The Small Business Climate in Washington State
March 2002
“In today’s climate I would not start my own business.” – Small business owner in Ephrata
Washington has one of the most difficult business climates in the nation. Each year 22% of businesses in the state fail.[1] Policymakers around the state realize we have a problem, yet many seem unsure of the specific issues or what to do about them. Business and policy leaders are discussing changes to the tax and regulatory structure in an effort to persuade large businesses, like Boeing, to keep jobs in Washington. One voice, though, has been conspicuously left out of the policy discussion; that of small business.[2]
The primary public forum, Governor Locke’s Competitiveness Council, does not include a small business representative, and often the concerns of small businesses are overlooked or disregarded in Olympia. This is unfortunate, because small businesses in Washington face unique obstacles on their road to success and profitability.[3]
Small businesses provide the economic backbone of our communities. Their owners are not in far-off cities or exclusive gated enclaves. They live down the street, in our own neighborhoods and towns. The more than 200,000 small firms in Washington make up over 95% of all businesses in the state and provide nearly 60% of the jobs in the private sector.[4] Nationwide, the smallest firms supply three quarters of employment growth and constitute nearly half of all economic activity.[5] Unlike corporate executives, small business owners take substantial personal risks as they work to transform their ideas into successful, job-creating enterprises.
Like large businesses, small businesses are adversely affected by high taxes, traffic congestion, energy costs, the high minimum wage and expensive regulations. Yet, small businesses lack the political clout of their larger counterparts in standing up to state and local government officials, and they are more likely to suffer from the adverse effects of high taxes and conflicting rules. Most small businesses cannot afford high-priced lawyers or well-connected consultants to help them navigate the twisting labyrinth of government red tape.
In 2001 Washington Policy Center began working with the National Federation of Independent Business (NFIB), the Independent Business Association (IBA) and a number of other associations and chambers of commerce across the state to pursue research on the concerns and opinions of small business owners.[6] We conducted a statewide written survey and held 15 Small Business Roundtables in 14 cities across the state.[7] Small business owners participated in wide-ranging discussions of the major barriers they face and presented ideas for reforming a regulatory system they feel is heavily weighted against them.
This study reports the results of our research. In the following pages we outline the concerns expressed by our roundtable participants and survey respondents. These business owners provide valuable insight into the problems they face daily and shared their ideas for how policymakers can improve our state’s small business climate.
The Washington state business climate faces a number of obstacles to economic progress. Hampered by a slowing national economy and the effects of last year’s terrorist attacks, businesses in the state are looking for new ways to remain solvent. During difficult economic times, the burden of taxes and regulations is particularly apparent. In a time when every penny saved and every added cost can mean the difference between making payroll and filing for bankruptcy, it is more important than ever that state and local governments honestly assess how their policies may be hindering the success of small businesses.
The first phase of our small business project consisted of a research tour of Washington state. During the tour we spoke directly with business owners and conducted a written survey of hundreds of businesses from Aberdeen to Walla Walla. Based on this research we identified a number of issues that are paramount to improving our state’s small business climate.
Participants agreed that for businesses to succeed in this state, it is imperative for government to be fair, accessible and effective. In general our results show business owners do not feel state and local government leaders are living up to their end of the bargain. Instead of promoting business growth and prosperity, we heard that agencies and elected officials often work against businesses by pursuing their own narrow agendas. In roundtable discussions, the three underlying problems about which business owners expressed the most concern were: Regulatory uncertainty, lack of government accountability and the overall anti-business climate. The following sections discuss each of these in turn.
Regulatory Uncertainty
State and local regulations are so incomprehensible that most business owners say they do not know if they are in full compliance with the law. It is likely that every business owner in the state is breaking some law or regulatory rule every day. The state administrative code runs to more than 34,000 pages and comprises a stack of books more than five feet high.[8] A small business owner is required to locate, understand and fully implement every section of those pages that apply to their business. In addition, they are required to understand and strictly follow all local codes and rules.
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The sheer size of this paperwork burden is difficult to comprehend. A single business owner with no employees must comply with 35 sets of regulations from 18 different local, state and federal agencies. If the business creates one additional job that number jumps to 58 sets of regulations enforced by 28 different agencies – altogether making more than 100,000 regulatory requirements.[9] Many small business owners report that their employment decisions are based as much on the additional costs of taxes and regulations as on the economic needs of their business. Sole proprietors often say they will never hire an employee, even if their business could support one, because the administrative burden is simply too great.
The cost of compliance can also be a significant barrier to success. Federal regulations alone add nearly $7,000 per employee per year to the cost of running a small business.[10] Some of that cost is absorbed in the form of lower salaries and reduced benefits, but much of it is passed to consumers in the form of higher prices.
Requirements for licenses and permits continue to grow in number and cost. A contractor in Kennewick said he must maintain a book of 29 licenses just to do business in the Tri-Cities area. One license, required by the State Patrol to install fire lines at a work site, requires a fee of more than $1,500.[11] Similarly, a construction contractor in Wenatchee said he must maintain 12 different licenses to do business legally in that city.[12]
This situation is not unusual. In Pierce County a local contractor explained that the County could require up to 21 different permits, licenses and assessments to break ground on a new single family home.[13] Different cities, counties and taxing districts require different permits and licenses, adding to the difficulty of knowing exactly what is required to operate legally.
Many regulations are hard to understand and even harder for agencies to enforce fairly. The rules are often subjective, and many businesses do not know how to comply. Failure to comply often results in a stiff fine or other punitive action imposed by the government agency responsible for enforcing the rule. State Senator Mike Hewitt, who represented businesses as the President of the Walla Walla Chamber of Commerce, explained, “Over the last couple years, state agencies have been given too much authority and power to make laws and rules our tax-paying citizens must follow. And, if people don’t follow the rules, the agency can penalize them until they comply.”
Government Accountability
A government that is accountable provides clear reasons for imposing new rules and regulations on businesses. When government cannot explain its actions in logical, uncomplicated terms, public confidence is undermined. Roundtable participants expressed doubt that state agencies were faithfully following legislative intent in implementing new laws.
Following are three examples of capricious government actions that emerged in discussions with small business owners:
In 1998 the Department of Labor and Industries announced plans to develop new workplace rules designed to restrict certain stressful or repetitive job related actions.[14] The new regulation, modeled on an outdated federal standard that has been rescinded, is the most restrictive in the nation. Small businesses, without the resources to re-design offices and worksites, report they are particularly affected by the new workplace rules. Still, state regulators insist on pushing through the restrictions regardless of the harmful implications for the business community and the state’s economy.
One small landscaper said he and his wife could not see a way to comply with the new restrictions and believe they will be forced to close their doors.[15] Virtually every business owner in a labor-intensive industry expressed similar concern, fearing the new regulations will require them to increase workforce expenses or retool their operations at some unknown cost deemed “feasible” by the Department of Labor and Industries. Most business owners say they cannot estimate the impact on their business because they do not have the time or expertise to read and understand the state’s book-length ergonomics rule.[16]
Similar distress was expressed about the eleven-year-old Growth Management Act. Many small business owners expressed frustration with the complex land-use regulations imposed on their communities. The appointed regional Growth Management Hearings Board often stifle growth and economic development in small communities using planning principles designed for high-density suburban development. In urban areas, business owners pointed to fast-rising home prices and traffic gridlock caused by forced density and inadequate infrastructure.
Small business owners also expressed frustration with Sound Transit. Approved by voters in 1996, the agency promised to use higher sales and vehicle taxes to deliver a 21-mile light rail line running from Seattle’s University District to SeaTac Airport. Today the project is more than $1 billion over budget, three years behind schedule and will now run only 14 miles from downtown Seattle to one mile short of the airport.
These are just three of the most visible cases roundtable participants mentioned as examples of government’s lack of accountability. Many similar examples were given to illustrate the business community’s view that they do not have control over the way they are taxed or regulated.
Anti-business Climate
Growing concern about the business climate has roused the interest of policymakers across the state. A recent national study ranked Washington as the fifth most regulated state.[17] In addition, our research identified the anti-business attitude exhibited by many agency employees and elected policymakers as a significant underlying cause of the state’s poor business climate
In the not-so-distant past Washington had a more friendly business climate. Agencies worked to promote economic development and elected officials expressed pride in their efforts to ensure prosperity and self-reliance for Washington residents. Today, small business owners feel that attitude has changed.
Our research found many examples where agency managers treat small business as an enemy instead of an ally. One business owner commented, “The government should realize that small business is the backbone of the economy and they should support us, not just consider us a revenue source.”[18] Most business owners said they honestly want to comply with regulations and laws, but they reported that navigating the sea of official red tape is nearly impossible.
In discussions many business owners mentioned their fear of retaliation from individual regulators who show an open dislike for economic growth of any kind. When they voluntarily request assistance from a public agency, small business owners say they risk being exposed to an audit or fine. A recent The Seattle Times editorial echoed this sentiment saying, “State regulators need an attitude adjustment.”[19]
After compiling the results of the statewide roundtables and the responses to the Small Business Survey, we identified the following specific issues as being of greatest concern to most small businesses in Washington state.[20]
High Cost and Lack of Choices in Health Care[21]
Virtually every business owner we spoke with expressed concern about the weak health care market in Washington. Our written survey responses also reflected this view. Respondents identified the cost and availability of health care as the number one concern of small business. Rising prices have already placed health insurance beyond the reach of many small business owners, and those who can still afford it fear they will soon be unable to provide even basic coverage for their employees and their families.
Small business owners voiced particular concern about the way legal mandates drive up health coverage costs for small firms. Health insurers in Washington are required by law to cover a broad range of illnesses and treatments, meaning employers are often paying for coverage their workers do not need. The large number of state-imposed mandates means basic, low-cost health coverage is currently unavailable in Washington.
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In
Aberdeen, a pharmacy owner expressed a view shared by many business owners. While small businesses are being priced out of the private health insurance market, people on unemployment can subscribe to the tax-funded Basic Health Plan. Business owners asked why, when they cannot afford insurance for their own employees and their families, they are required to subsidize public health coverage for people who do not work. The owner of a small cabinetmaking shop in
Puyallup said her employees are dropping the company’s private coverage for their families and enrolling them in the state’s basic health plan.[22]
In our discussions, business owners suggested a number of solutions to lower the cost of health insurance. These included reducing the number of health insurance mandates, opening the market to greater competition, allowing trade and professional organizations to offer self-insurance and reducing limits on medical savings accounts.
Small business owners were united on the question of public versus private health plans. When asked to express a preference between the two, business owners indicated they favor private health insurance to government-run programs by a margin of 19 to one.[23]
High Business Tax Burden
Washington businesses shoulder the majority of the state’s tax burden. Small business owners expressed frustration with the state’s reliance on business taxes to pay for social programs and an ever-growing state government workforce.[24] High tax rates and the complexity of local, state and federal tax laws disproportionately affect small businesses because they are less able to absorb these costs. Simply understanding which taxes are owed is often discouragingly difficult for many small business owners.
To illustrate one aspect of the problem, the federal tax code comprises 2,840 pages, while the administrative regulations accompanying the law consist of 8,920 pages.[25] Extensive local and state taxes are then added to the federal burden. 53% of small business survey respondents said they must regularly depend on an accountant to calculate their annual tax obligation and guide them through other complicated reporting requirements.
In the written survey and in roundtable discussions small business owners identified the Business and Operating (B&O) tax as having the heaviest single impact among all taxes. The tax is levied on gross sales over $28,000 a year and imposes a significant burden on businesses struggling to reach profitability. The B&O tax is levied on all revenue above the minimum, even if the business is operating at a net loss. Newly started businesses and those that are working through tough economic times are the hardest hit.
The sales tax imposes significant costs on small retailers. Owners of small retail and grocery stores explained that collecting the tax for state and local governments increases their cost significantly. Staying abreast of the regularly fluctuating tax and accompanying paperwork is particularly involved and time consuming. Some business owners said they felt they should be reimbursed for the time and resources they expend in collecting the tax.
Legislative proposals to increase the statewide gas tax and continuing debate over traffic congestion make transportation taxes particularly important to small business owners. Yet 70% of survey respondents said they would not favor higher taxes to fund work on the transportation system. In a reflection of this deep skepticism against increasing taxes, two distinct areas of opposition emerged.
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First, many business owners said they are not convinced an increase in tax revenues will be used to expand roadways and improve congestion. This view was succinctly stated by one survey respondent; “I would support higher taxes for transportation improvements, but only if a workable plan was in place, the money would be used exclusively for road improvements and the money now being used for transportation projects would not be siphoned away for other things.”[26]
Second, rural business owners expressed reluctance about paying to solve traffic problems in the Puget Sound region. While business owners said they understand that a vibrant urban economy supports rural prosperity, they are hesitant to back proposals they believe will only benefit prosperous urban businesses at the expense of the struggling rural business community.
State Monopoly in Workers’ Compensation Insurance[27]
All businesses with employees in Washington state are required to purchase workers’ compensation insurance to cover employees for lost wages and health care costs due to work-related injury. The system is run as a state-owned monopoly. The Department of Labor and Industries sets the rates, collects the premiums and distributes the awards for all workers’ compensation policies. State law prohibits private competition.[28]
At our Spokane roundtable the first question that was posed as we opened the discussion was, “Why don’t private companies provide this service?” The owner of a small trucking company operating in Washington and Idaho said Idaho has a far superior system. In that state businesses choose among more than 290 insurance companies that provide workers’ compensation coverage to meet the needs of any type of business.[29] Healthy competition in a diverse marketplace keeps prices low and insures quality service to customers.
In Washington businesses have no alternatives if the service and costs of the workers’ compensation program do not meet their needs. They are forced to pay the rates and receive whatever service is offered by the state agency.
Burdensome Environmental Regulations[30]
The environment is an important part of the quality of life in our state. Small business owners feel regulations designed to protect the environment have become restrictive and one-sided. In many cases environmental regulations at all levels threaten to put small farmers, recreation companies, fishing operations and other outdoor-based firms out of business.
In discussions with small business owners we found that the overall uncertainty they face in trying to comply with complex and subjective environmental standards has greater negative impact than any individual rule or regulation. In a typical example, one state agency will grant a permit for a building project, while another agency, evaluating the same facts comes to the opposite conclusion. In other cases, especially involving enforcement of the Endangered Species Act, business owners find themselves subject to the conflicting dictates of different agencies at all levels of government.
In a virtually universal voice, small business owners said that local, state and federal regulators should use simple common sense when enforcing regulations. Business owners say they do not want to damage the environment and they often take pride in running their businesses in ways that are safe for fish, trees and humans alike. Farmers expressed particular concern with this problem. They said that when regulators impose stiff fines and severely limit land use, instead of working with rural businesses to find reasonable solutions to common problems, it fosters the perception that the state government does not support small businesses.
Small business owners listed growth management restrictions, wetlands enforcement, the cost of the Endangered Species Act and lost water rights as examples of the regulatory barriers they face daily. They felt that environmental regulators were unaware, or unconcerned, that heavy-handed enforcement ultimately destroys the economic vitality of a community. They expressed hope that government regulators would do more to work cooperatively with small business owners on practical ways to protect the environment.
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Three Case Studies in Environmental Regulation
1. Regulatory Taking A farmer in Lewis County purchased a 60-acre farm five years ago. Shortly afterwards the Department of Fish and Wildlife restricted a 15-acre wooded parcel of the farm for use as coyote habitat. The state later restricted another 15 acres as “lowland” that can only be used for light farming from April through September. The farmer continues to pay taxes on the full 60 acres as if it is all productive farmland. The farmer appealed his tax bill to the Lewis County Auditor. The appeal was rejected because he did not include the proper paperwork. When he returned with the required forms filled out correctly, he was told to wait a further six months for the next appeal filing period. When the next filing period arrived, he was told County auditors would inspect his property and make a decision on his future property tax liability. Months have passed and so far the County has taken no action. Commenting on the unhelpful attitude of state and local regulators, the farmer states, “It’s as if Washington state does not want people to farm. I don’t have time to run down there every day and hold their hands. If something doesn’t change we will probably sell the farm and move out of the state.” 2. Regulations Affect Competitiveness and Reduce Options A small family-owned farm in Skagit County recently reduced spinach production from 100 acres to 1½ acre because they can no longer sell the crop for more than it costs to produce. Other crop production is being similarly cut back because the regulations and taxes imposed on Washington state farmers make it impossible to compete. In an effort to remain in business and stem the tide of failing farms from the community, the farmer proposed opening a 70-heifer dairy farm. In the past 10 years no new dairy farms have been opened in Skagit Valley. To handle the additional waste created by the cows the farmer planned to spend $5,000 to improve the existing drainage pond, as directed by the state Department of Ecology (DOE). The drainage pond was previously used for dairy replacement heifers. When the DOE found out the pond would be used for dairy cattle, they applied new regulations that require a brand-new $75,000 facility. The cows have not changed, but the regulations have. Over-reaching regulations make it impossible for this small family farmer to make money on the crops that were successful in the past, and they do not allow him to pursue other types of business. He has little recourse other than selling the land on which they have farmed for years, or filing for bankruptcy. This farmer concludes, “The government just does not want family farms.” 3. No Consideration of the Economic Costs to a Community Consumers spend more than $4 million each year on recreation in the Chelan basin, supporting tourism and motor-sports businesses that provide vital jobs to the community. An owner of a motor-sports equipment and service business explained what happened when environmental regulators attempted to close Lake Chelan to motorized watercraft. Recognizing the threat to their businesses and the region’s economy, business owners worked with manufacturers to develop clean running water-sports equipment that does not pollute the lake. This was not enough for state regulators. Although the water quality problem was resolved, regulators still wanted to shut down use of the lake. Only after a well-unified plea from the local business community and local elected leaders were the proposed restrictions withdrawn. |
The High Cost of Energy[31]
In survey responses small business owners overwhelmingly supported increasing power generating capacity over conservation alone to meet the state’s growing energy needs. When asked which they prefer, small business owners chose more power generation by 77% to 23%. Their views over price de-regulation in the energy market were more closely divided. 47% of respondents supported price deregulation, while 53% opposed it.
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Finding Qualified Workers[32]
The state of Washington has one of the most educated populations in the nation, but small business owners still expressed frustration with the availability of qualified workers. At the Yakima roundtable an interesting contradiction emerged. Participants said work experience is a requirement for graduation in the Yakima School District, but the government’s workplace rules make it nearly impossible for local businesses to hire young workers. As a result, area high school students are forced to compete for a limited number of jobs in order to graduate on time.
Throughout the state business owners expressed concern about the work ethic and experience of young workers. They said young people cannot gain work experience as easily as they once could. Complex work restrictions make it difficult for employers to hire people if they are fewer than 18 unless it is a job that requires little physical activity and short hours. Also, our state’s high minimum wage – the highest in the nation – is a formidable deterrent to hiring inexperienced workers.[33]
The unfortunate result is a young workforce that is largely inexperienced and lacks the basic work ethic necessary for becoming quality employees. Two primary proposals emerged for addressing this problem. First, business owners said they would like to be able to offer a training wage below the state’s high minimum wage, to make it cost effective to hire young workers. Second, they said work rules should be relaxed to allow young people to perform physical work that helps them develop useful skills, like mowing lawns, running farm equipment and apprenticing in a trade.
Though small businesses in Washington face many hurdles, there are some positive areas of the business climate that were highlighted by our research. In some areas the business community has forged a working relationship with local government to help accomplish mutual goals. Two areas of particular interest are: Workforce development and quality of life.
Local Workforce Development
In Vancouver, the small business community has helped to develop a technical education program that meets the workforce needs of local businesses. The program, run by the school district, works with businesses to determine what skills are needed in the community and then offers programs to students within those disciplines. The business owners we spoke with are confident similar programs could help address some of the problems faced by other regions of the state.
Statewide, a program called Washington Business Week converts entire classes in middle and high schools into hundreds of small student-run businesses for one week of the academic year. This program offers young adults the opportunity to experience what it is like to start and run a business in the real world.[34]
Washington State’s High Quality of Life
Washington state offers a number of natural amenities that most other states cannot match. The natural beauty and environmental diversity of our state is particularly unique. Business owners report these natural treasures help them recruit workers from outside the state and can boost certain businesses like tourism and recreation. They noted, however, that an unfavorable regulatory and tax climate partly negates the positive effects of an appealing quality of life.
Visiting with small business owners is a very rewarding experience. The enthusiasm and confidence of the entrepreneurs we spoke with lends hope to efforts to improve the state’s business climate. Based on our research we formed some general observations that help give a more complete picture of the unique and often challenging world of small business.
Lack of Trust Between Small Business and Government
Washington’s business climate has been deteriorating for many years. Over time business and government have gradually developed an adversarial relationship that may prove difficult to reverse. The element of trust between small businesses and government that enabled Washington to grow from a western logging and fishing outpost to a thriving modern economy is largely eroded. In their comments small business owners often identified government as more of a problem than a source of solutions. The lack of trust makes it difficult to maintain a vibrant state economy that is equally home to innovative small businesses and major international companies.
The Indirect Costs of Economic Development
The indirect costs of economic development have increased substantially over the past twenty years. These include new regulations, paperwork and workplace rules that increase the barriers to entry and inhibit success for small business owners.
Indirect costs create a disproportionate impact on minority entrepreneurs. As barriers to starting a business increase, minority business owners without access to traditional sources of capital are the first to find them squeezed out of the market. Strict licensing requirements, complex regulations and unrelated educational and training tests have the effect of keeping many minority firms out of the marketplace. Reducing or eliminating these barriers would help ensure that all businesses can compete fairly and equally.
Growth of the Underground Economy
The regulatory climate in Washington state contributes to an underground market for products and services. Goods and services are considered part of the underground market when they are sold or rendered without being properly licensed or taxed. While the full extent of underground economic activity is difficult to measure, it is deeply effecting Washington’s business environment. The sheer complexity and cost of government rules creates built-in incentives for businesses to operate informally. The issue came up at every roundtable discussion and was singled out in a number of written comments in survey responses.
Entrepreneurial Optimism
It is easy to become discouraged when discussing Washington’s business climate, but in the course of our project, we were encouraged to see the overwhelming sense of pride and optimism in the small business community. Despite the confusing and costly barriers that are placed in their path, entrepreneurs generally expressed confidence in their ability to succeed. Employing this optimism in the effort to reform the state’s business climate will help ensure long-term effectiveness.
Small businesses in Washington face many obstacles to success. Not the least of which is the anti-business attitude of many government managers and employees. For our state to maintain a vibrant and productive small business community it is imperative for state and local governments to begin treating business as an ally instead of an enemy.
Our research found that in general small business owners are eager to comply with regulations, but that regulators are not always willing to work with them to find the most cost-effective way to follow the law. Small businesses owners said they do not want to injure their employees or defraud their customers, and they do not want to destroy the environment, but they do want to provide a living for themselves and their family.
Small businesses provide jobs, create social and economic bonds within the community and are a driving force in our state’s economy. The governor and state legislature should look to this community as a resource, one that can provide valuable assistance in shaping the policies and driving the economy of the future.
The first step in developing a better relationship with small businesses is reforming the regulatory structure and reducing the complexity of the existing tax system. Recognizing the problems outlined in this paper will begin the process of reducing the burden businesses face on their road to success. Next, governments at the state, local and federal level should begin a dialogue of reform with the small business community.
As part of that process, Washington Policy Center plans to facilitate a statewide small business conference in late 2002. This conference will bring together business leaders, policymakers and academics to discuss how we can coordinate our efforts to make Washington a better place to do business. We will also identify specific policy changes by publishing “An Agenda for Reform,” which will outline the steps necessary for reviving Washington’s small business climate.
It is important for small business owners to continue the dialogue about the business climate. Being active in civic and professional organizations and visiting with lawmakers is one way to make the voice of small business heard. But many business owners do not have time to participate regularly in the policy process. Owners of small businesses are busy ensuring their employees are paid on time and their own family has food on the table.
It is for this reason that state and local government officials should reach out to the business community by visiting companies in their district, holding roundtables to discuss solutions and most importantly, staying involved in the dialogue. Working together we can make Washington a great place to do business.
Summary of Regional Roundtable Discussions and Survey Responses
Our visits to cities around the state in 2001 and the response to our survey provide important insight into the views of small business owners. Following are the main issues of concern that emerged in each roundtable discussion and in written surveys.
Walla Walla, October 9
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Roundtable Top Issues 1. High Minimum Wage 2. Lack of Leadership 3. Health Care Availability |
Survery Top Issues 1. Cost and Availability of Health Insurance 2. Gas Tax 3. Overall Cost of Energy |
Analysis: Small business owners indicated Washington’s high minimum wage is a burden for the agriculture and tourism businesses that are central to Walla Walla’s economy. Participants felt the lack of state political leadership is a primary reason small businesses are burdened with costly taxes and stifling regulations. Small business owners in Walla Walla expressed concern over a new gas tax, reflecting skepticism over how the government will spend additional tax dollars, a view that is shared by many small business owners throughout the state.
Tri-Cities, October 10
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Roundtable Top Issues 1. Regulatory Rule Making 2. Access to Capital 3. High Cost of Air Transportation |
Survery Top Issues 1. Cost and Availability of Health Insurance 2. Road Maintenance 3. Gas Tax |
Analysis: The burden of state and local government regulations were the major concern in discussions with Tri-Cities small business owners. They also expressed concern over the state’s rule-making process, sharing a common frustration about the lack of input and consultation with the business community when new rules are developed and implemented. They noted work at the Hanford Nuclear Reservation has been adding to employment, bringing more people to the area. Traffic congestion has increased, raising concern over the cost of road maintenance and higher gas taxes.
Yakima, October 11
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Roundtable Top Issues 1. Lack of Skill-based Jobs 2. Conflicting Regulations 3. Land Use Restrictions |
Survery Top Issues 1. Cost and Availability of Health Insurance 2. Gas Prices 3. Gas Tax |
Analysis: In Yakima business owners voiced concern over young people moving out of the area because of a lack of skill-based positions that pay better than the agricultural jobs that anchor the local economy. In addition, they reported conflicting regulations from local, state and federal agencies stifle economic growth, making it difficult to attract new businesses to the city. Most businesses are also highly impacted by the cost and lack of choice in the health care market. As in many other communities, the cost of transportation and worry about an increase in the gas tax were major concerns of small business owners.
Bellevue, October 23
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Roundtable Top Issues 1. Gas Tax 2. Government Accountability 3. Transportation |
1. Finding Qualified Workers 2. B&O Tax 3. Congestion Relief Prices |
Analysis: Located at the heart of the Puget Sound’s congestion corridor, Bellevue small businesses worry that an increase in the gas tax will be used for projects that do not increase roadway capacity, which most participants said was the best way to reduce congestion. Small business owners expressed disappointment over the poor accountability of government employees and policymakers, recommending that competition and citizen oversight be used to improve customer service and overall performance. Small business owners also said it is difficult to find qualified workers to match the needs of their business.
Olympia, October 24
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1. Growth Management 2. Regulatory Burden 3. Business Tax Burden |
1. Cost and Availability of Health Insurance 2. Energy Rate Hikes 3. Finding Qualified Workers |
Analysis: In Olympia, many small business owners voiced frustration over the restrictions imposed by the Growth Management Act, which have increased housing prices and artificially boosted population density. The impact of the state regulatory burden is particularly apparent as local businesses deal with new regulations that seem to go beyond the legislature’s intent. Health care costs concerned Olympia small businesses, as they do in many areas of the state, with many owners saying greater market freedom is needed to add more choices in health insurance plans and providers.
Tacoma, October 25
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1. B&O Tax 2. Cost of Industrial Insurance 3. Transportation |
1. Cost and Availability of Health Insurance 2. Overall Cost of Energy 3. Payroll Taxes |
Analysis: In Tacoma some small business owners suggested that the B&O tax apply to net income instead of gross income. The high cost of the state’s workers compensation program was also a concern. Some business owners proposed privatizing the system, indexing rates to payroll instead of hours worked and revising the benefit structure to give employees greater incentive to return to work. Many area small businesses are based on manufacturing and transportation, and owners stressed the need for affordable and reliable energy sources. Participants also emphasized the need for a modern infrastructure to allow easy transport of goods to and from the port.
Aberdeen, October 30
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1. Environmental Regulations 2. Accountability of Elected Leadership 3. Attracting Private Industry |
1. Cost and Availability of Health Insurance 2. Gas Prices 3. Overall Cost of Energy |
Analysis: The community of Aberdeen is impacted heavily by environmental regulations, which hit the agriculture and resource-based businesses in the area particularly hard. To address the problem, local small business owners said they want more regional autonomy in the rule making process. They said a sunset provision should be included in any new environmental regulation. Citing continued slowing in timber sales, small business owners expressed concern over the city’s inability to attract private industry. They worried that increasing taxes and regulations scare away new businesses and make it difficult for established firms to stay afloat. Higher prices for health insurance, gasoline and energy were also major concerns of small business owners in the area.
Vancouver, November 1
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1. Junior Achievement / Skills Center 2. Subjects Not Taught in School 3. Ergonomics |
1. Cost and Availability of Health Insurance 2. Overall Cost of Energy 3. Land Use and Development Regulations |
Analysis: In Vancouver business owners expressed optimism as they described the public-private partnership that created the local Junior Achievement/Skills Center. While the Skills Center provides training in trades and crafts, business owners were particularly disappointed that basic learning subjects are often neglected by the local school system. Those include communication, proper language skills, attitude, a focus on results rather than process, teamwork and individual responsibility. As part of a growing community, Vancouver small businesses owners said they are sharply affected by land use and development limitations. Owners were disturbed over land restrictions that are needlessly increasing the cost of housing and commercial property, making their businesses less competitive.
Bellingham, November 6
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1. Anti-business Climate 2. Local Government Accountability 3. Regulatory Philosophy |
1. Cost and Availability of Health Insurance 2. Energy Rate Hikes 3. Gas Tax |
Analysis: In Bellingham small business owners expressed strong dissatisfaction with the overall anti-business attitude displayed by government agencies and local media. They noted a lack of balance in environmental regulations and limited citizen oversight of agency actions. They expressed similar concern over the rising cost of doing business, saying higher energy, gas and health insurance prices threaten the competitiveness of their businesses. Bellingham’s small business owners said decreasing trade with nearby Canada due to the strong American dollar and tighter border restrictions imposed after September 11th is putting increased pressure on their businesses.
Everett, November 7
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1. Cost and Availability of Health Insurance 2. Transportation 3. B&O Tax |
1. Cost and Availability of Health Insurance 2. Overall Cost of Energy 3. Finding Qualified Workers/B&O Tax |
Analysis: Everett small business owners said they are concerned about the lack of choice in health care coverage caused by government mandates and restrictions on private medical savings accounts. Owners also said the city’s congested transportation system makes it difficult to attract people from outside the immediate area, shrinking the available pool of qualified workers.
Port Angeles, November 8
|
1. Keep Money in the Local Economy 2. Ergonomics Regulations 3. Allow Self-Insurance for Associations |
1. Cost and Availability of Health Insurance 2. Road Maintenance 3. Energy Rate Hikes |
Analysis: Business owners in Port Angeles were particularly interested in keeping money in the local area for things like construction contracts. Once again, the new ergonomics regulations came up. Small business owners said existing regulations already address the problem of workplace injuries and felt this was another example of a state agency imposing regulations without legislative intent. To address the high cost of workers’ compensation and health insurance, small businesses owners said the state should ease mandates and allow industry associations and trade groups to self-insure. They said this type of insurance reform would provide low-cost alternatives to small businesses.
Spokane, November 13
|
Roundtable Top Issues 1. Industrial Insurance System/Costs 2. L&I Licensing Requirements 3. Minority Contracting Requirements |
Survery Top Issues 1. Cost and Availability of Health Insurance 2. Road Maintenance 3. Gas Tax |
Analysis: In Spokane small business owners noted the contrast with neighboring Idaho, where a private workers’ compensation insurance market provides choice, quality and low prices to businesses owners. Roundtable participants explained how the complexity and uncertainty of the Department of Labor and Industry’s constantly changing rules contributes to regulatory uncertainty. The extensive licensing requirements imposed on low-voltage electricians were cited as an example. Business owners also said they hope the state will build a new north-south freeway in Spokane, to improve delivery times and reduce congestion on the Division Street corridor.
Wenatchee, November 14
|
1. Size of Government 2. Environmental Regulations 3. Health and Liability Insurance Costs |
1. Cost and Availability of Health Insurance 2. Gas Tax 3. Payroll Taxes |
Analysis: Wenatchee small business owners said they have been struggling with an economic downturn for years. They feel much of the weakness in the local economy is caused by environmental regulations that limit land use and cut agricultural production. The steadily rising minimum wage was also a major concern. Many Wenatchee small businesses are engaged in tourism and agriculture and are highly sensitive to changing labor costs. They point out that competition from foreign producers without similar labor and regulatory restrictions is threatening the health of the local economy.
Seattle, October 31 and November 15
|
1. Anti-business Climate 2. Cost and Availability of Health Insurance 3. Discrimination Laws |
1. Cost and Availability of Health Insurance 2. Overall Cost of Energy 3. Congestion Relief Costs |
Analysis: In Seattle small business owners expressed frustration over government regulators who they said see the business as more of an enemy than an ally. The slowdown in the inspection and processing of shipments at the port following September 11th was mentioned as having a detrimental affect on some local business owners. More generally, small business owners said they are worried about the cost of traffic relief. In particular, they want to be certain any money from new transportation taxes is spent on effective congestion relief projects.
Appendix B: Co-Sponsoring Organizations
The Washington Policy Center Small Business Roundtables were held in 14 cities across Washington. Over 50 organizations co-sponsored and supported the forums. We would like to express our thanks for the valuable assistance provided by all the organizations involved. Without their help, this project would not have been possible.
Statewide Co-Sponsors
Associated Builders and Contractors of Western Washington (ABC)
Building Industry Association of Washington (BIAW)
Independent Business Association (IBA)
National Federation of Independent Business (NFIB)
Washington Association of Realtors
Washington Software Alliance (WSA)
Washington State Farm Bureau
Washington State Hispanic Chamber of Commerce
Financial Supporters
Bank of America
Kemper Development
Medina Foundation
Microsoft
Pacific Northwest Bank
United Parcel Service
Washington Mutual
Regional Co-Sponsors
Bellingham/Whatcom County Chamber of Commerce
Building Industry Association of Whatcom County
Chamber of Commerce of East Pierce County
Clallam County Economic Development Council
Dayton Chamber of Commerce
Everett Area Chamber of Commerce
Fife Chamber of Commerce
Grays Harbor Chamber of Commerce
Greater Vancouver Chamber of Commerce
Kent Chamber of Commerce
Kirkland Chamber of Commerce
Northwest Business Club (Whatcom County)
Olympia/Thurston County Chamber of Commerce
Pasco Chamber of Commerce
Port Angeles Chamber of Commerce
Redmond Chamber of Commerce
Richland Chamber of Commerce
Seattle China Town Chinese Chamber of Commerce
Snohomish County/Camano Association of Realtors
Spokane Regional Chamber of Commerce
Spokane Valley Chamber of Commerce
Tacoma Chamber of Commerce
Tri-City Area Chamber of Commerce
Tri Cities Home Builders Association
Waitsburg Commercial Club
Walla Walla Chamber of Commerce
Wenatchee Chamber of Commerce
West Richland Chamber of Commerce
Yakima Chamber of Commerce
Other Supporting Organizations and Individuals
Bellevue Downtown Association
Central Area Chamber of Commerce (Seattle)
Centralia Chamber of Commerce
Citizens for a Sound Economy
Fremont Chamber of Commerce (Seattle)
Governor’s Small Business Improvement Council
Greenwood Chamber of Commerce (Seattle)
Lacey Chamber of Commerce
Lakewood Chamber of Commerce
Magnolia Chamber of Commerce (Seattle)
Rainier Chamber of Commerce (Seattle)
Renton Chamber of Commerce
Larry Stanley/Spokane (former chair of Gov’s Small Business Improvement Council)
Sultan Chamber of Commerce
U.S. Small Business Administration – Seattle, Portland and Vancouver
United for Washington
Washington Hispanic Real Estate Professionals
Woodland Chamber of Commerce
“Environmental requirements have taken more than 50% of our farm. We still have to pay taxes on the whole farm.” -- a farmer from Lewis County.
“I feel that the health care issue is very important to our company. Our rates for our employees [are] very high - so high that the employees are opting not to insure their spouses/children through our company plan and going with Washington Basic Health Plan.” -- a small business owner from Puyallup.
“We’re considering dropping health care at our business and giving raises to all of our employees instead. The cost is out of hand - mandating birth control, chiropractic, massage, vision - its blowing the cost way up - it’s ridiculous.” -- a business owner from Bremerton.
“If the fish and H2O situation doesn’t get resolved, no one will have to worry about business.” -- an owner of a forestry services company from Tumwater.
“Inflation indexed minimum wage must go!” -- a non-profit director from Walla Walla.
“DOE, L&I and DSHS are all horribly slow with plan checks, inspections and processing. They don’t seem to care that their delays cost business hundreds of thousands of dollars. A good example is: DSHS won’t start to process an application for licensing of an assisted living center until after the building is totally complete and then they take 3 to 4 months to process while the business sits and pays staff, interest, etc. They could do most of their processing during construction, inspect in one day and grant a license.” -- a small business owner in Richland.
“We have looked into moving out of state, but our trained work force is here for now.” -- a small business owner from Centralia.
“The three largest problems facing my business are: 1) traffic congestion, 2) threats from ergonomics regulations, and 3) state proposals to take over medical health care plans for employees.” -- a business owner in Edmonds.
“We need to get assistance from legislators to reign in L&I, employment security and minimum wage increases. The small family farm is going out of business because of taxes and state regulations. We cannot keep up this downhill trend.” -- an orchard owner from Wenatchee.
“Employees make more than owners due to heavy tax burden and fees tacked on to business owners.” -- a Benton County construction company owner.
“The government makes more money from my business than I do.” -- a small business owner from Kennewick.
“Washington is a beautiful state, but [it] has become one of, if not the most unfriendly towards farmers and small business in the U.S. This simply has to change.” -- a nursery owner from Wenatchee.
“The number one issue is the increased number of WACs that are written without legislative oversight!” -- a small business owner from Vancouver.
“As a contractor we are subject to UBC, UFC, UMC, etc. on a daily basis. It is impossible to divide these up and prioritize them separately.” -- a small business owner from Hoquiam.
“Privatize mass transit and use government transit money on new roads.” -- a Bellingham small business owner.
“Other states and countries are beating the snot out of us with lower costs.” -- a farmer from Mt. Vernon.
“Over regulation and over taxation cut into the general living expenses of families who might otherwise spend that money on recovering their furniture or improving their homes.” -- an upholstery shop owner from Snohomish.
“I am busy enough trying to run my business and cannot find much time for dealing with the government.” -- a small business owner from Chehalis.
“I wouldn’t mind increased taxes on transportation if it went to roads instead of the bulk going to social engineering via public transit.” -- a small business owner from Woodland.
“I am very concerned with patient’s ability to sue employer (on health care), raising minimum wage, and Washington’s general anti-small business attitude - maybe we will all leave like Boeing!” -- an optometrist from Pasco.
“Double taxation is a problem. The property tax includes a fire station tax, and the business has to pay another fire fee; the business has to pay L&I “right to know” fee."
"Why all the extra special fees?” -- the owner of an accounting firm from Woodinville.
“It’s not the code, as much as how its applied - we get permits for things that do not affect the public safety.” -- a small business owner commenting on the fire, health and building codes.
“In today’s climate I would not start my own business.” -- a small business owner in Ephrata.
“The minimum wage keeps going up - [it] really hurts to hire young persons and have to train [them] for a long time to become productive. We should have minimum wage for under-18 and current minimum for 18 and over.” -- a farmer from Clallam County.
“The B&O tax is based on business’ gross whether or not they make a profit!! One more onerous tax that the small business man is burdened with!!” -- a car dealer from Ellensburg.
“We are an importer of seafood and having to deal with the FDA is an exercise in frustration to say the least!” -- a food products importer from Seattle.
“Reduce the amount of power given to environmental groups to oppose or stop projects by going to court. Make the loser pay all court costs.” -- a logger from Lewis County.
“Government interference limits what I can pay my employees and prevents me from providing health care. I want to provide a living wage / compensation package. They won’t let me.” -- a security services firm owner from Kirkland.
“HOV lanes are built for moms and kids, couples on vacation and two buddies going fishing.” -- a small business owner from Everett.
“Our efforts to offer a good work environment, provide an excellent service and make a fair profit are seemingly in conflict with our state’s effort to legislate everything.” -- a business owner from Spokane.
“I have no problem with realistic regulations that have a purpose beyond keeping government workers busy and making life rough for business owners.” -- an electrical contractor from Wenatchee.
“It is very difficult to have ten credit hours of continuing education when very little is offered and you have several employees. None of my employees will travel to Seattle.” -- an owner of a medical services firm from Lynden.
“Anything that will lessen government paperwork and government intervention in small business will help. We don’t have time to be experts on every regulation, but we almost have to or get fined or otherwise penalized by ‘professional’ regulators.” -- a manufacturing firm from Goldendale.
“Seems like the more government we get, the more rules there are to keep track of, fines if we forget, lawyers get rich and we lose.” -- a restaurant owner from Yakima.
“DSHS is out of control and power hungry. Only big corporation can stand up to them.” -- a small business owner from Walla Walla.
“My biggest problems with all the rules and regs is knowing if you are in compliance or not.” -- a small business owner from Cle Elum.
Eric Montague is a Policy Analyst for Washington Policy Center. He is the author of “Ideas for Balancing the State Budget Without Raising Taxes,” “Roads in the Right Places: A New Plan to Ease Congestion” and “Private Prisons: A Sensible Solution.” He has also written on topics including growth management, tax reform and labor issues. He holds a degree in Political Science from Pacific Lutheran University in Tacoma. Before joining the Policy Center he was a procurement contract analyst for Intel Corporation and Boeing Commercial Airplane Group.
[1] “Development Report Card for the States, 2001,” published by Corporation for Economic Development, and available at www.cfed.org, Washington, D.C., January 2001.
[2] In early 2001 Governor Locke convened the “Washington Competitiveness Council” to study the business climate and recommend changes that will ensure a “Bright economic future for ourselves and our children.” The Council includes members from the state legislature, state agencies, local elected officials, corporate business leaders, academics, environmentalists and labor groups.
[3] For the purposes of this study we use the National Federation of Independent Business definition. A small business is one in which the owner(s) is directing the day-to-day operations of the business. Small businesses usually have fewer than 100 employees.
[4] “2001 Small Business Profile: Washington,” U.S. Small Business Administration, Office of Advocacy, December 2001.
[5] “Small Business Economic Indicators 2000,” U.S. Small Business Administration, Office of Advocacy, February 2001.
[6] A full list of supporting organizations is provided in appendix B.
[7] A list of the roundtable dates and locations is included in appendix A along with a description of our findings from each region. Survey results can be requested by contacting Washington Policy Center at (206) 937-9691 or by e-mailing Eric Montague at emontague@washingtonpolicy.org.
[8] Based on a Washington Policy Center analysis conducted in March 2001.
[9] Statistics from Independent Business Association presentation to Washington State Senate Economic Development and Telecommunications Committee, January 18, 2002, Olympia, WA.
[10] Exact cost per employee is $6,975 per year. Data from “The Impact of Regulatory Costs on Small Firms,” by W. Mark Crain and Thomas D. Hopkins, a report for the Office of Advocacy, U.S. Small Business Administration, August 2001, Washington D.C., p 3.
[11] Tri-Cities Roundtable.
[12] Wenatchee Roundtable.
[13] Licenses and Permits included in this analysis are: Critical Area and Resource Land checklist (CARL), Site Plan, Vicinity Plan, Land Use Application, Environmental Checklist, Construction Drawings, Structural Engineering Calculations, Driveway Permit, Site Development Permit, Energy Information Form, Fire Alarm System Permit, Fire Flow/Water Availability, Fire Sprinkler Permit, On-site Sewage/Water Review, Septic Application of Sewer Permit, Flood Survey, Geotechnical Survey, Mine Assessment, Title Notification, Wetland Application and Wetland Certification. For more information on permits and licenses required in Pierce County , visit the Pierce County Development Center, available on the web at www.co.pierce.wa.us. The list above is from “Pierce County Building Residential Submittal Standards,” available online.
[14] “Musculoskeletal Disorders in the Workplace: A Summary of Labor and Industries’ Prevention Efforts 1980s – 1999,” available on the web at www.lni.wa.gov/wisha/ergo/chronology.htm.
[15] Port Angeles Roundtable.
[16] The new regulations run to more than 120 pages.
[17] “Economic Freedom in America’s 50 States: A 1999 Analysis,” by John Byars, Robert McCormick and Bruce Yandle, Clemson University, January 2000. According to “A Regional Economic Vitality Agenda,” published by the Washington Research Council, Washington businesses carry 54% of the tax burden, highest of any of the seven nearest western states.
[18] Washington Policy Center Small Business Survey.
[19] “State Regulators Need an Attitude Adjustment,” by Bruce Ramsey of The Seattle Times, January 30, 2002.
[20] The statewide rankings are based on a comparison of responses from the statewide survey and the individual roundtable forums. A more detailed look at the issues important to each region is presented later in appendix A.
[21] Roundtable Ranking = #1; Survey Percentage = 90%.
[22] Washington Policy Center Small Business Survey.
[23] Washington Policy Center Small Business Survey.
[24] The state has added 10,283 Full Time Equivalent positions in the last five years, State of Washington Office of Financial Management, Salaries, Benefits and FTEs, FY 1988 to FY 2001, All Budgeted and Higher Education Funds, Operating and Capital, March 22, 2001
[25] “Capital Ideas,” Volume 10, Number 1, National Taxpayers Union Foundation, Alexandria, Virginia, January 2002.
[26] Washington Policy Center Small Business Survey.
[27] Roundtable Ranking = #4; Survey Percentage = 44%.
[28] More information about industrial insurance and the Department of Labor and Industries can be found at www.lni.wa.gov/insurance.
[29] Spokane Roundtable.
[30] Roundtable Ranking = #5; Survey Percentage = 42%
[31] Roundtable Ranking = N/A; Survey Percentage = 75%.
[32] Roundtable Ranking = #10; Survey Percentage = 64%
[33] Washington’s minimum wage is $6.90 per hour. The wage now automatically increases each year at the rate of the federal Consumer Price Index for urban workers (CPI-W). On January 1, 2002 the wage rose $.18.
[34] The Association of Washington Business is a prime sponsor of Washington Business Week (WBW), and many of our co-sponsoring organizations, including NFIB and IBA are avid participants and supporters. For more information on WBW, visit their website at www.wbw.org.