senate GOP plan it doesn’t raise taxes.

Shorty after Senate Republicans released their budget proposals, their GOP counterparts in the House offered their own budget plans. Both proposals allow Washingtonians to see what can be done this budget cycle without raising taxes. Quite a bit, it would appear. As we’ve pointed out, the combination of ample budget reserves, a recovering state economy, and federal assistance has averted the budget crisis many saw coming a year ago. The budget outlook, as the Washington Research Council points out, is good.

Rather than get into the details of the budget plans, we’ll direct you to some WRC analyses comparing the Senate GOP budget to the governor’s proposal and the Council’s initial review of the House GOP plan. You don’t have to be a long-time Olympia observer to realize that the minority party usually takes the back seat in budget deliberations. This year, however, it’s encouraging to see Republicans offering their own suggestions early in the process. A bipartisan approach to the state’s operating budget would be welcome, as businesses and households continue to suffer the effects of the prolonged COVID recession.

In the Everett Herald, Jerry Cornfield writes,

Rep. Drew Stokesbary of Auburn, lead writer of the House offering, said it contained no new taxes and no cuts to critical services. It is a deep dive. Among its interesting pieces are funding for a working families tax credit, money for schools to resume in-person learning, a sales tax exemption for diapers, a merging of state pension plans and several billion dollars in reduced agency spending.

Stokesbary said it is intended to be more than a conversation starter, noting he came to Olympia “to make better laws, not just better suggestions.”

Reporting for the NW News Network, Austin Jenkins writes

“The people of our state need to know it’s possible, even during a pandemic, to have a budget that doesn’t cut services and without more taxes,” said state Sen. Lynda Wilson, the ranking Republican on the Senate Ways and Means Committee.

The Senate proposal, released last week, and the House proposal released Tuesday would both spend about $55 billion over the next two years – roughly $3 billion less than the spending plan Gov. Jay Inslee proposed in December. Nonetheless, that still represents an increase in spending over the current biennial budget which is on track to spend about $52 billion. 

“It continues to grow the budget, but on a much more responsible glide path,” said state Rep. Drew Stokesbary, the ranking Republican on the House Appropriations Committee.

More discussion at Washington State Wire and The Daily News

Capital gains tax clears key state Senate committee.

The Senate Ways and Means Committee passed a slimmer version of the capital gains tax proposed by Gov. Inslee as part of his budget package. SSB 5096 cleared the committee Tuesday afternoon. The bill report summarizes the proposal and changes made by the committee. Bottom line: It’s a 7% capital gains tax styled as an excise tax, unlike any other in the country. 

The Spokesman-Review reports

A controversial capital gains tax proposal passed out of the Senate Ways and Means committee Tuesday night, clearing its first hurdle on the way to adoption.

But the bill has changed significantly since it was first introduced.

Bill sponsor Sen. June Robinson, D-Everett, proposed an amendment Tuesday that increased the amount someone would have to earn in order to have to pay the tax and added exemptions. The new bill would apply a 7% tax on the sale of stocks and bonds, personal property and businesses, but only if those profits exceed $250,000 annually. It would not apply to the sale of a home, commercial real estate, retirement accounts and other properties. The sale of a family-owned small business that makes less than $6 million a year would also be exempt.

As the S-R writes:

Gov. Jay Inslee proposed a capital gains tax in his budget, but his idea would have been a 9% tax on annual investment earnings greater than $50,000 for a married couple. His plan also had fewer exemptions.

Democrats have tried to pass a capital gains tax for years but could never get it through both chambers.

The House is also considering a capital gains tax. 

The Everett Herald reports,

House Speaker Laurie Jinkins of Tacoma sounded like her caucus could live with the changes if and when it comes over.

“Capital gains is something we’ve wanted a long time. I actually think we may very well be OK with it,” she told reporters. “I’m also confident the courts will uphold it.”

The Columbian writes,

The measure would take effect Jan. 1, 2022 and is expected to bring in about $550 million a year. The capital gains tax — which is certain to face a court challenge if passed — has stalled in the Democratic-controlled Legislature in previous years.

 
Regardless, the tax is not required to balance the state budget, which continues to benefit from strong revenue growth. That sustained revenue growth may be put at risk by the new tax, should it pass, according to a group of tech CEOs. The Lens reports,

A letter signed by 42 tech CEOs regarding SSB 5096 offered warnings similar to those recently raised by Tanium CEO Orion Hindawi, who said Washington is experiencing a “huge PR problem” with tax discussions.

“This bill comes at a time when Washington’s startups already face a challenging market,” the letter states. “A capital gains tax would penalize founders and their employees during an already unprecedented period. Taxing those gains penalizes employees and encourages founders to form their companies in other states, or to relocate to states that do not have a capital gains tax. The result will be a loss of jobs and economic vitality in our region.”

Not exactly a recovery strategy, then. More to come.

 

Another positive revenue report: Collections continue to outperform the forecast.

Once again, the Economic and Revenue Forecast Council has positive news for state budget writers. Revenue collections continue to come in above expectations.

Major General Fund-State (GF-S) revenue collections for the January 11, 2020 – February 10, 2021 collection period came in $269.5 million (15.3%) higher than forecasted in November, primarily due to Revenue Act tax collections. Cumulatively, collections are now $592.6 million (9.0%) higher than forecasted.

As the updated chart shows, collections are back on trend. 

While the economic recovery may be K-shaped, tax collections show a clear “V” as they bounce back from the bottom of the COVID recession.

As always, the ERFC update provides a lot of useful information on the economy. 

On employment:

We have two months of new Washington employment data since the November forecast was released. Seasonally adjusted nonfarm employment declined in December following a smaller than expected increase in November. Over the-two month period, employment declined 1,600 which was 48,200 less than the increase of 46,600 expected in the forecast. Private services-providing sectors lost 5,900 jobs in November and December, weighed down by the loss of 18,700 jobs in leisure and hospitality. The manufacturing sector managed an increase of 900 jobs in spite of the loss of 1,300 aerospace jobs. Construction employment increased by 2,700 jobs and state and local government employment increased by 3,900 jobs. Federal government employment declined by 3,100 jobs of which 1,600 were temporary census jobs.

This caught our eye.

Washington exports declined over the year for a ninth consecutive quarter despite a large increase in agricultural exports. Year-over-year exports decreased 18.1% in the fourth quarter of 2020. Fourth quarter exports of agricultural products increased 69.6% over the year but this is misleading as it was largely due to soybeans which receive only minimal processing in Washington. Transportation equipment exports (mostly Boeing planes) fell 63.7% over the year. Year-over-year exports from all other sectors (mostly manufacturing) declined 8.3%.

Washington car and truck sales surged in January to their highest level in more than two years.

Here’s the ERFC summary:

  • U.S. employment increased by 49,000 jobs in January; the unemployment rate declined to 6.3%.

  • U.S. initial claims for unemployment insurance decreased this week but the four week moving average has remained above 800,000 for nine weeks.

  • U.S. real GDP increased by 4.0% in the fourth quarter of 2020.

  • U.S. residential construction activity continued to grow in December.

  • Washington housing construction improved in the fourth quarter of 2020 and slightly exceeded the forecast.

  • Washington exports declined over the year for a ninth consecutive quarter.

  • Major General Fund-State (GF-S) revenue collections for the January 11, 2020 – February 10, 2021 collection period came in $269.5 million (15.3%) higher than forecasted in November, primarily due to Revenue Act tax collections.

  • Cumulatively, collections are now $592.6 million (9.0%) higher than forecasted.

Washington has no budget shortfall. And the news continues to improve.

Opinion: Higher education must be a state budget priority; it’s key to the recovery and expanding economic opportunity.

Last month we wrote of an important report detailing how the pandemic was exacerbating existing inequities in education and steps schools were taking to address the new challenges. That report, Path to 70% Credential Attainment: Recovery & Reimagining, should help lawmakers make higher education a top priority in this session’s budget deliberations.

Also driving home the argument are recent opinion pieces in three newspapers around the state.

The Everett Herald editorial board tells of two promising young students pursuing college degrees, emphasizing the importance of state support.

Both said they’ve been fortunate to benefit from state and federal grants and scholarships, aid that is scheduled to expand for students with the 2021-22 school year and beyond under the Washington College Promise program, which is expected to serve some 90,000 students in the state with free or partial coverage of tuition and fees, based on income, under the College and Workforce Development Act passed by the Legislature in 2019. The act was a significant commitment by the Legislature and required an increase in the state’s business and occupation tax, with an eye toward developing the educated workforce the state’s industries and other employers depend upon.

At the time of its passage, Forbes magazine called the act “one of the smartest financial aid packages in the country” because it was structured so the financial responsibility would partly fall on businesses benefiting from an educated workforce.

The editorial also points out that state higher ed institutions have nearly

recovered from the cutbacks made during the Great Recession.

“The Great Recession was a devastating time for higher education,” said Dr. Paul Pitre, chancellor of Washington State University-Everett. State budget cuts forced by declining revenues meant state colleges and universities saw 40 percent to 50 percent cuts to their state allocations, which meant that those institutions had little choice but to impose double-digit tuition increases for several years.

Like the additional financial aid for students, higher education has slowly seen better financial support. While higher education is still having to do more with less, Pitre said, that support has allowed colleges and universities to maintain quality, keep tuition affordable, expand enrollment and increase diversity. As of 2020, he said, system-wide support has returned to near where it was before 2008.

But the pandemic has higher ed looking over its shoulder.

“The real fear with the pandemic is we might fall back into that cavern,” Pitre said.

The Tri-City Herald editorial board succinctly makes the key point.

it’s a safe bet that the harm caused by the pandemic will ripple for years to come.

That’s why it is so important for Washington state lawmakers to think longer term and protect the budgets of our colleges, technical schools and four-year universities.

In order to recover from this traumatic time, we need an educated society. If we want to strengthen our economy, we need a workforce that has the credentials for careers in the future.

If we want to close the gap between the poor and the rich, restricting higher education opportunities is the worst mistake public officials could make.

In the Kitsap Sun, an op-ed by Joe Morrison, Executive Director, Kitsap Economic Development Alliance, and Robert Squires, Vice Provost of Outreach and Continuing Education at Western Washington University, also point out the important role higher education plays in reducing income inequality and driving the economic recovery.

We urge state legislators to protect the progress we have made. In 2019, the Washington State Legislature took historic steps to support our state’s students and families by passing the Workforce Education Investment Act (HB 2158), which includes the Washington College Grant. The grant is now available to cover some or all of the costs of a credential for any student from a family of four making $97,000 a year or less. Because it is a grant, it does not need to be repaid, meaning it makes the difference for thousands of students being able to attend education or training after high school…

Many students on our campuses also rely on academic advising, food and housing assistance, behavioral health care, and tutoring as they work to complete their credential. Investments in services like these break down barriers for students to succeed on their education-to-career pathway, particularly students from low-income backgrounds, students of color, and students who are the first in their family to attend education after high school.   

They conclude,

Our communities and state are navigating new terrain as we seek to recover from the pandemic. The dreams of diverse students persist, as does our economy’s need for workers who have the skills and post-high school credentials to fill the jobs our businesses are creating. During the 2021 legislative session, let’s protect funding for higher education and support students today so Washingtonians can earn credentials for a successful tomorrow.   

Makes sense to us.

WA Research Council compares Gov. Inslee’s supplemental budget proposal with that offered by Senate GOP

As we wrote earlier, Senate Republicans have offered a budget plan for the balance of this budget cycle (the supplemental budget) and for the 2021-2023 biennium. Washington Research Council senior analyst Emily Makings presented her initial review of the proposal here

Granted, the party in the minority in both legislative chambers rarely has a great deal of influence over budget development. But this year it’s important to consider what Republicans have offered: a budget with no new taxes that both sustains and increases state spending. At a time when many households and businesses continue to suffer from reduced income during the prolonged pandemic recession, avoiding a tax increase is a good, “do no harm” approach to the economic recovery. It makes sense: There is no budget shortfall requiring additional revenue.

Makings has now prepared an analysis comparing the GOP supplemental budget with that presented by the governor. It’s concise. We won’t attempt to summarize it here and encourage you to read it. The two plans have a couple of different assumptions; Makings sorts them out so the comparison is more clean.

Here’s her opening:

Sen. Wilson’s proposal for a 2021 supplemental operating budget would reduce 2019–21 appropriations from funds subject to the outlook (NGFO) by $1.421 billion. That includes maintenance level (the cost of continuing current services, adjusted for enrollment and inflation) and new policy changes. By comparison, Gov. Inslee’s proposed 2021 supplemental (as revised by the Office of Financial Management earlier this month) would reduce 2019–21 appropriations by $907.8 million.

We look forward to the 2021-2023 biennial budget comparisons. Democrats are not expected to roll out their budget plans until after the next official revenue forecast in mid-March.