This week’s Newsmaker Interview is with Jason Mercier, Director of the Center for Government Reform at the Washington Policy Center. Given the stubborn refusal of Governor Inslee and the Democrat legislative leadership to call a special session to reduce the state’s expenditures to align with projected budget revenue, we thought it would be an appropriate time to talk with one of the leading experts on the Washington State budget. Perhaps that will allow us all to better understand the strategy behind the Democrats’ irresponsible decisions. Jason discusses the damage the Democrats are causing to the state’s budget, the pay raise Governor Inslee just gave state employees (while millions of Washington taxpayers are facing financial insecurities), the Democrats’ desire for a new state income tax, making collective bargaining negotiations more transparent for taxpayers, and finally breaking down to buy a smart phone.
Many people are upset with Governor Inslee for allowing state employees to receive a second pay raise in a year while so many Washington taxpayers are facing financial insecurities. The governor has dismissed these concerns by saying the state employees will lose pay due to the enacting a few furlough days (which will also allow state workers to collect state and federal unemployment benefits). How will the pay raise impact the state’s current budget and the next budget which 2021 legislature must approve?
Once it became clear that the government imposed economic shutdown was going to have a dramatic impact on the state budget, WPC was among those calling on the Governor to immediately reopen the state employee contracts to cancel the 3% pay raises due on July 1. According to legislative staff, canceling these pay increases would save $266 million this year, with four-year total savings of $798 million.
Facing a massive budget deficit and record private sector unemployment, now is not the time for the governor to give out pay raises. This includes the scheduled pay increases for elected officials. Although a bipartisan group of lawmakers asked the state salary commission to cancel those pay raises, there are limited options due to the process outlined by a 1986 constitutional amendment creating the commission. Lawmakers can, however, voluntarily donate part or all of their pay to the state general fund by filing a form with the Office of the State Treasurer. No change in law or policy is needed for an elected official to decline taking a tax-funded salary.
Ultimately, the state constitution should be amended to abolish the state salary commission. As should also occur with state employee compensation, these decisions should be made by the legislature in the budget writing process and not be placed off limits from legislative decision-making.
At a minimum, we should all be able to agree that facing a massive budget deficit and record private sector unemployment, now is not the time for government pay raises.
Governor Inslee and the Democrat legislative leaders appear to be content in not calling a special session to repair the state’s fractured budget. Why do you believe they are delaying the inevitable and is this approach a good or bad strategy for the fiscal health of our state?
It is truly shocking that Washington leaders appear content to wait until January to right the state’s fiscal ship. This is why it was so important to act before the new spending increases took effect on July 1. Once we started the new fiscal year, the likelihood of a special session dropped. By waiting until August, the September revenue forecast is just around corner. Then after September, the November election is just a jump away. Then the temptation to delay until January becomes even stronger. Delaying further, however, will make the necessary changes much harder to implement.
Meanwhile, our friends in California have already acted to address their budget problem. In late June, lawmakers in California sent Governor Newsom a budget that reduced spending, including a 10 percent reduction in pay for state workers and canceling pay raises that were scheduled to take effect in July.
Bond rating companies also expect fiscal responsibility from Washington. Moody’s noted in its June 30, 2020 credit rating for Washington: “We expect that the state will continue to address budget gaps that emerge… absent corrective measures, the revenue shortfall would result in a rapid depletion of the state’s reserves. The state legislature is expected to meet in a special session to amend the budget for the 2019-2021 biennium in response to the new revenue projections.”
Instead of doing this and enacting savings over a 12-month period, the current budget plan in the state appears to be spending down the reserves and trying to cram all the savings into the remaining six to three months of the budget. This strategy indicates the real plan is to massively increase taxes (yet again) after the election.
There is the question if the Governor can really wait that long, however. State law (RCW 43.88.110 (7)) requires the Governor to issue across-the-board budget cuts if a cash deficit is forecasted. I’m currently checking to see when that law will be triggered if there isn’t a special session.
Many Democrats are using the budget problems as an excuse to promote new taxes, including a possible capital gains tax. You have done considerable research on capital gains tax. Do you believe it can pass, and if so, will it be constitutional?
While 2020 is enough to turn anyone gray, the mind-numbing refusal by some in our state to accept the undisputed facts about capital gains taxes sadly turned my beard gray long ago. There is one piece of information that is consistently left out by advocates: the fact that a capital gains tax is an income tax. This important detail dramatically changes the political and legal framework for the debate.
On the political side is the fact the voters have rejected 10 straight income tax proposals, including six proposed constitutional amendments. On the legal side is the fact a graduated income tax would require a constitutional amendment.
There is near universal agreement that adopting a constitutional amendment to allow a graduated income tax is extremely unlikely. So, what is the motivation with these perennial proposals for a capital gains income tax? Let’s see what the advocates of the tax proposal say.
Sen. Jamie Pedersen (D-Seattle) was recently quoted in an interview saying: “Republicans and Jason Mercier and company have been agitating for years that a capital gains tax is an income tax, and expressing horror and disbelief that anyone could claim that it’s not an income tax. That’s not actually the question. We don’t care whether a capital gains tax is an income tax because an income tax is not something that shows up in our constitution.”
What does show up in our state constitution is one of the broadest definitions of property in the country. Interpreting this language, Washington’s state Supreme Court has consistently ruled that income is property (meaning, you own it). This is why a graduated income tax has been prohibited without a constitutional amendment and a tax on income must conform with the constitutional restrictions on property taxes.
As for those who unequivocally says a capital gains tax is an income tax, I’m in good company. Every state in the country and the federal Internal Revenue Service (IRS) agree. According to the IRS: “This is in response to your inquiry regarding the tax treatment of capital gains. You ask whether tax on capital gains is considered an excise tax or an income tax? It is an income tax. More specifically, capital gains are treated as income under the tax code and taxed as such.”
Whether or not the advocates of this tax proposal care that it is an income tax, this fact is not in dispute anywhere outside of Washington state.
The Washington Policy Center has been a leading proponent for more transparency in the negotiations of collective bargaining contracts and was behind the successful Proposition 1 in Spokane in which voters overwhelmingly approved of public negotiations. Why should these negotiations be made public?
Government accountability and transparency are among the most important things necessary to having a well-functioning and core-function limited government. This is why we continue to advocate for transparency reforms like the state’s searchable budget website (fiscal.wa.gov), a tax transparency website, strong public records and open meetings laws, and government collective bargaining transparency. It’s also why we’ve been happy to work with local governments across the state to implement these reforms and were excited to see Better Spokane bring the voters the opportunity to require contract transparency in the city charter.
One of the largest cost drivers for governments are collective bargaining agreements. Too often, however, these important talks between government unions and elected officials are made behind closed doors.
In fact, the Governor’s Office is currently in talks with state employee unions negotiating the terms of the contract for the 2021-23 budget. There is no transparency, however, being provided for these important fiscal discussions happening against the backdrop of the COVID recession and forecasted state budget problem.
Since taxpayers are ultimately responsible for funding these government union contract agreements, they should be allowed to monitor the negotiation process so they may hold the elected officials who represent them accountable for their actions.
Not only is contract transparency good policy, it is strongly supported by the public. As you mentioned, last November nearly 80% of Spokane voters approved a city charter amendment requiring collective bargaining negotiations in the city be open to public observation.
The people have a right to know how public spending and accountability decisions are made on their behalf. Ending collective bargaining secrecy and opening government union contract negotiations to the public, as other states and cities have done, is a practical and ethical way to achieve that standard.
To lead by example, the Governor should end the shroud of secrecy clouding the current 2021-23 state employee contract talks.
One of the results of the recent protests around police actions has been liberals joining conservatives in advocating for more transparency in collective bargaining contracts. Do you think this will result in changes being made in how negotiations are conducted?
We need look no further than the recent protests across the country to understand the importance that government transparency, or the lack of it, has on building public trust. This is especially true when it comes to the decisions being made in various government employee contracts for those in a position of public trust, like teachers and police. When these decisions are made behind closed doors and the contracts subsequently undermine common-sense proposals for accountability, frustration and mistrust in our important institutions grow.
The call for government contract transparency is growing. Route Fifty recently reported: “In Philadelphia, Rev. Mark Kelly Tyler, a pastor at Mother Bethel A.M.E. Church and a leader with the interfaith organization POWER, has been critical of the local police contract and wants to see more transparency and public input in how it’s negotiated. ‘It’s pretty much done in the dark and without any input from the citizens,’ he said.”
Along with the need to provide fiscal transparency, opening contract talks to the public would also help to ensure important accountability provisions for government employees are also being implemented and not instead negotiated away by elected officials behind closed doors. The current protests have underscored the need for this type of public accountability in government employment contract decisions.
We can only imagine how things would have been different this year had the public instead been able to be more informed about the various discussions and decisions being made in these various government employment agreements.
Finally, you have been one of the longest holdouts in transitioning from a flip phone to a smart phone. You recently made the leap. Have you found the smart phones more or less evil than you previously believe them to be?
You saved the toughest question for last. It is true that I have finally joined the 21st Century and just got my first smartphone. It has been very humbling needing to ask my wife how to do various things and watching YouTube videos to troubleshoot my inexperience with these hand-held supercomputers.
It is nice not to have to take my laptop everywhere just to send or check email and also be able to instantly see all the brilliance from Seattle and state officials in real-time. I especially like not having to print out MapQuest directions and try to read them in the dark while driving. That talking lady map directions app is currently my favorite.
My decade(s) long holdout had less to do with thinking the tech was evil and more with knowing my personal limitations. With as much crazy policy news that happens each day in our state, I was concerned that if I had immediate access to news and email, I’d have a hard time separating personal and work time. That is proving to be a challenge now that I have the smartphone but I’m also very strong-willed and am now taking it as a personal challenge to not pick up the phone throughout the night.
I will miss being in D.C. and getting asked if I stole my flip phone from the Smithsonian.
You can learn more by reading Jason’s posts at the Washington Policy Center
You can contact Jason at: [email protected]