Cutting costs due to declining taxpayer revenues
April 3, 2020
Taxpayer money going to government is dropping significantly What are elected leaders doing in response? (Clark County Today published my piece here).
The Covid-19 Coronavirus from China has caused government around our nation to shut down the national economy. People are asked to stay at home. People are “social distancing” when they are out in public getting groceries or going to the doctor. Governors in many states, including Washington, have created lists of “essential” businesses that are allowed to continue. Everyone else is asked to stay home. Schools are closed. Our economy is grinding to a halt. Restaurants and bars are closed, unless they can provide “food to go” while complying with “social distancing” rules. Beauty salons, health clubs and gyms are closed. The construction industry in our state has ground to a halt, unless they are working on an Inslee-approved government job site.
Families are making very difficult decisions. How to pay bills and meet financial obligations? First and foremost is buying groceries and paying for true necessities. Food, shelter, and healthcare are their top priorities. The unemployed are wondering if they can find another job. Others wonder “if” or “when” they might be laid off.
The early April news about our economy was stunning. Fully 10 million Americans are unemployed. There were 6.6 million people filing for “first time” unemployment the last week of March. That was double the number expected, and double the number from the previous week. The LA Times reported:
“a growing number now say the downturn will probably exceed the Great Recession of 2008-09. U.S. economic output, which has grown without interruption for a record 10½ years, could fall as much as 9% in 2020 — more than three times the sharpest drop during the Great Recession, according to some predictions. At the height of the Great Depression in 1932, the economy shrank a record 12.9%.”
This graphic shows how dramatic the unemployment numbers were, from a historical perspective.
Boeing, our state’s largest employer, is offering “voluntary” layoffs. I don’t know how many Camas residents work at the Gresham Boeing plant, but I know there is a sizeable number of Clark County residents who work there.
A different Seattle Times report indicates gas sales have plummeted by two thirds for one Seattle area gas retailer. Clearly gas tax revenues going to the state transportation fund are plummeting as well. A different Times news story reported that 44% of global airplanes are parked. It highlights there will not be a quick “recovery” for our state’s largest employer, Boeing.
Some economists, including the people at the Federal Reserve, are predicting a recession with the potential for 32% unemployment and 47 million unemployed Americans. The CNBC report: “previous Fed research showing 66.8 million workers in “occupations with high risk of layoff.” They are sales, production, food preparation and services. Other research also identified 27.3 million people working in “high contact-intensive” jobs such as barbers and stylists, airline attendants, and food and beverage service.”
All those unemployed people are not spending money on anything but essentials — groceries and paying utility bills, rents or mortgages, and necessary medications, etc. Others worried about layoffs, and those working from home, are cutting spending as well. The result is sales tax revenues in Washington state are in significant decline. This is the major source of revenue to cities, counties, and our state, in addition to property taxes.
Washington’s Governor has asked citizens to stay home. He has extended his Executive Order asking people to stay home through May 4th. But he has been mostly silent about cutting state spending. While national leaders including the President and Congress have been addressing the economy, in part by printing more money and distributing cash to a majority of Americans, cities and states don’t have that option. Their only option is to cut spending.
The Seattle Times editorial board acknowledged this in a much needed April 1 editorial. They called for “painful cuts” to state spending. “Coronavirus necessitates painful cuts to Washington state budget” reads the headline.
“Despite the pain, Gov. Jay Inslee must make deep cuts to the supplemental budget Washington’s Legislature finalized just a few weeks ago. Inslee is expected to veto some new spending before signing the budget into law on Friday. He must not hold back. That requires political courage, but there is simply no choice. State and local governments cannot commit to higher levels of spending going forward until the economic effects of coronavirus measures are better understood. That may take months.”
Finally, on Friday April 3rd, the Governor did veto a small amount of state spending. From a Tacoma News Tribune report:
Bracing for a potential massive decline in revenue because of COVID-19, Gov. Jay Inslee on Friday vetoed dozens of items in the state budget to reduce spending by about $445 million through mid-2023. The biggest spending reductions triggered by the Governor’s veto pen are $115 million to hire 370 more guidance counselors at public schools, $50 million for projects to enhance mitigation and resiliency in response to climate change, and $35 million for paraeducator training. The need to put the brake on new spending comes as state budget officials prepare for what could be a $4 billion to $5 billion decline in state revenue through mid-2023. If the economy fails to rebound quickly, the revenue drop could balloon to $8 billion to $9 billion, according to David Schumacher, director of the Office of Financial Management.
While this $445 million in cuts over the next few years is a good start, it’s a drop in the bucket to what the Governor’s own budget officials predict a $4 billion to $5 billion decline in tax revenues. It could be double — an $8 billion to $9 billion drop in taxpayer “revenue” to the government. $9 billion is 20% of the state budget!
The February 2020 revenue forecast was $1.6 Billion above the legislature’s 2-year budget passed in 2019. From the Washington Research Council:
“An increase in state taxes and a jump in property taxes increased the projected forecast to $606 million over what the economic forecast projected in November, putting the total estimated revenue gain at a total of $1.5 billion since the end of last year’s legislative session in April.”
Why wouldn’t Governor Inslee roll back spending by $1.5 billion, simply to match the 2-year budget passed by the legislature a year ago? That’s 30% of what is needed and 15% of what “might” be needed, according to his own budget director! Governor Inslee failed the Seattle TImes call for political courage. Again, they said Inslee “must not hold back. That requires political courage, but there is simply no choice.”
Where are our elected members of the legislature, calling for more dramatic cuts in state spending? Are there local governments making cuts?
The Mayor of Camas, Barry McDonnell, put five separate construction projects on hold on April 1st. He and the city council will further discuss the issue on April 15th. This is a good first step to preserve cash!
The City of Camas put five projects on hold. The $7-$8 million roundabout was the newest, scheduled to start construction on April 1st. Four additional public construction projects currently underway are also being halted: improvements to Brady Road, construction of the 18th Avenue Reservoir, construction of the Lacamas Creek Pump Station and improvements at the Wastewater Treatment Plant.
What is the Clark County Council doing? What are the other small cities in SW Washington doing to cut spending?
KOMO news reported the city of Tukwilla is considering 10% pay cuts for all employees, among other measures to prevent layoffs.
In a document shared with KOMO News, city officials outlined a response that calls for a reduction in pay of 10 percent for all employees, including union and non-union. According to the proposal, the wage cuts would be effective May 1 and are designed to preserve jobs and avoid layoffs. The city spokesperson stressed that the wage reduction is just one potential course that City Hall is considering.
What can county and local governments do? As reported by Glen Morgan:
One silver lining on the dark cloud of Washington State Governor Inslee’s emergency declaration was that it empowered the elected county treasurers to delay the due date for paying property taxes. this is one of the rare situations where they can unilaterally make a decision which has a real positive impact on the lives of local property owners.
As of April 1st, seven county treasurers (out of 39) had formally made the policy decision allowing property owners to postpone the due date in paying property taxes. They extended due dates to June 1st or June 15th.
Clark County Treasurer Alisha Topper said in a press release: “I will be in close contact with statewide and district leaders to determine the best way to ensure our critical services, like first responders, are funded while providing temporary flexibility to tax payers,” said Topper.”
She also indicated: “Business owners impacted by the recent closure orders due to the novel coronavirus will have the option of paying their business personal property taxes over time with no penalties or collection fees.”
Clark County business owners get a reprieve. Homeowners maybe? Keep in mind delaying the property tax due date doesn’t eliminate the property tax itself. The delayed payment (without assessed penalty) can make a huge difference for some homeowners.
Back to the state level discussion. Glen Morgan makes a great case for selectively cutting the state budget. Using a scalpel rather than across the board cuts.
Understand that 46% of Washington state revenues come from sales and use taxes. Another 17.4% comes from Business & Occupation (B&O) taxes, and 16% from property taxes.
(Source – WA state Department of Revenue) Glen explains in greater detail in this video. Where are the members of the state legislature, demanding cuts in state spending? Glen Morgan reports that during the Great Recession, total state revenues declined by around 20% over 3 years. National unemployment has already exceeded that of the Great Recession, and in only one month!
How much is the City of Vancouver cutting their spending? How much are Ridgefield, Battle Ground, and Washougal cutting their spending? How much more will Camas cut its spending?
Citizens are making difficult financial decisions, cutting spending and reducing their family budgets. Our government should be doing the same.