Will State Lawmakers Heed New SBA Data, Small Business Concerns?
Jan. 26, 2012
There’s more evidence that small business plays a pivotal role in creating jobs in Washington and other states, according to the Office of Advocacy in the Small Business Administration (SBA). The Office of Advocacy released small business data for each of the 50 states.
SBA believes the new data is “an invaluable resource for small businesses, legislators, academics, government officials, and policymakers in each state.”
Why?
“Small businesses are the foundation of economic growth in Washington and in our nation” said Dr. Winslow Sargeant, Chief Counsel for Advocacy. “By supporting policies that promote innovation and entrepreneurship, we help small businesses tackle these challenging economic times. These statistics are a resource for a path to economic growth.”
As for Washington state, the report explains “small business employment; business starts and closings; bank lending; business ownership by minorities, women, and veterans; and firm and employment change by major industry and firm size.”
Salient data about small business:
- There were 532,162 small businesses in Washington in 2009. Of these, 142,854 were employers and they accounted for 53.3 percent of private sector jobs in the state. Small firms made up 98.1 percent of the state’s employers.
- Throughout 2010, the number of opening establishments was lower than closing establishments and the net employment change from this turnover was negative.
- Washington’s real gross state product increased 0.7 percent and private-sector employment decreased 1.8 percent in 2010. By comparison, real GDP in the United States decreased 1.3 percent and private sector employment declined by 0.8 percent.
- Self-employment in Washington surged over the last decade. Female self-employment fared the best compared with other demographic groups during the decade.
To promote entrepreneurship, this week the Washington Policy Center sent state lawmakers in the 2012 legislative session these recommendations:
- Revisit the voluntary settlement agreement as passed by the state Senate in 2011 – $1.2 billion
- Reform the displaced worker retraining program
- Simplify sales taxes by using an ‘origin based’ tax (as opposed to a ‘destination based’ tax) and creating a flat rate for out-of-state businesses
- Review regulations to ensure that Washington rules don’t exceed federal regulations
- Enact Tort Reform
- Do no harm in transportation policy – do not reduce road lane capacity
- Do not follow Seattle in enacting statewide paid sick leave
In addition, Gov. Gregoire suggested her strategies to aid small business — business and occupation tax relief.
How has the Legislature responded? Lawmakers have ignored their $1.5 budget-deficit crisis.
Instead, lawmakers are considering other matters – mandating paid sick leave and safe leave, banning plastic bags, abolishing the death penalty and gay marriage.
When will Washington’s Legislature demonstrate wisdom?
From the Coach’s Corner, also read:
WPC Hits Target, but Will Washington State Legislature?
Washington: A Balanced Budget Is No Longer Enough
Does the Federal Reserve Understand Small Business?
Knowledge is knowing a tomato is a fruit. Wisdom is not putting it in a fruit salad.
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Columnist Terry Corbell is also a business-performance consultant and profit professional. Click here to see his management services (many are available online). For a complimentary chat about your business situation or to schedule Terry Corbell as a speaker, why don’t you contact him today?
Washington: A Balanced Budget Is No Longer Enough
Updated Jan. 11, 2012
A Seattle Times headline is perplexing. True, the headline –“Lawmakers open session, try to close $1B gap” – is a fairly accurate assessment of Washington state’s budget. Not to be laboriously repetitive, but the headline is worrisome. Once again the Legislature faces a budget crisis.
“The economy is the focal point of this year’s legislature as state lawmakers attempt to close a $1.5 billion shortfall in a $34 billion budget at the state capitol in Olympia,” blogged Don Brunell, president of the Association of Washington Business (AWB).
Mr. Brunell is known for his pragmatic reasoning.
“As they deliberate, they must be mindful that Washington is in the midst of an anemic economic recovery which is very fragile,” the AWB president added. “New costs to employers, especially those along Main Street, have a dampening effect on our ability to increase consumer confidence and bring people back to work.”
That’s my sense, too. But the Legislature routinely fails to prioritize first things first. The short-term priority is to balance the 2011-2013 budget. But as a priority, it’s secondary to a bigger quandary – government and budgeting reform, which are needed immediately, as well.
Instead, all budget discussions are about the short-term and relatively insignificant issues grab a disproportionate amount of attention.
Gov. Gregoire wants to focus on a new $3.6 billion transportation package, gay marriage, shorten the school year, abolish social services, release some prisoners before the sentences expire, and increase the state’s sales tax. House Speaker Frank Chopp, D-Seattle, also says same-sex marriage is a top priority.
A significant number of citizens wants to legalize marijuana. Some lawmakers want a statewide ban on plastic grocery bags.
Most of us in business agree education is a priority. But increasing taxes even for education isn’t productive as long as government/budgeting reform is ignored as a priority.
In addition to Mr. Brunell, another thoughtful pragmatist is Jason Mercier. Mr. Mercier is director of the Center for Government Reform of the Washington Policy Center.
Worth consideration is Mr. Mercier’s list of recommended reforms:
- Enact a constitutional tax and spending limit (with two-thirds requirement to raise taxes) modeled after the original 1993 I-601 formula.
- Remove as many of the restrictions on lawmakers’ ability to set spending priorities as possible (collective bargaining restrictions on compensation, federal mandates, assumption of auto-pilot budgeting on programs).
- Reform competitive contracting. Allow agencies to make performance-based contracting more proactive (create a Competitive Contracting Council).
- Provide the governor discretionary authority to cut spending.
- Repeal unaffordable programs instead of suspending them.
- Require at least a 5 percent reserve when adopting the next biennial budget.
- Require updated four-year budget outlooks to be published after each state revenue forecast or budget adoption.
- Require completed fiscal notes before bills can be acted on.
- Phase in a defined-contribution retirement plan that gives state workers benefits that can never be taken away.
Amen. Yes, the Legislature should soberly balance the budget. However, unless the Legislature concomitantly reforms government and the budgeting process, uncertainty will never be alleviated for the state’s businesses and consumers.
From the Coach’s Corner, you might want to consider other public policy columns.
“There is an important sense in which government is distinctive from administration. One is perpetual, the other is temporary and changeable. A man may be loyal to his government and yet oppose the particular principles and methods of administration.”
-Abraham Lincoln
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Columnist Terry Corbell is also a business-performance consultant and profit professional. Click here to see his management services (many are available online). For a complimentary chat about your business situation or to schedule Terry Corbell as a speaker, why don’t you contact him today?
WPC Hits Target, but Will Washington State Legislature?
Dec. 7, 2011
The clock is ticking. The state government spends $41 million each day but the Washington State Legislature has made little, if any, progress in its 30-day special session to solve a $2 billion deficit. Meantime, Office of Financial Management Director Marty Brown sent an email to lawmakers warning them action is needed – now.
No floor votes. Nada. Nothing.
At the request of Gov. Chris Gregoire, the special session started Nov. 28. The state is scheduled to spend more money than it will have for policies, programs and salaries.
Earlier, the governor proposed a half cent sales tax increase to raise about $500 million. The events prompted this Biz Coach piece: Budget Debate: Will Legislature Read Seattle News Media Headlines?
Actually, more than balancing the budget, the state needs to reform government for a healthy economic environment.
“While it’s true that state revenues are projected to grow by $2 billion over the previous budget cycle, this time there’s no federal bailout to prop up past overspending,” said a WPC press release. “Some in Olympia are talking tax increases, yet our state’s fragile economy, and especially small businesses, are struggling to survive as it is.”
The Washington Policy Center (WPC) has some ideas worth adopting – the suggestions were sent in a letter to Governor Gregoire.
WPC’s recommendations:
- Provide the governor discretionary authority to cut spending. Adopt performance-based Priorities of government budgeting to control the rate of spending growth.
- Restore the legislature’s ability to amend collective bargaining agreements.
- Direct state managers to use more competitive contracting.
- Repeal unaffordable programs instead of suspending them.
- Bring state employee health care premium contributions in line with those of the private sector.
- Ask state lawmakers to set aside a 5 percent reserve when adopting the next biennial budget.
Following its statewide conference to discuss small business issues, WPC sent the legislature these recommendations:
- Revisit the voluntary settlement agreement as passed by the state Senate in 2011 – $1.2 billion
- Reform the displaced worker retraining program
- Simplify sales taxes by using an ‘origin based’ tax (as opposed to a ‘destination based’ tax) and creating a flat rate for out-of-state businesses
- Review regulations to ensure that Washington rules don’t exceed federal regulations
- Enact Tort Reform
- Do no harm in transportation policy – do not reduce road lane capacity
- Do not follow Seattle in enacting statewide paid sick leave
From the Coach’s Corner, see WPC’s Coverage of the special legislative session here.
Here are related columns:
Why the Sales Tax Debate Erupts in Washington State
No Lame Duck, Washington Official Enhances Economic Public Policy
“There’s no trick to being a humorist when you have the whole government working for you.”
-Will Rogers
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Terry Corbell is a business-performance consultant and profit professional. Click here to see his management services (many are available online). For a complimentary chat about your business situation or to schedule Terry Corbell as a speaker, why don’t you contact him today?
No Lame Duck, Washington Official Enhances Economic Public Policy
Oct. 20, 2011
Like all inspiring great leaders, he and his staff are tenacious in delivering value for all of Washington. Who? State Auditor Brian Sonntag.
Mr. Sonntag is a favorite on this portal, a sagacious Democratic, who has consistently delivered value to state residents, and has always been available to answer questions. Admittedly, I was a bit melancholy about Mr. Sonntag’s announced retirement in 2012.
He has served constituents well, particularly, with his agency’s performance audits and initiatives in improving state-government performance.
And to the end, he continues to do what’s best for the state. He’s working to enhance entrepreneurship, which will help put the state on sound economic footing.
Another favorite entity is Washington Policy Center (WPC). The think tank also provides noteworthy analysis and timely updates.
A blog by Jason Mercier is how I learned Mr. Sonntag has been focusing on business regulations to enhance Washington’s economic environment for the creation of jobs.
Mr. Mercier cites a salient assessment of the state’s regulatory processes in the state auditor’s March 2011 report.
A few highlights:
- The complexity of Washington State’s regulatory system creates costs for governments and businesses alike. Not only are there many regulations, but many requirements change every year or two based on new legislation or state agency amendments to existing rules. The Office of the Code Reviser reports that in 2009 alone, state agencies proposed more than 14,000 pages of new or revised rules.
- Many regulatory costs to business are fixed, with larger firms able to spread those costs over a greater number of employees, meaning that small businesses bear a disproportionate part of the regulatory burden. A 2007 Department of Revenue study on the business survival rate in Washington found that ‘taxes and costs of complying with government regulations are factors that contribute to business failure because most small businesses are not profitable in the early years.’ (BSSUG, 2007)
This is a noteworthy conclusion:
- Improving the effectiveness of Washington’s regulatory regime through streamlining, clear rule writing, reducing the administrative burden, and other innovations will benefit businesses, state government and taxpayers in general. Clear, fair and efficient regulations will keep Washington competitive in the global economy.”
In his blog, Mr. Mercier indicates we can look forward to five Sonntag performance audits:
- Agency efforts to streamline their administrative rules
- Agency permit process time
- State regulations in excess of federal regulations and the value added for the extra regulation
- Agency inspection process and coordination amongst agency inspections
- Effectiveness and opportunities for improvement for the state’s one-stop portal for business regulations.
As a result of WPC’s September 2011, the Legislature is getting feedback from small business (What Do Small Business Owners Need from Washington State Policymakers?).
The state’s small businesses want the following:
- Review environmental regulations to ensure that Washington rules don’t exceed federal regulations
- Legislature should not grant general rule making authority to agencies, but rather be specific about rules to be put in place
- Legislature should listen to and follow up on State Auditor Office reports on regulatory reform (tie)
- Sunset provisions for regulations (tie)
So a Biz Coach tip of the hat to Mr. Sonntag and his team, as well as to WPC. It’s past time to evolve from an adversarial state government-business relationship to one of effective public policy for economic development.
From the Coach’s Corner, the Legislature should reconsider at least one other economic issue: How Washington Fails in Filmmaking for Economic Development. State government wants tax revenue but consistently has failed to be astute in seeing the problems and solutions.
Frustration is trying to find your glasses without your glasses.
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Columnist Terry Corbell is also a business-performance consultant and profit professional. Click here to see his management services (many are available online). For a complimentary chat about your business situation or to schedule Terry Corbell as a speaker, why don’t you contact him today?
Common Sense for Washington State Pension Reform
Dec. 8, 2010
Periodically, for a decade, this column has expressed concerns about public-sector pension reform in Washington State and the nation. It started when I was writing Biz Coach columns for media Web sites. Since mid 2009 when launching The Biz Coach – a business-news portal — I’ve continued to express heart-felt concerns.
No one has disagreed with the opinions. That’s probably because hardworking moderate to conservative businesspeople – the target audience for these columns – represent the majority of readers.
Sample columns that mention the state’s public-policy quagmire in this portal’s Public Policy section include:
My two salient concerns:
1. Public-sector pensions are on average about 74 percent higher than the private sector.
2. The Legislature has been delinquent in funding them in the billions of dollars.
But lawmakers aren’t exactly shy about high spending and taxes.
Fortunately, I’m not alone in sounding the alarm. Concerned analysts also include Jason Mercier of the Washington Policy Center, www.washingtonpolicy.org. The Seattle Times just published his Op-Ed on constitutional pension reforms .
“According to the state actuary, two of Washington’s nine pension plans are already in the red with unfunded liabilities totaling nearly $7 billion,” he reminded readers. “This does not include an additional $8 billion in unfunded post-retirement benefit liability, primarily for retiree health care. Unlike pensions, however, these other retirement benefits are not a contractual right, meaning the Legislature has the ability to make changes as necessary.”
He, too, understands the adverse pension impact on the state’s budget.
“Already our state is facing nearly a $6 billion projected budget shortfall for 2011-13. Included in these projections is the need for additional pension contributions” Mr. Mercier wrote. “The state’s Office of Financial Management projects that an additional $700 million in pension payments above the base will be required in the 2011-13 biennium.”
He further states that pension costs will continue to grow – to $1.2 billion during the 2013 to 2015 budgeting cycle.
“To help avoid kicking the pension liability can further down the road while putting the state’s credit rating in jeopardy, it may be time to pass a constitutional amendment that forces state officials to make the required pension payments and creates a higher threshold to provide enhanced benefits,” he observed. “While funding these past pension promises may crowd out other spending, the alternative puts taxpayers in a worse position.”
He offered another vital solution:
“Meanwhile, legislators must stop enhancing retiree benefits until all the state’s pension plans return to healthy status,” Mr. Mercier explained. “Exacerbating taxpayer exposure while billions in unfunded liabilities exist is the height of irresponsibility. It may also be time for additional reforms to help minimize future pension liabilities.”
It’s also worth noting that constitutional pension reforms are advocated by State Treasurer Jim McIntire.
Amen.
From the Coach’s Corner, you might want to read Mr. Mercier’s article on constitutional pension reforms. Then, contact your state public officials. If the pension system is not reformed, you will pay the price for a long time.
I-1098’s Impact on Economic Development in Washington?
Sep. 22, 2010
You’ve heard the rhetoric. Initiative 1098 , the controversial income-tax proposal, has become one of the most divisive issues in Washington state.
It would impose a 5 percent tax rate of $200,000 on individuals and $400,000 on couples with a 9 percent tax rate on $500,000 for one person and $1 million on families. The state’s share of the property tax would be lowered by 20 percent and the business and occupational tax would exempt 118,000 more companies.
Bill Gates, the c0-founder of Microsoft, joined his father Bill Gates Sr. in advocating passage of I-1098. Notable opponents include Microsoft CEO Steve Ballmer and Amazon.com founder Jeff Bezos.
Ironically, as an economic development tool, the state’s Department of Commerce has a Web site (www.chooseWashington.com) that states Washington has a “Favorable Business Environment.” One of the advantages: “No income tax in Washington.”
So what’s the impact of I-1098?
The Citizens’ Guide to Initiative 1098 is a policy brief by written by Paul Guppy. He’s the vice president for research at the highly respected think tank, Washington Policy Center. It’s voluminous and thought-provoking with heavy documentation.
To summarize, here are Mr. Guppy’s 10 salient conclusions:
1. Initiative 1098 Creates a New Way to Tax. Essentially he believes it does nothing to fix the inequities of the state sales tax, which is regressive for businesses and low-income families.
2. The Income Tax would Likely be Extended to More People. Is this a surprise? No.
“Unlike past efforts, Initiative 1098 is drafted as an ordinary law, not as an amendment to the state constitution, Mr. Guppy writes. “This makes it easier for the income tax to be extended to more people in the future. The legislature could change Initiative 1098 in the short-term with a two-thirds vote, and after two years could change it by a simple majority vote, just like any other part of the legal code.”
3. Income Tax Revenue May Not Go to Promised Purposes. He cites Washington Secretary of State’s data that indicates the Legislature has over-ridden 30 voter-approved initiatives.
“Lawmakers often divert tax revenues from their intended purposes,” he explains. “This year the legislature transferred tax revenue totaling more than $1 billion from 33 dedicated trust accounts, some created by voter initiative, and spent those funds on general programs.”
4. More Money Will Not Help Public Schools. He points out school children will not learn more.
“Taxpayers contribute over $10 billion per year toward the education of slightly less than one million public school students in Washington,” he writes. “Public school districts currently spend an average of $10,100 per student per year, the highest level in state history.
“The largest budget item, comprising 83 percent of spending, is devoted to salaries and benefits. The statewide average for teacher pay with benefits is $79,200,” he asserts. “Average pay with benefits for school administrators is $117,000.”
He adds Seattle’s school spending of $12,746 per student annually has increased more than a third since 2005.
“In Seattle average teacher pay with benefits is $92,100. Average administrator pay with benefits is $106,900,” he adds.
5. Initiative 1098 and the State Economy. He lists numerous examples how the initiative would hinder the state’s economic climate.
“By enacting an income tax, Washington would be giving up a significant competitive advantage in relation to other states,” he advises. “Washington has a high sales tax. Adding an income tax means Washington would join the states that impose all the major forms of tax on their citizens.”
6. Some Residents would Leave Washington to Avoid the Income Tax. He points out a new income tax would be the fourth-highest in the U.S.
“High-earners targeted by the tax would suddenly have a strong financial incentive to move out of state,” he writes. “A change in residence would include pulling investments out of the state as well, since Initiative 1098 would tax non-residents who derive income from Washington businesses. In a survey of business owners and their views of Initiative 1098, 1.8 percent of respondents said they planned to leave Washington if the income tax measure passes, even though this was not one of the survey questions.”
He cites New Jersey and Minnesota as examples where high-income residents felt compelled to leave for greener pastures.
7. Initiative 1098 would Reduce Charitable Giving. Because the controversial proposal would be higher than the federal tax and would be applied to adjusted gross income, he writes the affluent would fewer funds for charity.
“Adjusted gross income includes wages, salaries, tips, interest income, rental income, capital gains, income from pensions and retirement accounts, and alimony payments received by divorced spouses,” he suggests. “Adjusted gross income is calculated before the taxpayer is allowed to lower his reported income by claiming deductions such as the federal standard deduction, the child tax credit, the dependent care credit, local property taxes, motor vehicle taxes, mortgage interest payments, contributions to retirement accounts and donations to charity.”
That means that $2.2 billion next year and $11.1 billion over the next five years would not be available for nonprofit giving.
8. Initiative 1098 and Tax Fairness. He writes, contrary to proponents’ claims, the proposal is unfair – 98 percent of the state’s population would escape an income tax.
“Initiative 1098 is not unbiased or impartial in its treatment of Washington citizens,” he explains. “It specifically targets a minority, as defined in economic terms, to shoulder the full cost of a new tax, while using state power to redistribute the benefits to others.”
9. State Income Taxes Do Not Lead to Fiscal Stability. He points out Oregon, New Jersey and California all have major budget woes despite an income tax.
“Oregon’s personal income taxes – based on 2009 returns due on April 15, 2010, were down by $472.3 million, or 16.4 percent less than the previous year,” he writes.
“During the strong economy lawmakers increased state spending by over 33 percent in a single four-year period,” he reminds us. “Access to a new revenue stream would likely encourage Washington lawmakers to return to enacting large, permanent spending increases in each budget cycle. When economic activity slows or declines in recessionary years, personal incomes fall accordingly, and leave income tax states like Oregon and California with far less revenue than officials expected to receive.”
10. Initiative 1098 is Unconstitutional under Current Case Law. Opponents argue passage of I-1098 would be thrown out by the courts.
From the Coach’s Corner, you can visit the Defeat 1098 campaign here.
Tax Increases Will Cost Washington Businesses, Consumers $6.7 Billion Next 10 Years
July 15, 2010
The well-documented lack of transparency and suspension of voters’ rights by Washington state lawmakers in the 2010 legislative session will soak taxpayers an additional $6.7 billion over the next 10 years, according to a new study by the Washington Policy Center (WPC).
“State lawmakers raised taxes at the worst possible time – in the midst of a recession with record-high unemployment levels,” says Dann Mead Smith, WPC President. “We compiled this report to help give taxpayers a clearer picture of the details and cost for each tax increase.”
The respected think-tank’s study is comprised of 12 pages of data, which includes an explanation of each tax increase and details of how each tax increase encumbers businesses and consumers for the next 10 years.
As it has done repeatedly over the years, the Legislature suspended the protections voters passed in Initiative 960, which required transparency and a two-thirds legislative majority vote in order to hike taxes. The Legislature passed SB 6130, which suspended the voter protections against unwanted new taxes.
“The bill temporarily repeals provisions of voter-approved Initiative 960 until July 1, 2011,” states WPC’s report at www.washingtonpolicy.org. “Washington voters passed Initiative 960 on November 6, 2007.”
The $800 million in new taxes include:
- Business and Occupation taxes
- Canceling Real Estate Excise Tax exemptions
- Increasing taxes for Public Utility Districts
- Hiking the 911 excise tax
- Hospital Bed taxes
- Bottled water, soft drink, beer, candy and gum taxes
- Tobacco taxes including a 500 percent increase on cigars
“Lawmakers increased total state spending by 43 percent in the last five budget cycles, a period in which state population grew only 11 percent, and inflation increased just 19 percent,” states the Report on 2010 Tax Increases in Washington State.
“By repealing the non-binding advisory votes, lawmakers expected their names would not appear in the official voters’ pamphlet for 2010 next to a description of the tax increases they had enacted,” the study notes. “The purpose of this report is to provide much of the information the public would have received in the official voters’ pamphlet if the legislature had not repealed the public disclosure provisions of Initiative 960.
Well, if you’re unsure how your legislator voted on taxes and other issues, visit: www.washingtonvotes.org.
Meantime, here’s a tip of the Biz Coach cap to Washington Policy Center for its usual fine work.
From the Coach’s Corner, you might be interested in the results of these polls:
- More Voters Say Washington State is Headed the Wrong Way
- Big Surprise in Washington State Race for U.S. Senator
If you want to do something about these tax increases, you might also want to consider these organizations:
- Association of Washington Business, www.awb.org
- Enterprise Washington, www.enterprisewashington.org
Why Proposed Washington Income Tax Will Kill Jobs
Updated April 26, 2010 9:12 a.m.
When Bill Gates Sr. last proposed a Washington state income tax in 2002, he was chair of the Washington State Tax Structure Committee that was created by the Legislature. Comprised of academics and legislators, the committee studied how the tax system could be altered in the 21st century.
The committee was charged with studying “fairness, stability, adequacy and the effect of the tax system on Washington’s economic vitality.” However, the idea failed to get any traction. It was not perceived as fair, stable, and adequate. And it would have hindered the state’s economy as it emerged from the economic hangover from 9/11 and the dot-com bust.
Mr. Gates’ new income-tax proposal, Initiative 1077, won’t work either. On the surface, it sounds feasible. But the state’s unemployment rate is 9.5 percent. An income tax would discourage investment in the creation of jobs, and it emboldens more bad behavior by spend-and-tax legislators.
Already, Washington ranks among the worst states in sales and business taxes. Consider states like California and New York with their high sales and business taxes. They also have an income tax, and they’re nearly bankrupt.
Moreover, there are many reasons why an income tax is not to be trusted in Washington state.
After waiting out the two-year time limit to for overturning initiatives in 2010, Washington lawmakers jumped at their chance to suspend the transparency provisions of the Taxpayer Protection Act, Initiative 960.
Never were there serious discussions about reducing the footprint of government or even prioritizing the core services of government in the $2.8 billion shortfall. We are still saddled with unnecessary, expensive services including state retail liquor stores, the state printer, and the associated employee payroll costs and unfunded state-worker pensions.
Instead, with unlimited chicanery, the legislators violated the will of voters in a variety of ways:
- They passed a ghost tax bill with just a title and literally no text – a blank bill.
- Lawmakers refused to remove their disingenuous exemption from the state’s public records law.
- Public hearings were scheduled without 24 hours notice.
Then, the legislators passed more than $808 million in new taxes in their unsustainable budget. They relied heavily on federal government funds to balance the budget, and it’s already well-known that the next biennium budget also faces billions in red ink. What will they do then?
Was the Legislature’s dysfunction a surprise? No. For years, the Legislature has circumvented the will of the people.
State’s pattern of ignoring voters
In 2006, state officials were proven guilty in Superior Court – their secretive, incriminating government e-mails were part of a shell game that circumvented spending limits. They included state officials and employees – including members of the Legislature, Office of Financial Management, Expenditure Limit Committee, the governor, and even the attorney general appeared to oppose the will of voters on state spending.
A coalition of business and consumer watchdog groups took them to court for violating the state spending limits of Initiative 601. The coalition included: The Washington Farm Bureau, the National Federation of Independent Business, the Washington State Grange, the Building Industry Association of Washington, the Washington Association of Realtors, and the Evergreen Freedom Foundation.
Snohomish County Superior Court Judge James Allendoerfer ruled the state’s collection of certain taxes was illegal and that the Legislature improperly increased the state’s spending limit in 2005 by $250 million.
The incriminating e-mails showed budget writers knowingly violated the law and shifted funds around to artificially increase the spending limit. Other e-mails also revealed a furtive dialogue involving Office of Financial Management strategies that manipulated funds for new spending in the 2006 supplemental budget.
The losing side sarcastically poked fun at a coalition’s complaint that the spending increase was approved after just 25 minutes of consideration by the state’s Expenditure Limit Committee, which has authority to increase the state’s spending limit.
The committee was comprised of Victor Moore, director of the Office of Financial Management; Maureen Hart, the Attorney General’s representative; Sen. Margarita Prentice, chair of the Senate Ways and Means Committee; and Rep. Helen Sommers, chair of the House Appropriations Committee.
Minutes from the committee’s meeting on November 25, 2005 illustrate why the coalition was concerned. The meeting ran short because all the substantive discussions took place earlier, which the incriminating e-mails demonstrated. With Hart recusing herself, the brief meeting concluded with a unanimous vote to increase the state’s spending limit in I-601.
Why did voters pass I-601? Times were tough in 1993. Figuratively, Washington voters erected a big red stop sign at the state capitol and passed I-601 to halt skyrocketing tax increases. Voters were concerned about public-sector indifference.
Even the Washington State Association of County Assessors took note of voter attitudes. In late 1994, the group invited me to advise them on strategy to persuade the Legislature to reduce property taxes. As I sat down following my pro bono seminar, I’ll never forget my disappointment when I heard Scott Noble, who was the then-interim King County Assessor, sitting across the table, refuse to participate in the effort.
“It will never work,” he said. But most assessors were receptive to lowering property taxes and they successfully persuaded state lawmakers to reduce property taxes in the ensuing 1995 session. And we know what happened to Mr. Noble, who was forced to resign in disgrace following his drunk-driving accident that resulted in injury to others.
Income tax – another $1 billion burden
The new income-tax proposal, in this uncertain economy, would dump another $1 billion in tax burdens on many of the very businesspeople who are capable of creating thousands of badly needed jobs.
It would be an additional 9-percent tax on income of $500,000 or more and a 5-percent tax on income of more than $200,000. They are already paying exorbitant fees for unemployment insurance and workers’ compensation.
In economic development and job creation, the great equalizer has been the lack of an income tax.
Proponents of I-1077, perhaps unknowingly, are instigating class warfare in claiming they want to lower taxes on most people while taxing the rich. But I-1077 would not eliminate the sales tax, which indelibly hurts the livelihoods of low-income people.
It would lower the state’s portion of the property tax by 20 percent. But that would only slightly reduce a property owner’s taxes – 96 percent of the property tax would remain. The slight reduction, of course, would be negated by the ever-increasing property assessments. So it’s a disingenuous argument.
Micro businesses, the self-employed, would not be liable for the business and occupation (B&O) tax. Larger businesses would receive a $4,400 tax credit. However, as any entrepreneur knows, $4,400 is a negligible amount as a business cost in the hiring an employee in salary and benefits.
Incidentally, an income tax was thrown out in 1933. Voters have since refused income-tax proposals five times. Seemingly, voters have known an income tax would be increasingly burdensome. Taxes never go away. Government incessantly grows bigger.
The B&O tax was introduced as a temporary measure in the 1930s, but you guessed it. Businesses have been saddled with it ever since. The B&O tax is grossly unfair. It does not tax profits. It taxes revenue. Even if a business loses money, it’s subject to the tax.
It’s especially regressive on new businesses. Imposing B&O taxes on a startup makes it harder for it to succeed. And it’s a major factor why Washington is a leader in startup failures. We don’t need failures. We need entrepreneurs to be successful to create jobs.
In essence, Washington state government has a documented propensity to trample on the economic freedom and political freedom of businesspeople and voters. There is not a voter-approved agreement regarding the state’s core services.
Until there is agreement, state government shrinks significantly and voter wishes are upheld, here’s a resounding no to an income tax. An income tax would threaten more danger for the state because it chases ill-economic health. The proposed income tax won’t work – because it won’t put Washingtonians to work.
From the Coach’s Corner, do you need more evidence why the Washington State Legislature cannot be trusted?
See this blog from Jason Mercier of the Washington Policy Center regarding transparency.
Small Business Success Is Key for Washington’s Sustainability
April 6, 2010
Washington state’s small business owners are getting a first-hand look at ways to improve their economic environment, thanks to the Washington Policy Center (WPC). The think tank is taking 24 ideas on the road and sharing them in 24 locales around the state.
“Small businesses are the backbone of Washington’s economy,” wrote Carl Gipson, director of WPC’s Center for Small Business. “We are committed to helping improve the small business climate in our state, and going on a tour of Washington is a great way to get the conversation started.”
The topics in the WPC tour range from unemployment insurance to state taxes. They’re included in the WPC report, Lead the Way: Small Business and the Road to Recovery. The ideas were provided by small business owners throughout the state in late 2009.
Mr. Gipson provides this ominous reminder: “Recent data shows Washington’s small business failure rate is the second-highest in the nation.”
To be candid, this Biz Coach site has long voiced concerns about government behavior – the theft of economic freedom and political freedom — so I really appreciate Mr. Gipson’s observation:
“The proper function of taxation is to raise money for core functions of government, not to direct the behavior of its citizens,” he wrote.
“This is true whether government is big or small, and this is true for lawmakers at all levels of government,” he added. “Many lawmakers think of the tax code as a way to penalize ‘bad’ behaviors and reward ‘good’ ones. They have sought incessantly to guide, micromanage and steer the economy by manipulating the tax laws.”
Then, there’s this reminder: “The State Auditor has conducted 23 audits as of December, 2009, ‘identifying billions of dollars in unnecessary spending, potential cost savings and economic benefits and recommending numerous ways to improve state and local government operations’,” he wrote.
“Too often, policymakers act without considering or measuring the impact of their decisions on the owners of mom-and-pop businesses, even though those are the very businesses that are disproportionately hampered by the regulations and taxes they impose,” wrote Mr. Gipson.
And he shares some history about the impact of small business.
“During the 2003-2004 recovery period from the recession from the early 2000s, businesses with fewer than 500 employees hired almost 1.9 million workers, while businesses with more than 500 employees laid off over 200,000 workers,” he wrote. “In Washington, using both the state government’s and Washington Policy Center’s definition of small business (fewer than 50 employees), small businesses make up 96 percent of all registered businesses while employees of small businesses account for 41 percent of the state’s workforce.”
Here is the WPC tour schedule: www.washingtonpolicy.org/leadtheway
WPC’s Web site: www.washingtonpolicy.org
From the Coach’s Corner, a reminder if you need business counseling at no charge, consider the Small Business Development Center nearest you (SBDC).
Why Not Transparency for Good, Open Government in Washington State?
March 24, 2010
Even after concluding its regular 2010 legislative session and after nearly two weeks of a special session, there is no balanced budget. There are no efficiencies. Worse, there is little transparency about taxpayer assets. The Legislature hasn’t learned to stop chasing ill health.
By extension, it’s clear that Senate Majority Leader Lisa Brown is not passing the transparency test of good, open government. She has failed to spearhead passage of a balanced budget and has largely ignored efficiencies, such as the Opportunities for Washington, recommended by a prominent member of her own party – State Auditor Brian Sonntag.
Instead of focusing on successfully ending the special session, The Seattle Times reports she sent a letter to Washington State Attorney General Rob McKenna demanding that he stop his health-care efforts and accused him of being “far outside the mainstream interests” of the state. But my straw poll of businesses and consumers shows a majority in favor of his position.
Meantime, here’s a news flash: There is furtive, dubious activity under her leadership – everything from secretly raising taxes; gutting The Taxpayer Protection Act, Initiative 960; and passing ghost tax bills. There are no efforts to create a good economic environment and private sector jobs.
Actively highlighting the disingenuous behavior has been Jason Mercier, director of the Center for Government Reform at the Washington Policy Center (WPC), the nonpartisan think tank.
After seeing this TVW video posted on the Washington Policy Blog in which Speaker Brown denies knowing why Mr. Mercier has repeatedly raised concerns about legislative transparency, how could she be so disconnected?
Most state newspapers have commented to no avail, such as The Seattle Times in Gov. Gregoire: Use veto to keep transparency and in The Washington State Senate and the age of hubris.
When Gov. Gregoire failed to honor the request, the newspaper ran this editorial, Governor, Legislature should have kept two-thirds rule on taxes.
Even The Olympian commented in A bad example of legislative ‘transparency’.
There are plenty of other indications about the absence of transparency. How could she not have noticed any of WPC’s analysis? See for yourself at www.washingtonpolicy.org.
Plus, I’ve written numerous Biz Coach columns on the issue.
I cited $65 million in waste in this column, “Will Government Policies Ever Promote Economic And Political Liberty?” State employees are allowed to carry forward and cash out their unused sick leave.
You see, the state paid $65.3 million in unused sick leave from 2007 to 2009. And state workers have received millions of dollars in this budget cycle. This is a perk you will rarely, if ever, see for taxpayers in the private sector.
The largest employer in Washington, 17.6 percent of the workforce, is government. The retail sector is second with 10.8 percent. In the state’s 2009 comprehensive annual financial report, government expenses outgrew revenue.
Another eye-opener in the report: “Governmental activities resulted in a decrease in the state of Washington’s net assets of $2.2 billion.”
Because of the extravagant spending, the gap in unfunded Washington’s retiree health benefits is $7.9 billon.
Meantime, ranking member of the Senate Ways and Means Committee, Sen. Joe Zarelli, has unsuccessfully argued in favor of transparency with Committee Chair, Sen. Margarita Prentice. This TVW video illustrates violations of legislative transparency standards.
All of this employee pork, unnecessary spending, and violations of transparency standards are why WPC is advocating a constitutional amendment for transparency:
BE IT RESOLVED, BY THE SENATE AND HOUSE OF REPRESENTATIVES OF THE STATE OF WASHINGTON, IN LEGISLATIVE SESSION ASSEMBLED:
THAT, Transparency and public disclosure in the legislative process is vital to a representative democracy. THAT, At the next general election to be held in this state the secretary of state shall submit to the qualified voters of the state for their approval and ratification, or rejection, a new section amending Article 2, an amendment to Article 2, section 19, and an amendment to Article 2, section 22 of the Constitution of the state of Washington to read as follows:
Article II, new section. No bill shall be eligible for a public hearing until 72 hours after introduction. No bill shall be eligible for legislative action of any kind unless it has first been subject to a public hearing in the same session of consideration. No bill shall be eligible for legislative action on the floor of either house until 72 hours after it has been placed on the floor calendar. This section may be suspended with two-thirds of the members elected to the house in which it is pending suspend this requirement, and every individual consideration of a bill or action suspending the requirement shall be recorded in the journal of the respective house.
Article II, section 19. No bill shall embrace more than one subject, and that shall be expressed in the title. No bill shall be eligible for public hearing or legislative consideration of any kind unless the bill shall lay forth in full the changes to any act or sections of law. Title only bills shall be prohibited.
Article II, section 22. No bill shall be eligible for final passage in either house unless copies of the bill in the form to be passed shall have been made available to the members of that house and the public for at least twenty-four hours, unless two-thirds of the members elected to the house in which it is pending suspend this requirement, and every individual consideration of a bill or action suspending the requirement shall be recorded in the journal of the respective house. No bill shall become a law unless on its final passage the vote be taken by yeas and nays, the names of the members voting for and against the same be entered on the journal of each house, and a majority of the members elected to each house be recorded thereon as voting in its favor.
BE IT FURTHER RESOLVED, That the secretary of state shall cause notice of this constitutional amendment to be published at least four times during the four weeks next preceding the election in every legal newspaper in the state.
Let’s have a discussion about WPC’s suggestion. Implementing transparency is the right thing to do and will promote good, open government in Washington state. Stop chasing ill health.
From the Coach’s Corner, courtesy of Enterprise Washington, click here to find your legislators’ phone number and email address.
