Cgipson

Governor signs regulatory reform bill helping small businesses

March 25, 2010 in Blog

Yesterday
Governor Gregoire signed
House Bill 2603
into law.  The bi-partisan bill, which passed the legislature
unanimously, gives small businesses a grace period of two business days to comply
when found in violation of a state regulation.

The bill’s prime sponsor,
Rep. Norma Smith (R-Clinton), derived the concept from a recommendation at
Washington Policy Center’s 2009 Statewide Small Business Conference,
where more than 300 small business owners and policymakers gathered to
discuss the biggest challenges in Washington’s business climate. 
Participants offered and voted on specific policy recommendations, including
the two-day grace period for regulatory compliance.

Small business owners in
Washington face a growing mountain of regulations on how they can operate
their businesses, and it is increasingly difficult for them to keep up and
comply with those regulations. This two-day grace period is a small step in the
right direction, and it certainly is welcome relief to the folks who are the
backbone of our state’s economy.

The two-day grace period
law takes effect in July.

During the past legislative
session we wrote a
Legislative
Memo
on HB 2603 and testified by invitation before the House State
Government & Tribal Affairs Committee and Senate Economic Development, Trade and Innovation Committee.

For more information on
specific policy reform ideas recommended by small-business owners, read the
WPC report “
Small
Business and the Road to Recovery
.”

Washington lags behind other states in economic recovery

March 23, 2010 in Blog

Last week the Washington Research Council issued a short analysis entitled, "Washington's Economy Continues to Lag the Nation as a Whole." 

"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.

As measured by the Philadelphia Fed indexes, California's economy, up 0.2 percent for both one month and 3 months, has better momentum than Washington's economy has."

Behind California? Not encouraging news.

On another front, it appears that Texas is among the first states to emerge from the recession, according to Comerca, Inc. 

"Texas will benefit more than other states from the national rebound in manufacturing and industrial production because of the state's diversified and sizeable manufacturing base, the report said. Manufacturing accounts for 13 percent of Texas's gross domestic product, the report said. 

The report predicted the state's low unemployment rate would continue to draw employees seeking work. Last year the state's population of about 24 million people extended by 2 percent, more than twice the national rate, Comerica said in its report."

E-911 Service Fee to Increase 36% under HB3216

March 22, 2010 in Blog

As my colleague Jason Mercier pointed out last week, Democrats introduced HB 3216 last week, which would expand the 911 service fee that landline and cell phone users pay to Voice Over Internet Protocol (VoIP) lines. It also raises the E-911 fee from $0.70 to $0.95 (state and county fee combined) for everyone. 

National Broadband Plan: The FCC as Gatekeeper

March 16, 2010 in Blog

Today the Federal Communications Commission released its long awaited National Broadband Plan and will deliver it to the Congress tomorrow. The plan is over 350 pages and encompasses dozens of areas -- policy, economy, social, education, etc.

FCC to Release National Broadband Plan Tomorrow

March 15, 2010 in Blog

Today Politico posted what they are calling a "late draft of a Federal Communications Commission summary of its 'National Broadband Plan,' due for delivery to Congress by Wednesday."

Labor benefits from proposed budget language

March 12, 2010 in Blog

Budgets are complicated and long piece of legislation, which is why hardly anyone actually reads them. But the devil is in the details, as they say, and two things in particular stand out in the House's version of the Senate's proposed supplemental operating budget. These two concerns would benefit labor at the expense of businesses and taxpayers.

First up, as pointed out by AWB's Jocelyn McCabe and Kris Tefft over at OlympiaBusinessWatch.com, a slimmed-down version of the employer gag rule was inserted into the budget. The language looks innocent enough, but there is reason to be concerned. The language in SB6444 (sections 205 & 206) says,

"No employer, provider, or entity receiving state funds to provide long-tem care services or services to the developmentally disabled may use these funds to assist, promote, or deter union organization."

Seems innocuous. The problem is the language is illegal due to a recent U.S. Supreme Court case where the Court invalidated a similar California statute that prohibited private employers that accepted state program funds from doing largely the same thing. Even if the language was not invalid due to the Court case, it would set a dangerous precedent from prohibiting employers from exercising their First Amendment rights simply because they accepted state program funds.

Secondly, the Evergreen State College's Labor Center is being relocated from the Evergreen State College to South Seattle Community College and at least $164,000 of state funds are being set aside to pay for its operations. The problem? An internal audit found the Labor Center guilty of 10 violations including violations of state ethic laws and the audit questioned whether or not the mission of the Labor Center is illegal. WPC's Jason Mercier researched this subject a year ago and reported the audit stated that:

A review of the Center’s mission statement and by-laws found that the revised documents currently used by the Center have not been reviewed and approved by Senior Management, the College’s legal counsel, or the Board of Trustees.  This created a lack of clarity of the activities and work allowed for the Center and boundaries for staff.  The Center’s mission creates close and strong ties with labor unions and in several instances, the members of the Center’s advisory board request and report on work to be done or which has been performed for labor unions. !
; A lack of a clear and approved mission and ambiguity related!
to the College’s relationship with these organizations provides the appearance of possible ethics issues.  Other possible ethics violations included:

  • The website provided readers with two petitions:  one asking U.S. Congress and the President to declare the birthday of Cesar Chavez a national holiday and another asking reader to stop patronizing Burger King.  RCW 42.52.180 specifically prohibits use of State resources for political purposes.
  •  In one instance, the website announces collections for an outside organization during a Center sponsored activity.  An announcement for a Farm worker’s Justice includes a wish list for Bellingham Cooperative and states donations for the cooperative will be collected as part of the event.  Collection during a campus event and announcement of this item on the Center’s website is a violation of the State Ethics Law prohibiting use of resources for an outside organization (RCW 42.52.160)
  • Both Center newsletters available on the College’s websites and minutes of the advisory board include numerous references to efforts to oppose federal agencies, a rally held as part of a Center managed workshop, political work of the union in several industries, and the Center’s partnerships with special interest groups, all of which provide the appearance of potential violations of RCW 42.52.180 prohibiting use of State resources for political purposes.
  • A review of the minutes for the advisory board meetings found several discussions about support of special interest groups.  In the October 29, 2006, minutes, a member suggests participation with an organization called “U.S. Labor Against the War”.  The committee agreed to advise the center to join the group and directed the Center’s Assistant Director to make a membership payment to the group in possible violation of the Ethics in Public Service Act. 

It remains to be seen if these provisions will survive the special session and upcoming budget re-writes. The first problem is one of legality, so that should take care of itself. The second problem is one of ethics, so who knows if the Labor Center will clean up its act or if the funding for it will be yanked. 

Senate passes small biz tax credit (for some)

March 11, 2010 in Blog

Last night the Senate passed ESSB 5899, which will provide a B&O tax credit up to $4,000 for each newly hired employee for businesses with fewer than 20 employees. It passed unanimously

The catch? The business doing the hiring has to also offer health insurance to its employees in order to qualify for the credit. The language in the bill states,

"The credit equals: Four thousand dollars for each qualified employment position with wages and benefits greater than forty thousand dollars annually, and for which the business offers a health care plan, that is directly created in an eligible business..."

That seems reasonable but the unfortunate side of things is that only 59% of businesses in Washington with between 2-9 employees offer health insurance. Only 73% of businesses with between 10-24 employees offer health insurance. 

This B&O tax credit certainly won't harm economic growth, and the idea behind it is solid (if somewhat overly optimistic). However, cutting off almost 40% of the very small business firms in the state from this benefit because they do not offer health insurance to their employees artificially curtails job growth that could have taken place based solely on the tax credit. 

Some of the small firms simply are unable to afford the cost of health insurance and this tax break could have helped them rectify that situation.

Regulatory Costs All Over the Map

March 11, 2010 in Blog

If you've been following the tiff over better business climates between Idaho's Governor "Butch" Otter and our very own Governor Chris Gregoire, you'll probably have noted that Governor Gregoire noted Washington's favorable Forbes ranking (ad nauseum) and more specifically, our high ranking in regulatory costs (5th) compared to Idaho's (35th).

According to Forbes's regulatory cost index, that category is based on "Measures regulatory and tort climate, incentives, transportation and bond rating." Not a bad mix of variables, but not comprehensive and Forbes does not get into the details of how they judge each variable in relation to the others. 

One such study that d!
oes get into a more comprehensive look into regulations is the Mercatus Center with its "Freedom in the 50 States: An index of personal and economic freedom."

Where does Washington rank (with #1 being best, #50 worst)? In fiscal policy Washington ranks 37th overall. In regulatory policy we rank 45th (6th worst). Economic freedom we are at 41st, and personal freedom we rank at 35th. Overall, Washington ranks 44th.

For regulatory policy, the Mercatus Center includes labor regulation, health insurance mandates, occupational licensing, eminent domain, the tort system, land and environmental regulation, and utilities. I would argue that this is a more comprehensive look at our regulatory environment. 

Now, we've target="_blank">written many times about relying on natio!
nal rankings to assess our business climate. Basically it boils down to this: Yes, the PR is good, and no, Washington is not the worst place, nor the best place for businesses. But how can we improve? There are many studies and reports out there that provide a snapshot of where we can improve. But using one good ranking to provide cover for discussion on "is Washington a good place for business" may come back to bite you when that ranking falls because of tax increases or other poor policy decisions. 

UPDATED: Life Sciences and Research Targeted with 100% Tax Increase

March 9, 2010 in Blog

If you were up late last night (technically this morning I guess) you could have seen the House pass its tax package on a 52-45 vote. 

There is much to discuss about the 162 page bill that can be read here, but interesting enough amongst the menu of tax increases is a tax on the very life science industry the Governor has been pushing for several years. 

The language in the bill doubles the B&O tax 0.5 percent, from 0.484% percent to 0.984% percent (a 100% tax increase) for non-profit research and development, while for-profit R&D will see a 33% increase in their rate, from 1.5% to 2.0%:

"Scientific research and development services including but not limited to research and development in the physical, engineering, and life sciences (such as agriculture, bacteriological, !
fit research and development should be under the 0.484% catego!
ry, not the 1.5% category, which means the 0.5% increase represents a doubling of the tax rate, not thirty-three percent increase.  However, for-profit research and development is under the 1.5% service category and would see a 33% increase if this bill becomes law.

Legislature proposes $130 million of fee increases

March 8, 2010 in Blog

Long has there been arguments over what constitutes a "fee" increase versus a "tax" increase. It seems each year the legislature fights over the definition, even if the minds are made up about increasing whatever it is they end up calling it.

Senate Bill 6444, the supplemental operating budget, includes $130 million in fee increases over the next ten years. Many of these will hit the business community right in the pocketbook -- and so it doesn't really matter if it is a "fee" or "tax" increase; the point is that someone has to pay.

Some highlights ($$ total over 10 years):

  • Acupuncture license fee -- $1.2 million
  • Adult family home license fee -- $44.2 million
  • Animal massage practitioner license fee -- $230,000
  • Boarding home license fee -- $9.6 million
  • Dental license fee -- $8.3 million
  • Farmworker housing fee -- $1 million
  • Mental health counselor license fee -- $2.2 million
  • Nursing license fee -- $26 million
  • Nursing Assistant license fee -- $10.2 million
  • Nursing Home license fee -- $11.4 million
  • Optometry license fee -- $655,000
  • Respiratory Therapist license fee -- $2.2 million
  • Child care provider license fee -- $5.4 million

Not all fees are bad. Sometimes the fees go towards programs or expenses that incur costs from a specific activity -- one that a general tax should not pay for. But, as in the tax discussion, the increase in fees should be weighed carefully against the benefits of levying the fee because it just raises the cost of doing business.

SBA Underlines Need for Small Business Expansion for True Job Growth

March 8, 2010 in Blog

A new statistical report from the U.S. Small Business Administration's Office of Advocacy underlines the link between job growth and small firm expansion. Often the conversation revolves around asking "how good is Washington state for business start-ups?" And while it is always important to lower the artificial barriers to market entry for new and aspiring entrepreneurs, the new SBA report points out that for true private sector job growth the focus should be on small businesses expanding their workforce. 

From December 2007 to December 2009, the United States lost 7 million net jobs. In that same period Washington state lost 95,950 jobs. Lawmakers on both sides of the aisle are looking at policies to recoup some of those lost jobs. So, how best to go about t!
his?

According to the SBA report, targeting growth in small business is a wise investment; even more so than in new businesses. As the report points out, "Most small firms start small, stay small, and close just a few years after opening." But this is offset by the fact that "Almost all businesses start small...over the last 20 years, 95 percent of new employer firms started with fewer than 20 employees."

There is a very strong basis for the claim that firm formation has a strong impact on overall job creation, but then again, about half of new firms survive five years or more. So, the SBA points out that, in actuality, "the bulk of job flows takes place in existing firms' expansions and contractions." In fact, depending on what data set you look at, small businesses (using the under-500 employee federal standard) account for 65% or 88% of new net jobs nationwide. 

The authors of this report echo WPC assertions that !
small businesses are a logical group to look to for job recove!
ry as they have historically carried our economy out of recessions. Looking back, during the previous recession it was firms with fewer than 20 employees that led the jobs recovery, while businesses with more than 500 employee continued to bleed jobs and firms with 20-499 also lost jobs (but to a lesser extent as the big guys). The recession prior to that, in the early 1990s, it was the firms sized 20-499 that lead employment expansion, while the very small and very large firms dragged behind. 

Because our current recession is steeped so heavily in credit market woes, the authors expect to see net job gains primarily in the 20-499 sector, as opposed to the under-20 sector.

One interesting side note, however, is the declining size of new startups. Essentially, even as more people start businesses, the number of employees in those new businesses is becoming less and less. Pure speculation on my part is that the advent of the Internet, home-based businesses, !
and the simple fact that fewer people can do more through technology has something to do with this.  

Two other good resources regarding data analysis of small firm hiring and the impact on the economy include, "Where Will the Jobs Come From," and "Jobs Created From Business Startups in the United States," both from the Kauffman Foundation. 

Minimum wage debate: Focus on short-term gain hurts teens' futures

March 5, 2010 in Blog

A great editorial in today's Wall Street Journal (subscription required) on the teen unemployment rate in America and how minimum wage laws are adversely affecting our future workforce. 

The editorial states,

"A higher minimum wage has the biggest impact on those with the least experience or the fewest skills."

When the feds increased the minimum wage from $5.15 to $5.85 the overall national unemployment rate was under 5% and the teen rate was at 14.9%. 

"But as the minimum wage increased even as the overall job market began to worsen, the damage to teen job seekers became more severe. By the time the third increase to $7.25 from $6.55 took effect in July 2009, the teen jobless rate was 24.3%, and by October it peaked at 27.6% before dropping to 26.4% in January."

But this sad situation is even worse for those in the African-American community.

"[Black teens'] jobless rate climbed from 38.5% before the third wage hike to 49.8% in November 2009, before falling back to 43.8% in January. For black male teens, the rate climbed to 52.2% in December from 39.2% in July."

Those are some telling and frightening numbers. Couple those jobless numbers with the fact that fewer than half of black students finish high school and you have a recipe for disaster (disaster being that black males are much more likely to end up in jail than any other ethnicity). 

So then, why does Congress continue to implement policies that contribute to teenage unemployment? For short-term publicity gains. 

Again, the Journal opines that,

"A Congress that has spent $862 billion to create jobs thus managed with its wage increase to harm tens of thousands of entry-level job seekers. And it did so in the name of "compassion" and a "living wage." In many cases that wage has since become zero."

It's unconscionable to favor short-term gains over the longer term effects here. We are sacrificing temporary wage increases for a few so that the least-skilled can get left behind. And those are the ones who truly need a chance to break into the labor force and learn valuable lessons -- lessons that a government-imposed wage hike cannot teach.

More on the minimum wage
National unemployment rate of 9.4% pales in comparison to teen rate 24%
Colorado minimum wage drops as living costs fall
Don't shut out those looking for experience in the workplace

House Tax Package Targets Businesses, Non-profits, Venture Cap Investments

March 5, 2010 in Blog

Earlier this week the House released its smorgasbord of tax increases to help fill the $2.8 billion budget deficit. Largely lost among the 150+ pages of HB 3191 are sections 2101 and 2102, which would cap the investment income B&O deduction for non-financial institutions at $250,000 and tax any returns above that at 1.5% (the highest B&O rate).

As of now there is no cap on how much a non-financial business may deduct. According to the Department of Revenue (page 113), this deduction is "provided for interest, dividends and capital gain income earned by persons who are not engaged in banking, loan, security or other financial business." Basically, unless your business makes more than 50% of its revenue through loan income, you qual!
ify for this deduction. 

DOR also says that "The B&O tax is intended to apply for the privilege of engaging in business. This deduction reflects the perspective that investment income by nonfinancial firms is not considered as engaging in business."

Finally, DOR says that revenue could be increased through repealing this deduction but "compliance might be problematic." The Department does not elaborate on what kind of problems could be expected. 

Much of the concern revolves around "what qualifies as investment income?" For a business, non-profit, or other corporate entity, it is wise (and usually required) to have liquid assets invested in some form of interest-bearing vehicle; aka savings account. This may sound simplistic but just as most households hopefully have money stashed away for emergencies or a rainy day, businesses and non-profits similarly hold onto a reserve account as a similar precaution. This !
money is often set aside into various accounts that pay intere!
st. 

Chances are, unless you have a large business or non-profit organization, your reserves are not earning more than $250,000 in interest. Using some simple math and assuming a 4% rate of return (remember when financial analysts used to use 8%?) a business would have to have about $6.25 million in reserves to hit the $250,000 level. 

Now, you might say, "hey, $6.25 million is a lot of money," and to an individual citizen it may be. But many businesses have far far more than that on hand. Heck, over in Redmond, Microsoft has over $30 billion cash and cash equivalents on hand. They are not a business that makes money off of loans and investment income, but they probably pull in a tidy sum just from their reserves. Still in question is whether universities, most of which have substantial endowments, would continue to be exempt as well. As an aside, the a href="http://f2.washington.edu/treasury/sites/default/files/1q10bor.pdf" target="_blank">University of Washington's Consolidated Endowment Fund is a little under $2 billion. And don't forget about the mother of all non-profits, the Gates Foundation, with cash and other investments totalling over $30 billion.

Also still questionable is how Venture Capital would be affected. Washington VC firms invested over half a billion from Q3 2008 to Q2 2009. That's 7th most in the nation, but 4th most per capita. High levels of VC funding is one of the reasons why Seattle continues to attract high-tech firm startups. How would these investments in future companies be affected by this tax increase? We don't yet know that either.

House Democrats expect to raise $58 million from this proposal during the remainder of the current b!
iennium (until June 30, 2011) and $126 million during the 2011-13 bienn!
ium. The plan is to link the money raised from capping the deduction to various education expenditures such as smaller class sizes and levy equalization. 

The reality is that any tax increase, whether through repealing "loopholes" or raising rates, will have a detriment effect on somebody. This is why WPC has been advocating for reining in government spending for years, so that policymakers wouldn't have to choose winners and losers in the tax policy game. 

Tempered reaction to latest unemployment numbers

March 3, 2010 in Blog

A majority of yesterday's headlines proclaimed that the state had seen its first "positive job growth numbers in a year." While technically true, the increase is small relative to the overral jobs picture, down 170,000+ since the turmoil began, and the unemployment rate actually continued to climb. 

To be sure, even a faint improvement month-over-month is good news when compared to the drastic decline in private sector jobs. But we are still nowhere near out of the woods, at least jobs-wise. As we've stated before, you will see productivity and output grow before j!
obs largely recover their previous levels (which is still years away).

Over at Crosscut, Stephen H. Dunphy writes that 

Another measure shows the true problem with the economy these days: the unemployment rate that counts unemployed people as well as those working part-time for economic reasons and those who have quit looking for work because they are discouraged. That number stood at 16.2 percent statewide, the same as the national average. In Oregon, that rate is 20.7 percent; in California, 21.1 percent.

He also points out that Washington will benefit from exporting to!
surging Asian economies. That will help some of our states la!
rger businesses (Microsoft, Boeing, et. al.) as they export both manufactured goods and software overseas.

But before we begin popping champagne corks, Dunphy points out, correctly I might add, that

"An estimated 359,500 people (not seasonally adjusted) in Washington were unemployed and looking for work in January, Employment Security said. More than 305,000 people received unemployment benefits in the state in January.

A final caution from Employment Security: Remember, one month is !
not a trend, so don’t get too excited about fluctuations in the numbers from month to month."

Also, Nikki Reading over at TVW a> links to an interesting Wall Street Journal article showing average unemployment rates by state with a year-over-year comparison. Interesting to see how all the states were affected. 

Feds grant WA $84 million for broadband expansion

March 2, 2010 in Blog

The U.S. Department of Commerce's National Telecommunications and Information Administration announced today a grant of $84 million to the Northwest Open Access Network (NoaNet) "to deliver new and enhanced broadband capabilities to some of the more remote regions of the state by adding 830 miles of figer and eight new microwave sites to their existing high-speed network."