WashACE Blog

Idaho's Not the Only State Going After Our Businesses

Idaho Gov. Butch Otter's "love letter" to business got a lot of attention recently, even sparking a competitive response from Gov. Gregoire. I wrote about it here. AWB president Don Brunell covered it here.

Now Utah has launched a major campaign to attract relocating businesses, complete with full-page ads in the Wall Street Journal. California is an early target. 

What's our Legislature doing to make this state more competitive in the post-recession scramble for growth?

Hazardous Substance Tax Hike Puts Good Jobs at Risk

The social services lobby does it all the time. Bring a bunch of people to the legislature, fill hearing rooms with folks who rely on public spending, put a face on the policy decisions being made. Rarely, though, do lawmakers see the faces of workers whose jobs are being placed at risk.

Yesterday, that changed. Thirty refinery workers showed up in blue coveralls to let lawmakers know that a proposed increase in the hazardous substance tax could cost them their jobs. Read Jason Hagey's post at Olympia Business Watch for more, and follow the link to Erik Smith's story telling how often lawmakers raid the supposedly dedicated account.

Real people. Real jobs placed at risk by an unnecessary tax hike. Bad idea.

Tax and Spending Continue to Divide Democrats, Prolong Special Session

I like Andrew Garber's description of the special legislative session in the Seattle Times.

The special session has come down to a game of chicken, in slow motion.

Although Democratic leaders have agreed to increase taxes by $800 million, they remain split on what taxes to raise. The Senate wants the 0.3 percentage point increase in the sales tax; the House doesn't want the sales tax bump.

And, most taxpayers oppose raising taxes by nearly a billion dollars on a recession-wracked economy with unemployment approach 10 percent.

Gov. Chris Gregoire is meeting with leaders and urging a compromise. The governor has said she doesn't like the idea of sales tax but so far hasn't been willing to threaten a veto to move lawmakers off center.

According to AP, the veto threat may yet be hauled out.

Gregoire said she hasn't used the threat of a veto to nix a sales tax during revenue negotiations. But the second-term Democrat made clear that she's keeping the veto pen at hand if needed.

"That's an option that I'm holding right now," Gregoire said Monday. "I'm just trying to work both sides, so that they can work together and come to a resolution. So, what they have before them is a way to raise sufficient revenue without a sales tax."

Although the governor has apparently put together a tax package, she's not sharing it publicly.

Gregoire declined to reveal any additional details of her revenue proposal, which was presented to tax negotiators Wednesday. Legislative leaders also refused to talk about the offer, saying their caucus membership needed to be briefed.

While this has been a year of legislative sleight-of-hand, with title-only bills and hurry up hearings, I think the public would like to know the governor's tax preferences.

Speaking of tax preferences, Publicola gives Budget and Policy Center president Remy Trupin a guest op-ed to praise legislation that would sunset tax exemptions after five years.

The legislation should be buried rather than praised. What business investors look for is tax certainty, a stable environment that's conducive to long-range planning. Introducing five-year windows of uncertainty makes no sense. 

Neither, of course, does a billion dollar tax increase.

Good Reasons Not to Raise the Hazardous Substance Tax

Don't miss this op-ed in the Herald of Everett by Don Sorensen on the Hazardous Substance Tax. We've written previously on it (see here and here). Sorensen writes:

First, increasing the tax will increase the price Washington consumers pay for gas and diesel at the pump. This will hit low-income families, already struggling with the recession, extra hard. These increases will also hit many other businesses, from truckers to farmers to retailers...

Second, increasing the tax puts good, family-wage jobs at risk. Proponents are touting the new jobs that could be created by the tax...But they conveniently fail to talk about the existing good jobs threatened by this major tax increase. The Tesoro Anacortes refinery that I manage is a prime example. These are tough times for the refining industry and our continued viability would be put at risk by this massive tax increase.

Read the op-ed. This potential tax increase has long-term negative consequences for families and businesses in the state.

Jobs Bills and Spending Reforms Move Through Legislature

Democratic legislators have had a hard time getting any give-back from state employees this year. While there was never any serious effort to reopen contract negotiations to rightsize compensation packages, they did make a run at a furlough program during the regular session. Yesterday, the Senate passed a scaled-back version of the plan. Rachel La Corte reports on the bill's sstatus.

The Senate has approved a measure that directs agencies to trim about $50 million in payroll costs through furloughs and other steps...

Under the measure, if the agencies don't present a plan on how they'll make the cuts, they will have to shut down for one day a month for 10 months starting in July.

Under the bill the Senate originally passed in January, lawmakers were looking at making government shut down for a total of 13 days if other cost-cutting measures weren't taken...

A lot of workers are exempted. Sen. Joe Zarelli makes the right point.

What this does is draw out savings on a temporary basis," said Sen. Joe Zarelli, R-Ridgefield. "Our problem is not temporary. Our goal ought to be to find reform."

Furloughs, which do nothing to address staffing or compensation structures, are not reform.

La Corte's story also reports that the Senate passed a temporary tax exemption for data centers. The Washington Research Council examined the effect such operations had on local economies (full report here, executive summary here).

More on the data centers and the House's massive proposed bond issue for construction projects in the Olympian. The House job package faced legitimate skepticism when first offered during the special session. It appears from the story that the skeptics are softening, though it's not clear why.

Gov. Chris Gregoire and state Treasurer Jim McIntire had been skeptics when Dunshee announced a larger plan for school renovations in 2009. But spokeswoman Karina Shagren said Tuesday that Gregoire is “still intrigued by the idea” and is exploring it.

Chris McGann, spokesman for the treasurer, said McIntire’s main objection had related to the size of the bond and a lack of a revenue source to pay off the bonds.

“We’re working with the governor, Rep. Dunshee and the Senate to see if there is a way to do what he’s trying to do without jeopardizing the state’s credit rating,” McGann said.

The credit rating is important. But what about the other issue - borrowing long-term to fuel a temporary uptick in construction employment? Stay skeptical.

Everett Chamber Leaders Warn of Consequences of Higher Taxes

In an unusually sharp op-ed in today's Herald of Everett, the leaders of the Everett Chamber of Commerce speak for many Main Street employers.

Grappling with the means to close the state budget deficit, the Legislature has proposed several ideas, including additional consumer and business taxes. These measures are troubling because they would raise the cost of living and doing business in our state, thwarting efforts to give Washingtonians what they need most — job creation and preservation, and a break from the burden of increased taxes.

They acknowledge the difficult situation legislators confront, and share concern for preserving and strengthening essential services. And, like many of us, they wonder when we'll see the overdue structural reforms.

Businesses are already fearfully anticipating another round of unemployment insurance and workers’ compensation increases next year and citizens will not be able to afford another sales tax increase...

After the budget and revenue packages are passed this year and the special session ends, we hope that efforts will be focused on finding long-term solutions to fix this crisis once and for all so that we are not facing the same issue next year.

The Chamber leaders mention the sales tax increase. It's not clear to me that we'll see one this year. But George Howland, Jr., reports in Olympia Newswire that the governor has said she will not veto a sales tax should the legislature send it to her. He also details the Democrats' negotiating process and players, with Sen. Rodney Tom apparently not sidelined despite his budget apostasy.

Washington Economy Lagging the Nation in Recovery

A new Washington Research Council policy brief examines a new report from Philadelphia Fed analyzing economic recovery in the 50 states. Washington, at this stage, doesn't look so good. 

For January Washington was one of the 19 states showing a one-month decline and one of the 31 states showing a three-month decline. For one month, Washington’s decline was 0.1 percent, which ranked 36th among the 50 states. For three months, Washington’s decline was 0.6 percent, which ranked 40th among the states.

The WRC concludes:

The most important thing that state leaders can do to help the economy in the near term is to craft a solution to the 2009–11 budget gap that minimizes tax increases. 

Longer term, state leaders must confront the structural imbalance between state spending commitments and revenues. Legislators will face another multi-billion dollar budget gap when they convene next January to write a budget for 2011–13. Because the 2009–11 general fund budget relies on more than $4 billion in one-time resources (federal stimulus funds, transfers from other state accounts and reserves), it will be impossible to continue to fund in 2011–13 everything that is funded in 2009–11.

And yet, they're considering nearly a billion dollars in new taxes that will slow employment growth and delay the recovery. As the Philly Fed report demonstrates, Washington cannot take recovery or prosperity for granted. We're in a competition. And we're falling behind.

Voters Likely to be Shut Out of Special Budget/Tax/Jobs Session

The Senate passed an operating budget today, the same one it had passed previously. This one, again, had only 25 yes votes. One change, Sen. Chris Marr, a reluctant yes the first time, voted no, with Sen. Brian Hatfield providing the 25th yes. Hatfield had been excused the day of the first vote. From this vote, we can't discern any information about how the two chambers will come together. Another vehicle might have provided some clues.

This Sunshine Week promises to be dark in Olympia, as The Daily News editorializes. The Olympian also takes the majority to task for disregarding transparency and public input.

In the waning days of the regular legislative session, Senate Majority Leader Lisa Brown, a Democrat from Spokane, claimed the Legislature is much more transparent than it was when she entered the Legislature.

Brown is wrong.

The hurry-up income tax hearing and title-only tax bills are the prime examples from the regular session. Expect more of the same on the tax and spending bills this special session.

Earlier, I posted on the budget and jobs agenda, without mentioning the jobs portion. It was an oversight on my part, but there's really little to say. The SeattlePI.com has a good explanation for how jobs came to share billing with the budget this week.

Democrats, most of whom up for re-election, know they're going to get lambasted by Republicans in November for summoning the Taxman. That's why during the special session they'll try to come up with a jobs plan, as well.

If that sounds cynical, try this explanation from The Olympian.

To leave behind something that will be remembered more fondly than their budget work come Election Day, Democrats have given themselves a second mission for the overtime period: Create jobs in Washington.

According to a political scientist the paper interviewed, the strategy faces one big problem.

... jobs efforts are unlikely to catch the public’s attention as much as the extra taxes they will pay, especially broad-based ones like the sales tax, said Todd Donovan, a professor at Western Washington University.

Don Brunell writes that Idaho's governor is paying attentionto the Washington tax and jobs trade-off.

With Washington’s Legislature about to raise business taxes to balance its $2.8 billion revenue hole, [Idaho Gov. Butch] Otter upped the ante by openly encouraging employers in both Oregon and Washington to move to Idaho. 

...Faced with ever higher costs and regulatory hurdles in a down economy, many employers are looking for help. If they don’t find it from the Washington Legislature, they may look elsewhere.

The risks are real. Let your lawmakers know that preserving jobs begins with minimizing new taxes on employers.

Two Chamber Executives Call for Liquor Privatization

In The News Tribune today, Tom Pierson and Ken Oplinger, respectively heads of the Federal Way and Bellingham/Whatcom Chambers of Commerce, called for privatizing the state liquor system. 

Instead of increasing taxes to pay for record state spending levels that have not declined since the Great Depression, we believe the Legislature should allow the privatization of liquor stores.

...Getting Washington state out of the liquor sales business would ... likely result in more state revenues and create more jobs for Washingtonians as we have seen in other states that have converted to privatization of the liquor stores. A recent report by state Auditor Brian Sonntag found that “state revenue could increase by $130 million to $244 million over the return from the current operating structure, including one-time revenue.”

Efforts by Republicans and Democrats to privatize the system this year went nowhere in the regular session, blocked by union opposition. The Pierson-Oplinger call should be heeded.

Risks Rise with Special Session

The special session starting Monday poses higher risks for families and employers. Lawmakers attempting to reconcile dueling budget plans will face interest group pressure to increase spending and taxes.

The House has adopted a tax package totaling $681 million for the balance of the biennium. The Senate's tax plan goes higher, to $890 million.

Both increase business and occupation taxes on services. Both raise taxes on direct marketers in the wake of the Dot Foods case. Both include controversial economic nexus and tax avoidance provisions.

The Senate raises the state sales tax from 6.5 percent to 6.8 percent and creates a new "working families tax credit," essentially a new entitlement program.

The House also passed a new tax on custom software development, which the Washington Technology Industry Association describes as...

...a new tax on a whole range of innovative software companies that are at the center of our technology industry. Without any input from industry, the House passed a version of Senate Bill 6143 that includes a new tax on custom software development-a fundamental shift in tax policy that could lead to job losses, business closures and new taxes on other professional services

That one came at the last minute without consultation with the industry - a perfect illustration of the out-of-the-blue risks we face in the special session.

Let your lawmakers know this weekend that you expect them to rein in spending, resist the spending lobby, and adopt policies that stimulate job creation.