Privatization and comparative advantage

This is a great story on a part of Washington’s economy: The boutique booze boom in Washington. It begins by talking about Westland Distillery’s Emerson Lamb:

“It has been our stated goal to put Washington state on the map as the world class place to make single malt whiskey alongside Scotland,” said the 25-year-old Lamb.

Lamb’s declaration, which would have drawn fall-off-your-barstool-laughter a decade ago, is not only gaining traction among distillers but has also set off a race to deliver the first great single malt in Washington state — and to grow the barley to make that happen.

Indeed, researchers from Oregon State University to Washington State University have confirmed what Lamb and farmers have long suspected: that the maritime climate here mirrors that of Scotland, where some of the world’s best single malts are made.

According to the article, Washington has the most micro distilleries in the country — a situation that was brought about thanks to the Legislature getting the state out of the way in 2008 by making it easier to open a distillery.

The story notes that liquor privatization brought craft distillers new challenges because they no longer have the ease of dealing with the state monopoly rather than various individual stores. One would think that the competition required by privatization has helped to strengthen the distillers in the business. Separated the wheat from the chaff, if you will.

Even better, it seems that privatization has made distillers focus on what might be Washington’s comparative advantage:

Many believe single malt, uncommon in America, is one way to get onto those shelves.

Many Northwest distilleries believe they can dominate the single malt category much like Kentucky has dominated the bourbon market. The Northwest has better growing and aging climate to make single malt than other regions, they say.

In June 2010, after planting more than 1,000 different types of barley and wheat around Western Washington and other areas, WSU’s Jones concluded that the maritime climate from Vancouver, Wash., to Vancouver, B.C., is ideal for growing the barley strains that have low protein and high starch, the same types that produce a “complex flavor — sweet, but not white-sugar sweet,” he said. “You can compare it to a maple syrup … It has a very natural sweetness.”

This means new opportunities for farmers as well:

There are only a handful of regions around the world that have the right climate to grow this type of barley, Jones said. . . .

“There was zero winter barley planted in Skagit County five years ago. Today, there’s at least 5,000 acres,” Jones said. Nearby counties are also starting to grow barley.

(On that point, per USDA, Washington ranked 4th in the nation in barley production in 2013.)

Rules proposed for Seattle’s minimum wage

The City of Seattle has released proposed rules for implementation of the $15 minimum wage. According to the Seattle Times, the public comment period is open until March 6.

The minimum wage ordinance takes effect April 1; it will gradually increase the minimum wage in Seattle to $15 (and index it to inflation) depending on the size of the employer and whether the employee receives tips or medical benefits. All employers will have to pay the same minimum wage by 2025. Below is a chart from the city showing how this will work.

blog.022515

Under the proposed rules, employers must pay employees who are under 16 an hourly rate that is at least 85 percent of the new city minimum wage. The rules specify that service charges are not tips. Additionally, if an employee is jointly employed (e.g. with a staffing agency and another company), the amount he is paid depends on the size of the larger employer.

Here is our recent report on the minimum wage.

Reputational damage at the ports

As an addendum to my earlier post on the deal at the ports, NPR has a good interview with U.S. Labor Secretary Tom Perez. On the impacts of the slowdown, he says,

There is so much collateral damage occurring. . . . You are playing with fire because, yes, the West Coast ports have the advantage of location, location, location. But you know what — location, location, location is not enough if you have a bad reputation, reputation, reputation. . . . In 2015 businesses have options.

Streamlined Permitting for Transportation Projects

The transportation package before the state Senate includes several elements designed to speed the completion of new construction and maintenance projects, including adding a 90 day processing requirement for new construction permits, limiting permit appeals to Superior Court, and exempting maintenance from state and local permits.

This initiative to increase efficiency and reduce costs is mirrored by legislation moving forward out of the transportation committee on the house side. A bipartisan effort spearheaded by Reps. Dave Hayes and Hans Zeiger, working with committee chair Judy Clibborn, has yielded three bills. HB 1219, sponsored by Zeiger and Clibborn, would expedite permitting by exempting the repair or replacement of structurally deficient state bridges from SEPA (State Environmental Policy Act), as well as expediting the bidding process to implement the work. Hayes and Rep. Steve Bergquist have brought forth a related bill, HB 1851, which applies to bridges owned by local governments.  HB 1850,  from Hayes and Clibborn, would exempt certain WSDOT maintenance activities, as well as construction actions undertaken for safety, from local review or permit processes under the Shoreline Management Act.

These efforts to reduce process friction and costs associated with transportation projects are encouraging, as legislators contemplate asking the voters for new tax funds.

The Senate legislation:

http://lawfilesext.leg.wa.gov/biennium/2015-16/Pdf/Bill%20Reports/Senate/5994%20SBA%20TRAN%2015.pdf

The House bills:

http://apps.leg.wa.gov/billinfo/summary.aspx?bill=1219&year=2015

bill=1850&year=2015#documentshttp://apps.leg.wa.gov/billinfo/summary.aspx?bill=1851&year=2015

Education roundup

The AP reports that some are now estimating that the cost of complying with the McCleary decision on education funding could be in the ballpark of $6 billion. That number includes not only K-3 class size reduction, full day kindergarten, and materials, supplies and operating costs, but also takes into account that

. . . the 2012 court ruling also called on the state to quit relying on local school levies to fill holes in the state budget.

The Washington Education Association estimated that statewide districts spent $1.6 billion in levy dollars during the 2013-14 school year on the salaries of teachers and other school employees.

Data provided by the staff of Rep. Ross Hunter, D-Medina, chairman of the House Appropriations Committee, show local levies contributed an average of $60,000 per administrative salary and an average $10,000 per teacher and para-educator salary during the previous school year.

Under the high court ruling, it could be construed as a violation of the state Constitution to continue to pay those salaries out of local levy dollars instead of with money from the state budget.

“You can fix almost all of this by screwing around with property taxes,” Hunter explained.

As Kriss mentioned in the latest episode of our In Focus podcast, state Rep. Reuven Carlyle has a modest proposal to reconsider the state’s paramount duty:

In our state, the romantic image of strong funding from the state government has not been realized. Political impasse over generations has created a system with unconstitutional funding structures, relatively poor student outcomes and great inequality.

A case can be made that Washington’s top-down approach disconnects schools from their natural, strongest base of support—local families and communities.

He compares Washington’s method of funding K-12 with that of some of our global challenge states. We did the same in a report a few years ago: Comparative Analysis of School Funding. Carlyle also writes,

Today, early learning and higher education are more than ancillary, they are core to our desire to educate the whole child and whole person. We cannot have a system where “the paramount duty” is only K-12 and leave the other aspects of education as second class citizens. It doesn’t work for kids, parents, business or an educated civic society.

Speaking of higher education, Steve Mullin of the Washington Roundtable has a good op-ed on the topic:

Fortunately, in the last few years the Legislature has begun to address this problem by increasing higher education funding, especially in high-demand programs, and helping the institutions avoid additional tuition increases.

The next big challenge comes this legislative session.

The Washington Supreme Court’s 2012 McCleary decision requires the legislature to significantly increase its investment in K-12. It will squeeze the state general fund. And, in a difficult budget environment, higher education – which doesn’t have the same constitutional or legal protections as other spending categories – could end up on the chopping block.

(See also our recent brief on higher education.)

Deal reached at the ports, but normalcy may be a long way off

On Friday, the Pacific Maritime Association and the International Longshore and Warehouse Union came to an agreement on a new contract, averting a full shutdown of West Coast ports. A major slowdown had been ongoing for the past several months, which we have written about previously. According to the Los Angeles Times,

The agreement, which still needs approval from union members and individual employers, should start easing severe congestion that’s been building for months at the nation’s busiest ports, in Los Angeles and Long Beach, along with other major gateways.

Details of the proposed five-year contract for about 20,000 West Coast dockworkers were not released. The dockworkers have been without a contract since July. The two sides had been negotiating since May.

The dispute caused businesses across the nation to lose money because imports were trapped on boats and exports trapped on land.

“We heard from small-business owners, large-business owners, farmers who couldn’t get their produce or their meat to market,” U.S. Labor Secretary Thomas Perez told reporters in San Francisco, where he joined contract talks this week to push for a settlement.

“This is now in the rear-view mirror,” Perez said. “A significant potential head wind for this economic recovery has been removed.”

When will things be back to normal? According to the Ports of Seattle and Tacoma,

Operations at our terminals resumed Saturday evening. We are uncertain how long it will take to move the remaining cargo on our docks and awaiting vessels, and to assess the effects this has had on our gateway.

The Seattle Times notes that

It will take six to eight weeks for West Coast ports to recover from the cargo backlog, according to the Port of Oakland and the National Retail Federation, which represents stores that resorted to stockpiling seasonal merchandise in warehouses and shifting to East and Gulf Coast ports. The backlog swelled as the two sides quarreled over a new deal.

KUOW has a good interview on the impacts of the slowdown, including the importance of the ports to keeping Seattle and Tacoma competitive.

Latest In Focus episode

 

Above is the latest episode of our In Focus podcast. Lew and Kriss talk about:

Policy Today episode on transportation

 

Above is the latest episode of our Policy Today podcast (recorded February 16). Lew and Kriss talk about the transportation package proposed in the Legislature.

Washington’s forecasted revenue growth is better than that of the average state

A recent post at TaxVox (the blog of the Urban Institute/Brookings Institution Tax Policy Center) examines state government revenue forecasts fore fiscal years 2015, 2016 and 2017.

State forecasters expect revenue growth to remain sluggish through fiscal year (FY) 2016 according to an Urban Institute analysis of agency reports. In FY17, states project revenue growth will return to its average post-2000 rate but remain significantly below its long term average.
Urban
The chart below shows revenue growth for these five years for Washington’s general fund-state account, as reported in today’s update to the state revenue forecast:
WA
Washington’s revenue growth exceeds the nationwide average in each of the five years. Who’d a thunk our creaky old tax system would stack up so well?
Here’s a link to the TaxVox post: State Revenue Growth Will Remain Sluggish

 

New report: The Long-Lasting, Negative Consequences of the Minimum Wage

We have a new report today: The Long-Lasting, Negative Consequences of the Minimum Wage. Briefly:

  • High labor costs hurt a state’s economic competitiveness.
  • In Washington, these costs include the nation’s highest minimum wage.
  • Unlike the federal minimum wage, Washington’s is indexed to inflation and has no tip credit.
  • HB 1355 would increase Washington’s minimum wage to $12 in 2019.
  • 3.03 percent of Washington’s FTE jobs were at the minimum wage in 2012.
  • Nationally, workers under 25 are about half of those paid the federal minimum wage.
  • Minimum wage increases have long-lasting, negative effects on workers.
  • Minimum wages reduce employment for those with fewer skills.
  • For each 10 percent increase in the minimum wage, about one-sixth fewer jobs are created.
  • Higher minimum wages reduce the earnings of the lowest-skilled.
  • Minimum wages do not reduce poverty.
  • Minimum wages limit human capital acquisition.
  • Minimum wages reduce consumer, employee, and employer choices.

We also talked about the minimum wage on the podcast — see here for the episode.