Washington Research Council Blog

Cities continue to block B&O tax simplification backed by business, governor

For years, business groups have sought a way to simplify the state's myriad municipal business and occupation tax regimens. AWB president Don Brunell devoted his column this week to the issue, indicating support for Gov. Gregoire's tax simplification proposal.

B&O taxes are assessed on a business’ gross income, regardless of profit. The state imposes a B&O tax, but local jurisdictions do as well. The amount of the local B&O taxes, as well as how they’re calculated, varies from one jurisdiction to the next.

...Under the governor’s proposal, the state of Washington would be the single collector of all local and state B&O taxes, and the state would rebate to each local jurisdiction their share of the tax -- similar to how the state currently handles state and local sales taxes.

Five major cities opposed the plan. AWB's Jason Hagey writes at the Olympia Business Watch blog that the opponents so far are unwilling to compromise. He reports that the cities' objections have been solidly rebutted.

Early in the session, cities were complaining about the governor's original proposal, claiming it would cost them millions of dollars.

That prompted a detailed rebuttal from the Department of Revenue, knocking down virtually all of the concerns. It is clear, officials said, that the cities misconstrue the impacts from some parts of the proposal.

Regulatory reform and tax simplification are two positive steps the state can take that will boost business activity. We documented many of these issues in our Thrive Washington series and other WRC reports over the years. It's time to act.

Thrive Washington: Setting Priorities, Marking Progress

The last of nine Thrive Washington papers is now available: Setting Priorities, Marking Progress.  Thrive Washington is a research series developed by the Washington Roundtable and the Washington Research Council.  Other papers focused on fiscal policy, business costs, competitive sourcing, health care, government restructuring, regulatory reform, and economic development.

The final paper reviews progress made by state government over the past year and makes priority recommendations for the coming years.  Two fundamental priorities are to establish the public policy foundation for economic vitality and to reset state spending to a sustainable level.

Governor wants state workers to pay more for health care benefits...they decline

State workers enjoy significantly richer health care benefits than do most private sector employees, as documented in this Thrive Washington paper.

Currently, Washington pays 88 percent of the premium costs for state employees for individual or family coverage.  In 2003-05, state employees paid, on average, 16.3 percent of the cost of their coverage (up from 6 percent in FY2001).  In 2005, the first budget enacted after public employees were allowed to bargain collectively, the state employee share of premium costs was reduced to the current 12 percent.

By comparison, the 2010 survey of employer health benefits conducted by the Kaiser Family Foundation and Health Research and Education Trust found that “on average (covered workers) contribute 19 percent of the total premium for single coverage (up from 17 percent in 2009) and 30 percent for family coverage (up from 2 percent in 2009).”

The latest collective bargaining agreement boosted the 12 percent to 15 percent - the governor had proposed workers pay 26 percent. Still, as the Kaiser Foundation reports, state employees have an uncommonly good deal.

The governor yesterday asked to reopen the contract to reduce state costs in the face of a $2 billion shortfall. Union groups quickly declined her invitation. According to the Seattle Times,

The governor's office said it still proposes to reduce by $16 million the state's contribution to employee health-care benefits this biennium. Gregoire's office maintains that would not affect the benefits because workers are tapping their insurance at a lower rate than previously anticipated, so that money would be missed.

Sounds like a pretty easy giveback - the money's apparently not needed to cover benefit costs anyway. Yet, the WFSE says,

 Federation Executive Director Greg Devereux told the WashingtonStateWire.com on Wednesday:

“‘State employees have given as much or more than anyone else in our state, and they are tired of this administration and the Legislature feeling like there are an endless amount of takeaways,’ he said. ‘All [the governor] has to do is look out the window and see Occupy Olympia, Occupy Seattle, Occupy Spokane. People are fed up.’ [Ed. note: That's a heck of a view from the dome.]

“Devereux said it makes more sense for the Legislature to order a three percent cut in all corporate tax breaks. ‘I think if we do that the $2 billion deficit goes away. Let’s just have a 3 percent across the board cut on all tax breaks.

Washington Policy Center analyst Jason Mercier notes the politics and the implications:

The unions' refusal to cooperate with the Governor's request is not surprising. Unions exist to fight for their members, not to advocate for policy that is in the best interest of taxpayers. This why it is incumbent on the Legislature to have the authority to weigh all spending requests equally in the context of the priorities of all taxpayers and citizens and not be cut out of budget decisions totaling millions of dollars.

All of which underscores the point made in a thoughtful editorial in the Herald of Everett.

 

If [proposed new revenue is] not accompanied by meaningful budget reforms that minimize the chance of further shortfalls, though, good luck getting it past skeptical, recession-battered voters.

 

Yes.

Boom and Bust

The top story in Stateline today is all about Washington: "Boeing and Microsoft boom, but Washington State busts."  It's a downer of a story, which will be no surprise to anyone that's been paying attention to the state budget over the last few years.

The article says that Washington's budget problems stand out from those of other states and argues that some sources of the problem are our tax structure, stalled construction, and the economy in general, which is affecting consumer confidence.

Rep. Ed Orcutt is quoted: "I don’t know what we can do to encourage job growth. But we can do some things to stop discouraging it."  The article continues,

By and large, however, many state lawmakers have reluctantly come to the conclusion that fixing Washington’s economy, at least in the short term, is out of the state’s hands. State government cannot control what happens in the halls of Congress, and it cannot unfreeze national credit markets or drive home prices upward. Meanwhile, the deep budget cuts that are being planned for later this year are likely to result in more public-sector layoffs, perpetuating the bad news.

State lawmakers may not be able to fix the economy, but there are steps they can take to make state government more effective.  The Thrive Washington series set out a number of recommendations for the state along those lines.

From the Auditor: An Inventory of State Regulations

The state auditor's office is undergoing a series of audits "to determine whether Washington’s business regulations are streamlined, transparent and consistent."

Today, they released an inventory of all state regulations, by agency.  There is an Excel spreadsheet for each agency showing licenses, permits and inspections required by each.  The information includes the purpose of license/permit/inspection, what business activities require them, how to get a permit/license and how much it will cost, the laws requiring the license/permit/inspection, and more.  Pretty much everything you ever wanted to know about any particular regulation.

As part of our Thrive Washington series, we made a number of recommendations for regulatory refom: Confronting Washington State's Overlapping Regulatory Structures.

Grappling with a $2 billion state budget shortfall

Yesterday's official revenue forecast confirmed expectations that deteriorating economic conditions have plunged the state budget into a deep hole. The loss of $1.4 billion in anticipated revenue collections, combined with the need to build reserves, means lawmakers confront a problem approaching $2 billion. How they will handle is so far unclear. While it's likely a special session will be called, no one expects them to rush back to Olympia soon.

The fundamentals haven't changed. Under Initiative 1053, tax increases require a supermajority vote of the legislature or a vote of the people. The supermajority is most likely out of reach. But there is talk of submitting a revenue package to the voters next year, something they can do with a simple majority.

The timing is difficult. Getting the required 50 votes in the House and 25 in the Senate for new taxes in a lousy economy and an election year will take a while, if it's possible at all. It's unlikely that anything can be put together before late spring. And there's no guarantee that the voters are any more enthusiastic about taxes than they were last year, when they rejected two tax measures and passed I-1053.

So, while some contend further cuts are not an option, there will inevitably be additional cuts, even if lawmakers choose to pursue a new revenue strategy.

The Seattle Times reports the governor thinks a special session is necessary to avoid unacceptable across the board cuts.

The governor said she'd want to wait to hold a special session until after the next revenue forecast in November, should the numbers get worse.

That may give budget writers time to draft a plan that legislators can adopt swiftly, although the options are bleak. As the Times says,

Most of the budget is difficult to cut because of federal strings attached to programs, and state constitutional protection for the bulk of K-12 spending.

In our Thrive Washington series, we've identified good recommendations for putting the state on a more sustainable budget path. We'll have more on this later.

 

WRC economist named to state debt commission

Kriss Sjoblom, WRC vice president and economist, will serve on the new state debt commission established by SB 5181. Here's how the bill report describes the commission's activity.

A commission is established to examine the use of debt in Washington State and make recommendations on debt policy and debt limitations. Commission members include the State Treasurer; the Director of the Office of Financial Management; four legislators, one from each of the four major caucuses; and six independent experts, three appointed by the Governor and three appointed by the State Treasurer. The commission's report is due December 1, 2011.

Kriss is a long-time member of the Governor's Council of Economic Advisors. Washington's debt load has been a growing concern for analysts, as we highlighted in our Thrive Washington series.

Washington’s taxpayer-supported debt is untenably high. The credit-rating service Moody’s ranked the state eighth in the nation on a per capita basis for 2009. The $2,226 state government-issued debt per capita is more than twice the median figure of $936.

Lawmakers deserve credit for tackling the issue now. We're proud Kriss will be a part of the solution.

A business perspective on recent legislative session

That's what I try offer in this commentary in Crosscut. Here's how I frame it.

Legislative post mortems generally report that business interests had a good session. That’s a fair but incomplete conclusion. The progress made this year in Olympia will improve Washington’s economic competitiveness. However, much more remains to be done.

Let’s look first at the accomplishments: Unemployment insurance tax relief, workers’ compensation changes to reduce costs, adjustments in employee compensation and pension reform to create a more sustainable budget, and expanded use of competitive contracting to increase productivity and create private sector jobs.

While collectively significant, in most cases these changes were incremental and modest.

The piece goes on to review some national competitiveness studies that assess how Washington fares against other states.

Please take a look at it and give me your thoughts.

Microsoft & Boeing announce $50 million scholarship fund

Today, coincident with the governor's signing higher education bills, Boeing and Microsoft pledge $25 million each to fund scholarships for students in high-demand fields.

This is very good news, as the governor points out.

...our colleges and universities must have the resources to educate and train the next generation of engineers, scientists and workers. Tuition flexibility will allow them to set their own tuition through 2019, so it is competitive with similar colleges and universities in other Global Challenge states...

She points out that with tuition going up, additional financial aid will be required to maintain access for low- and middle-income students. And she adds,

"Thanks to Boeing and Microsoft for their generous contributions to the Opportunity Scholarship Program and for their partnership and support.”

The statement from Microsoft General Counsel Brad Smith, who chaired the governor's higher education funding task force, is here.

News stories here and here.

In our recent Thrive Washington paper, we had this to say about higher education funding.

Governor Chris Gregoire’s Higher Education Funding Task Force released its recommendations in early 2011.  The Task Force proposed that the state give public four-year universities more tuition flexibility; establish an endowment for Washington Pledge Scholarships that would be managed by a non-profit and funded with both state and voluntary private contributions; strengthen university accountability; and increase the number of graduates, especially with STEM-related degrees.  Enacting these recommendations would provide more stable and predictable long-term funding and improve retention and graduation rates.  This is important throughout the higher education system, particularly in high demand programs and STEM related fields.

A big step forward was taken today.

Thrive Washington on Economic Development

The latest Thrive Washington paper is now available.  Economic Development: Moving Washington State Forward Into Recovery covers education and business climate, as well as more direct economic development policies.  From the conclusion:

Public and private groups have made proposals that would enhance the education of our  students to ensure they are prepared to enter the workforce. The legislature recently enacted long-overdue reforms to the state’s unemployment insurance program. Such actions will help bring Washington’s costs of doing business to a more competitive level. The state’s casework activities have embraced the innovative industries and clusters that are a draw for other businesses.

By continuing such work, Washington’s economic development work can help push the state forward into recovery.

(Previous Thrive Washington reports are available here or here.)