Washington Policy Blog

Senate targets business tax exemptions and sales tax increase

February 23, 2010 in Blog

The Senate Democrats released their budget blueprint this morning. We'll have additional analysis on the specifics after we've had time to read the proposal but in the meantime here are details on the tax increases being proposed:

Senatetaxes

Here are the details on the tax exemptions being closed:

Taxexemption

Additional information available here.

Constitutional Sunshine

February 22, 2010 in Blog

With National Sunshine Week (March 14-20) less than a month away, it's not too early to think about the reforms needed to make the legislative process more transparent.

Whether it's the failure to implement a reasonable budget review period, holding hearings on "ghost bills," or carving out a special legislative exemption from the state's public reco!
rds act, it is clear that constitutional transparency protections are needed for citizens.

The Catch-22 of course, any constitutional reform must originate in the Legislature. Despite this obstacle, here are some suggested constitutional transparency protections to help make Washington the legislative sunshine state:

  • Add the preamble of the state's public records act to Article 1. This would help re-enforce this transparency intent for any wayward court. The preamble reads:
"The people of this state do not yield their sovereignty to the agencies that serve them. The people, in delegating authority, do not give their public servants the right to decide what is good for the people to know and what is not good for them to know. The people insist on remaining informed so that they may maintain control over the instruments that they have created. This chapter shall be liberally construed and its exemptions narrowly construed to promote this public policy and to assure that the public interest will be fully protected. In the event of conflict between the provisions of this chapter and any other act, the provisions of this chapter shall govern."
  • Add a new section to Article 2 which would require 72-hour public notification before any bill could receive a public hearing. While the requirement currently exists in legislative rules, it is often waived.
  • Amend Article 2, Section 19 to prohibit title only bills. No public hearing or vote should occur on a "ghost bill."
  • Amend Article 2, Section 22 to prohibit votes on final passage until the final version of the bill to be approved has been publicly available for 24-hours. 

These type of constitutional sunshine protections would not be unique to Washington if enacted. Florida's Constitution (Article 3, Section 19) requires a 72-hour public review period for appropriations bills before they can be voted on. Hawaii's Constitution (Article 3, Section 15) requires a 48-hour review period before any bill can be voted on for final passage.

While Washington may not come up in the same sentence with Florida and Hawaii when it comes to sunshine, we could take the lead when it comes to constitutional sunshine protections for citizens.

Obama's Health Care Plan

February 22, 2010 in Blog

The White House released President Obama's health care plan today, three days ahead of Thursday's televised conference on reform. The provisions of the plan are fundamentally the same as the House and Senate bills:

* Individual mandate to purchase health insurance or pay a tax.

* Employer mandate to provide health insurance for employees or pay a tax.

* Government controlled health insurance exchange.

* Taxpayer subsidies for families earning up to 400% of the federal poverty level ($88,000 for a family of four) to purchase health insurance.

* Delay tax on high priced health insurance plans for five years (at union request).

* The "Nebraska Kickback" for all states - expand indefinitely the federal contribution for Medicaid to 90% for all states.

* Delay tax on insurance companies for four years.

* Delay tax on drug companies for one year.

* Delay tax on medical device manufacturers for three years.

* Three of the eleven pages spent on eliminating waste, fraud and abuse in government programs (all of which could be done now).

Unlike the House and Senate bills, though, the President places more federal regulation on insurance company pricing. This would lead to government price control of the insurance industry and would force many companies out of business.  Obviously, as more people are forced out of private insurance, the enrollment in the government plans would skyrocket.

The group Americans for Tax Reform estimates (here) the President's plan would add an addition $629 billion in taxes over the next ten years and would bring the total cost of this proposed health reform to well over $1 trillion.

In short, the President's plan breaks no new ground in the health care debate. It greatly expands the government role in our health care, does nothing to control costs (except for the obligatory rationing that will occur), and further isolates the patient from health care spending and decision making.

WA policymakers should learn from South Carolina UI mistakes

February 22, 2010 in Blog

Late last year when Boeing announced its decision to open up the second 787 production line in South Carolina, many in the business community pointed to S.C.'s low cost of doing business as one of the major factors in Boeing's decision. The Governor and other labor leaders in Washington pointed that S.C.'s unemployment system was on the verge of collapse and that while Washington's system is more expensive, at least it is solvent. 

A story out of the Post and Courier today (hat tip Stateline.org) highlights the fact that South Carolina was not alone in borrowing funds from the Federal government to shore up their unemployment insurance systems!
. States borrowed about $31 billion over the last two years -- South Carolina to the tune of $800 million. Now the trick for policymakers is to figure out how to pay that back to the feds. 

South Carolina officials don't yet have a firm plan in place to pay back the feds, but they did start the process of a head-to-toe review of their Employment Security Commission and found widespread mismanagement and waste. 

John Rainey, South Carolina's chief economic adviser, hit the nail on the head when he said that raising fees on businesses now will slow the state's economic recovery because every dollar spent in taxes is a dollar that is not available to hire more staff or expand operations.

Here in Washington, even with a solvent UI trust fund, state officials raised UI taxes an avera!
ge of 54%
(though many folks are reporting triple digit percentage increases) for 2010 and have said that future increases are inevitable as well. But rather than look at ways to decrease costs, some officials are backing benefit increases, which would only put further strain on the system. 

Yes, here in Washington we are fortunate to have a system that needs no federal government bailout. But the bad news is that the business community is shouldering the burden of a system that increa!
ses costs during a downturn
, instead of when times are good. Doing so, as Rainey says, only slows down the economic recovery this state needs. 

Senators propose car insurance surcharge

February 19, 2010 in Blog

Senators Hargrove and Regala introduced today SB 6871 - Supporting judicial branch and criminal justice funding. The bill would increase fees on car insurance by $1 every six months per vehicle to fight auto theft.

According to the bill:

"The legislature recognizes the importance of a robust judicial system to Washington's citizens. The legislature finds that the court system is an essential component of public safety in Washington state. During the economic crisis of the 2009-2011 fiscal biennium, !
the legislature concluded that additional resources are necessary to support the state and local courts and judicial branch agencies. The legislature finds that civil and criminal traffic infractions are the majority of cases in local courts. The legislature finds that it is imperative the state continues to prevent auto theft and that the insurance companies in Washington also benefit from preventing auto theft. Therefore, a surcharge shall be levied on all auto insurance policies in Washington. This surcharge will be used to combat auto theft and ultimately lower insurance costs for the citizens of Washington state . . .

A surcharge of one dollar every six months per insured automobile shall be charged by each insurer to each person purchasing automobile insurance, which will be in addition to any other charge authorized by law."

The funds raised would be deposited into the Auto Theft Prevention Authority Account.

Last year the Legisl!
ature raided millions from this account and changed the author!
ized use of the funds. Here are the details from the 2009-11 budget:

Section 128 (27) - $300,000 of the Washington auto theft prevention authority account--state appropriation is provided solely for a contract with a community group to build local community capacity and economic development within the state by strengthening political relationships between economically distressed communities and governmental institutions. The community group shall identify opportunities for collaboration and initiate activities and events that bring community organizations, local governments, and state agencies together to address the impacts of poverty, political disenfranchisement, and economic inequality on communities of color. These funds must be matched by other nonstate sources on an equal basis.

Section 203 (8) - $3,700,000 of the Washington auto theft prevention authority account--state appropriation is provided solely for competitive grants to community-based organizations to provide at-risk youth intervention services, including but not limited to, case management, employment services, educational services, and street outreach intervention programs. Projects funded should focus on preventing, intervening, and suppressing behavioral problems and violence while linking at-risk youth to pro-social activities. The department may not expend more than $1,850,000 per fiscal year. The costs of administration must not exceed four percent of appropriated funding for each grant recipient. Each entity receiving funds must report to the juvenile rehabilitation administration on the number and types of youth served, the services provided, and the impact of those services upon the youth and the community.

Section 945 - RCW 46.66.080 and 2007 c 199 s 27 are e!
ach amended to read as follows: (1) The Washington auto theft prevention authority account is created in the state treasury, subject to appropriation. All revenues from the traffic infraction surcharge in RCW 46.63.110(7)(b) and all receipts from gifts, grants, bequests, devises, or other funds from public and private sources to support the activities of the auto theft prevention authority must be deposited into the account. Expenditures from the account may be used only for activities relating to motor vehicle theft, including education, prevention, law enforcement, investigation, prosecution, and confinement. During the 2009-2011 fiscal biennium, the legislature may appropriate moneys from the Washington auto theft prevention authority account for criminal justice purposes and community building.

Perhaps if the Legislature hadn't raided the account the funds would be available for the use intended - preventing auto theft.

OFM projects sales tax increase would last through 2015

February 19, 2010 in Blog

The Office of Financial Management released today the required I-960 fiscal impact statement for the proposed sales tax increase in HB 3183.

HB 3183 would increase the state's sales tax rate from 6.5% to 7.5%, a 15.4% increase. The rate would drop back to 6.5% once the state's unemployment rate hit 5% for four consecutive months.

The state's current unemployment rate is 9.5%

According to OFM the sales tax increase is projected to be in effect through 2015.

Economic growth on one hand, but on the other hand...not so much

February 19, 2010 in Blog

The oft-maligned, or much-loved (depending on your viewpoint) Congressional Budget Office, or CBO for short, issued a couple of papers over the last few weeks looking at policies for increasing economic growth and employment for 2010 and 2011.

While some of the proposals in the CBO's reports deal with federal-only policies such as Social Security payroll taxes, and stimulus spending, some of the underlying themes can be refocused towards state policy. And seeing as how creating jobs seems to be the number one priority for policymakers in Olympia this Session, perhaps there are lessons to be gleaned from the various reports. And, keep in mind that the CBO isn't lobbying for any one particular course of action, they are merely laying out the economic impacts of policy proposals. 

First up, CBO analyzed the effects of giving e!
mployers a one-year credit
against their payroll tax liability for increasing their payrolls in 2010 from their 2009 levels. CBO anticipates that firms could do one or more of four things:

1) some firms would react to lower employment costs by reducing the prices they charged in order to sell more goods or services. Higher sales would in turn spur production.
2) some firms would pass the tax savings on to their employees in the form of higher wages or other types of compensation, which in turn would encourage more spending by those employees.
3) some would retain the tax savings as profits, which would be passed on to shareholders.
4) some firms would use slightly more labor during the period when it was temporarily less expensive.

CBO does point out that output (GDP) could be increased by a total of $0.40 to $1.30 per dollar of budgetary cost. This is where things get tricky, and why re!
ducing government spending is so important. CBO estimates that!
such a policy would have economic benefits in the short run, but could add to already large projected budget deficits. In other words, tax cuts are great and spur economic growth, but the benefit has to outweigh the cost or else deficits increase. A $0.40 benefit on the low end increases the deficit, a $1.30 benefit reduces the deficit and spurs further growth and tax collections. Reducing government spending levels provides more wiggle room for tax cuts. 

In Congressional testimony by CBO's director Douglas Elmendorf, he points out that, "CBO anticipates, as do most private forecasters, that the pace of the economic recovery will be slow." This is something that our state's own chief economist Dr. Ahun Raha has echoed. Therefore, it is important to look at policies that encourage hiring employees.�!
160;

Because hiring usually lags behind economic output -- meaning the unemployment rate will be one of the last economic indicators to recover even after the economic recovers -- firms must first focus on increasing productivity among current workers. Higher production levels, and higher consumer demand will spur the need for hiring. The good news is that productivity jumped 6.7% in the later half of 2009. The concern remains that economic output is growing only slightly. 

Environmental News Wrap-Up

February 18, 2010 in Blog

There are a few stories today that echo research we've done recently. These stories include some interesting admissions of facts we've noted in the past.

Report: Stimulus Weatherization Program Bogged Down by Red Tape
Only 9,100 Homes Weatherized in 2009, Out of a Planned 593,000, According to GAO

Earlier this year we highlighted problems with a previous federal program to weatherize government buildings. The legislature is considering HB 2561, which would borrow $850 million for energy retrofits in state buildings. Supporters claim the bill "pays for itself," although the sponsor, Rep. Dunshee, admitted in committee that the state will not attempt to recover the savings from energy reductions to pay for the cost.

This story is just one more example that taxpayers should be wary of programs that promise to create thousands of jobs while saving money at little or no cost to the taxpayer. It is also a good example of something we pointed out in December, that bureaucratic rules can dramatically slow the creation of jobs and environmental improvements.

Scientists still sparring over future of Pacific Northwest snowpack

In the continuing saga of a story we helped break a few years back, there is still debate about the impact of climate change on snowpack across the Northwest. In 2007, it became clear that there were games being played with snowpack data. Then-state climatologist Phil Mote (now at Oregon State University) claimed that snowpack had declined by 35 percent since 1950. His colleagues noted that he was cherry-picking the data and recently published a report, after an exhaustive peer review process, indicating that the number is incorrect and misleading. Ironically, Mote accused them of "oversimplifying" the issue although he has backed off his previous claims.

This study doesn't claim that climate change won't have an effect on snowpack, but they make the absolutely correct point that "if you try to spin it that all of the loss we're seeing is evidence of what global warming is doing, you really risk undermining your credibility." If only they'd told the IPCC that three years ago.

Could poorly performing projects kill green building?

An article in the Daily Journal of Commerce by a green building supporter echoes the data we've provided that "green" buildings are not living up to their promise. He worries that the failure of "green" buildings to live up to their promises could undermine government and public support for those programs. The author writes:

There have been countless stories of “green” buildings not actually performing in an environmentally friendly and efficient manner. In fact, this happens so frequently that a new phrase has entered the English language just to describe it: performance slippage. This term is most often used to describe a building that achieved a rating from a credible system (i.e., LEED or Green Globes), however once in operation did not actually see any differences in performance in areas such as energy efficiency and water usage.

In the end, however, he argues that the rules actually need to be made more strict. He says that we need to ensure that "standards and codes used to define a green building are developed in a consensus-based and public manner." He doesn't explain how creating standards by consensus will make the system better and it seems that focusing on the process of creating the standards rather than the outcome continues in the wrong direction, just faster.

Leave for parents to attend school activities?

February 18, 2010 in Blog

EHB 2444, an act relating to providing leave from employment for participating in a child's educational activities, passed out of the House earlier this week and is on its way to the Senate. 

For years policymakers have been introducing legislation to expand the scope and reach of both paid and unpaid leave laws. You may remember a similar issue two years back when labor pushed for a state-run paid family leave law, which the legislature delayed until 2012

The benefit from 2444 is for unpaid leave (as opposed to paid leave) of up to four hours per year for a parent to participate in their child's activities. Even though this sounds relatively benign, it's only four hours per year and unpaid, the problem is that this benefit falls on top of numerous other!
paid and unpaid mandates from both the state and federal governments. 

Family and Medical Leave laws are very complex and tough to coordinate. As mentioned earlier, both the state and feds mandate unpaid leave for the birth or adoption of a child, care of immediate family members with serious health conditions, serious health conditions of the employee, pregnancy or disability related to pregnancy, and more. Every year there are attempts at expanding the scope of family or medical leave laws. This year, mandatory paid sick leave was touted necessary because of H1N1; in past years mandatory paid sick leave was supposed to be the only thing standing between the Avian flu pandemic and workers, and before that SARS. 

There is no question that parental involvement in a child's education !
is necessary to produce a good educational outcome. But the bu!
siness community should not be forced to carry this regulatory compliance cost, especially when there are avenues in place to handle employee leave. As cited in previous WPC research, most businesses, especially small businesses, are able to work with employees to arrange time off necessary for medical or parental duties without the state forcing a costly mandate on the employer. 

Bill introduced to eliminate state printer

February 18, 2010 in Blog

SB 6867 - Eliminating the state printer was introduced this morning by Senator Tom. According to the bill:

"The legislature finds that technological changes have decreased the need for a central state printer. Information to citizens is increasingly being provided in electronic formats, which is both cost-effective and saves natural resources. Additionally, as printing technologies have changed, they have become within the reach of most agencies to conduct their own printing. The legislature also finds that printing is not a core state service and would be better handled within the private sector. To that end, the legislature is eliminating the state printer." />

The bill has been referred to the Senate Ways and Means Committee.

Will Governor veto tax transparency suspension?

February 17, 2010 in Blog

Late this evening the House adopted its version of SB 6130, repealing for 2-years the 2/3 vote requirement for tax increases and some of the transparency provisions of Initiative 960 enacted by the voters in 2007.

The vote in the House was 51-47.

Since the House made changes to the bill (added back email notification of tax increases) it now goes back to the Senate for approval and then to the Governor for signature.

The repeal of the 2/3 vote requirement will clear the way for tax increases. Today the Governor proposed $605 million in tax increases.

Though the Governor plans to sign the 2-year !
repeal of the 2/3 vote requirement for tax increases she has not indicated whether she supports the Legislature's plan for a 2-year repeal of non-binding advisory votes for tax increases enacted with a referendum denying emergency clause.

The intent section of I-960 discusses the goal of the non-binding tax advisory votes:

From I-960:

"Our
state constitution guarantees to the people the right of referendum. In recent years, however, the legislature has thwarted the people’s
constitutional right to referendum by excessive use of the emergency
clause . . . The people find that, if they are not
allowed to vote on a tax increase, good public policy demands that at
least the legislature should be aware of the voters’ view of individual
tax increases. An advisory vote of the people at least gives the
legislature the views of the voters and gives the voters information
about the bill increasing taxes and provides the voters with
legislators’ names and contact information and how they voted on the
bill. The people have a right to know what’s happening in Olympia."

By repealing for 2-years the non-binding advisory votes, lawmakers that vote for a tax increase will be spared from having their names show up in the voter's pamphlet next to a description of the tax increases they supported as required by RCW 29A.32.070:

"Two pages shall be provided in the general election voters' pamphlet for each measure for an advisory vote of the people under RCW 43.135.041 and shall consist of the serial number assigned by the secretary of state under RCW 29A.72.040, the short description formulated by the attorney general under RCW 29A.72.283, the tax increase's most up-to-date ten-year cost projection, including a year-by-year breakdown, by the office of financial management under RCW 43.135.031, and the names!
of the legislators, and their contact information, and how they voted on the increase upon final passage so they can provide information to, and answer questions from, the public. For the purposes of this subsection, 'names of legislators, and their contact information' includes each legislator's position (senator or representative), first name, last name, party affiliation (for example, Democrat or Republican), city or town they live in, office phone number, and office e-mail address."

Short of a change of heart in the Senate, the only thing that can ensure the non-binding tax advisory votes as intended by the voters remains in effect is the Governor's veto pen.

The Constitution provides the Governor line-item veto authority which means she could approve the 2-year repeal of the 2/3 vote requirement while maintaining the non-binding tax advisory vote provision.

Time running out for legislature to help business community

February 17, 2010 in Blog

Yesterday (Feb 16th) marked the house of origin cut-off date; meaning bills that did not make it out of the legislative body in which they were introduced are now considered "dead." Now, "dead" in Olympia-speak doesn't mean that those bills couldn't be resurrected, just that they are almost certainly done for the session. 

Kicking off this legislative session, members from both parties indicated that on the business front, there were few big ticket items to address, although those few issues were considered important. In the wake of Boeing's 787 decision, reforming the state's workers' comp and unemployment insurance systems became much more of a visible battle than originally anticipated. Newspaper editorial boards from all over the state called on the legislature to reform the systems, especially after state officials released the rate hikes for 2010. Businesses struggling to stay afloat during this Great Recession are now shouldering a bigger workers' comp/UI tax burden.

It is no surprise that Labor officials strenuously fought business' attempts at reform. A good summary of the battles on both workers' comp and Unemployment Insurance can be found over at Washington State Wire. 

The bottom line is that the legislature passed up an excellent chance to reform both workers' comp and UI for the better, without curtailing benefits for injured or l!
aid-off workers. On one hand, some in the business community a!
dvocated for privatization of the workers' comp system, while others focused on a bi-partisan bill that would take more incremental steps that could help contain costs in the short term. But no go. No workers' comp reform bills were even heard in committee. 

In fact, policymakers didn't even pass a task force that would have been set up to study workers' comp reform (though it did make it out of committee); not that another task force would have accomplished anything worthwhile. 

On the UI front, legislation to smooth out future tax increases without driving the state further into debt also went nowhere. As did, thankfully, legislation that would have increased the benefits for UI recipients, as well as expand the voluntary quits provisions for eligibility -- including the provision that part-time workers would be eligible for benefits.&!
#0160;

This Legislative Session began with one of the major goals from both parties being that government needs to take steps so that the private sector can grow and create the jobs and wealth our state has desperately missed the past couple of years. The state has lost almost 175,000 private sector jobs and even if the economy turned around tomorrow, it will take time to recover a majority of those jobs and even longer for state coffers to see a benefit. 

With yesterday's cutoff deadline passed, it now appears that very little will be accomplished in 2010 towards easing the business community's costly burdens in workers' comp and unemployment insurance. That's a shame. 

Seattle and Google to collaborate on broadband rollout?

February 17, 2010 in Blog

Google_seattle-793099Last week Google announced an ambitious plan to connect up to 500,000 households to its own fiber-to-the-home network that will deliver connections speeds up to 1 gigabit per second. By comparison, most Comcast and Verizon FIOS customers currently have 10-25 megabit connections. In the coming year or so, many of those traditional cable modem customers will see connection speeds increase upwards of 100 megabits but Google's speeds wou! ld still surpass some of the major ISPs tenfold.

100 percent increase in state death tax proposed

February 12, 2010 in Blog

The legislative tax floodgates have opened. Today Representatives Chase, Williams, Hunt, Dickerson, Flannigan, and Moeller introduced a bill that would increase the state's death tax by 100%.

HB 3184 would raise the top state death tax rate from 19% to 38%. The tax rate in the lower brackets would also be increased by 100%

Last year WPC's Carl Gipson (Small Business Center Director) highlighted how repeal of the state's death tax would help grow the economy and lead to job creation.

Budget deficit grows to $2.8 billion

February 12, 2010 in Blog

The state's budget outlook worsened today with news that the revenue forecast is being downgraded by $118 million. Combined with a $96 million increase in caseloads, the state's new budget deficit is projected to be $2.8 billion.

Despite a forecasted 12% increase in revenue for the next budget (2011-13), a multi-billion dollar deficit is projected for the next biennium. This is illustrated by the state's 4-year budget outlook (yet to be updated).

Consumer confidence is the key to economic recovery. Should consumer confidence fail to improve the state is at risk of a double dip recession. According to the forecast:

!

"There is a risk of a double-dip, or 'W-shaped' recovery, where economic activity sags in the fourth quarter of 2010. This can happen if by the middle of next year if consumer spending and confidence fail to recover as we expect them to."

Despite the need to improve consumer confidence, a bill has been introduced to make purchases more expensive with a sales tax increase.