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A fleeting love affair with state takeover of local gov’t control

March 3, 2017

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The Washington State Senate engaged in a substantive policy debate recently about the complex issue of safe injection sites, a response to addiction that is being considered in Seattle and King County.  It was a sincerely non partisan public policy dialogue that surfaced legitimate concerns about safety, community, medical care and society’s evolving response to addiction.

Once it was time to vote, however, a troubling theme emerged that shows a new trend of the Republican Party: a predisposition for the state to pre-empt local government authority.  Senate Bill 5223 pre-empts the ability of local governments to experiment with safe injection sites.  The bill passed 26-23 with one Democrat joining all 25 Republicans to pass the measure.

The rigorous intellectual policy battle in our country over control of policy decisions between federal, state and local governments is a highlight of our constitutional republic. The initial tension articulated by Alexander Hamilton and Thomas Jefferson was not a modest veneer of philosophy.

My colleague Rep. Matt Manweller and I discussed the relationship between federal and state governments and the 10th Amendment recently on TVW’s Inside Olympia. It’s an inevitable political debate at every level of government and generally where you stand depends upon where you sit.

In recent years, in a twist of history, Republican allies such as the American Legislative Exchange Council (ALEC) have boldly embraced state pre-emption as a way to halt progressive cities from enacting legislation.  The New York Times highlighted this political trend as a nod to industry’s economic interests.

Despite that national momentum, I am surprised that there are no less than 16 major bills in the state Senate this year that pre-empt local government authority on issues ranging from homelessness to education, minimum wage to rent control, housing to utilities, telecommunications to income tax.  It has not traditionally been a thesis of political life in Washington. I don’t know how this number compares to previous years or to times when Democrats held the majority, but it seems on the surface to be a full scale change in strategy for a party that historically held a belief that ‘the government closest to the people governs best.’

A political case can likely be made that some of the pre-emption bills are driven in part by a visceral response to Seattle City Council action or citizen activism.  The city’s embrace of a $15 minimum wage, paid family and sick leave and other initiatives goes against the literal and figurative GOP platform as well as the broader business community. On the other side, a legitimate case may also be made that the shift toward a new Republican embrace of local pre-emption is linked to frustration over the statewide impacts of the Growth Management Act, a policy that has repercussions on rural areas that may not be fully apparent to people living in dense urban environments.  If it’s good enough for Democrats to force the GMA on Republican rural areas, so goes the thinking, than it should be good enough for Democrats on more city-driven issues such as homelessness, taxation and labor standards.

To highlight the Senate shift in policy and strategy, many of the most conservative members seem to be the thought leaders of the state pre-emption trend. In some areas, of course, state pre-emption makes rational sense so it is not inherently good or evil in and of itself.  But the trend is clear and strong under today’s leadership.

My view is that the state should look at pre-emption with a deep sense of reservation over the long haul. Local control over local issues spurs innovation, experimentation and exploration of new ideas.  Even when I am sympathetic to a specific policy, such as my view that rent control is not an economically sound policy, I try to default to a position that local communities should generally have control over their own decisions.

Through it all, as political trends come and go, and majorities change in Olympia, it’s hard not to suspect the current love affair with state pre-emption floating throughout the halls of Republican-controlled Senate will ultimately prove fleeting.

Your partner in service,

Reuven.

 

 

 

 

Facts, data, science: Environmental protection in today’s era

January 22, 2017

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(Photo Credit: Tore Ofteness)

At a time when facts, data and science are under assault from the new government in Washington, D.C., much of our work in the state legislature is to protect the  independence of our state’s interests against an ideologically marauding federal government. At no time in recent generations has the need to protect the integrity of the 10th Amendment been more pronounced.

As the 2017 Legislative Session charges into full speed, in addition to our hands-on work of funding public education under the Supreme Court’s McCleary decision, we are focused on protecting our state against the frenzy of federal recklessness in health care, government transparency, trade, independent media and much more.

It is the work of protecting our state’s natural environment, a category that seems to fuel the anti-government passions of the Trump Administration, that calls out for independent, bipartisan reason and the support of checks and balances of governmental decision making.  We now find ourselves in a unique position where a concerted effort between the nominated Secretary of the Interior, Congressman Ryan Zinke, and a leading state champion of Donald Trump, my capable and indefatigable colleague Sen. Doug Ericksen, appear to be systematically targeting reversal of a decision to deny a permit to build the largest coal export terminal in North America near Bellingham, my hometown.

When the U.S. Army Corps of Engineers rejected a sweeping application to build the coal export terminal they based their expansive decision on years of intense independent technical analysis, treaty authority dictated by the U.S. Constitution, virtually unanimous general public sentiment and rigorous scientific examination.

We are reminded today that such independent governmental decisions are, in fact, vulnerable to political influence. They are not an assured, inherent right of government.

As the lead Democrat on the state Senate Energy, Environment & Telecommunications Committee, I am committed to a strong personal and professional working relationship with the majority party in the state Senate. I have high personal regard for the chair and the members of the committee.

Still, in my new role, I find myself reflecting upon the profound moral authority and policy record of our collective hero Dan Evans. The 91-year-old Republican is our state’s only three-term governor and is widely viewed as our premier living statesman. I have written about his influence on me personally and politically before.

In the Trump era, we cannot help but ask who will carry the bipartisan environmental mantle of the Republican Party of Teddy Roosevelt and Dan Evans? Whom among our Republican colleagues of today will hear the small, still voice within us, calling upon our state to responsibly ensure public policy protects our water, air and land for tomorrow’s generations?

If the independent, science-driven coal export decision can be reopened by a new political environment with legislation such as Senate Bill 5171, a bill to effectively strip the state critical review authority, each and every environmental decision is open to undue influence.

We must remind ourselves that facts, process and data matter.

In 2011 Pacific International Terminals (PIT) began the application process to build North America’s largest coal export terminal on the shores of Whatcom County, at a Lummi Nation historic village site and burial ground called Xwe’chieXen, with the 3,000’ x 107’ dock extending over a productive crab fishery. Lummi Nation has the largest fishing fleet on the West Coast and at its peak, employed over 2,000 tribal members.

State and federal agencies initiated a scoping process that ended in early 2013 and drew 124,889 comments from citizens, businesses, agencies, cities and tribes. Without exaggeration, nearly all were in opposition to the mega project.

On January 5th, 2015 the Lummi Nation requested the Army Corps deny the coal export terminal due to its adverse impacts on the Lummi Nation’s protected treaty fishing rights. The Lummi have harvested fish at this location since time immemorial and reserved the right to continue to do so in perpetuity when they signed the Treaty of Point Elliott in 1855 with the United States of America. The treaty was crafted, designed and written not by the Lummi Nation but by American officials of the day.

Under the U.S. Constitution, treaties are equal to federal law and take precedence over State constitutions, laws and judicial decisions. The treaty is a reservation of rights held by a sovereign people. It is impossible to defend the integrity of the 1st Amendment and the rest of our sacred constitution and not defend the entirety of the provisions making treaty rights equal.

The Army Corps thoroughly and meticulously reviewed 27 extensive exhibits and studies provided by the Lummi Nation and the well-funded proponent, including a Vessel Traffic and Risk Assessment Study that showed a 76% increase in disruption to fishing if the terminal was built.

It is not a contrived assessment but one based on hard science.

The coal terminal included significant vessel traffic in our waters: 487 annual vessel calls using 318 single-Panamax ships and 169 Capesize ships (so named because they are too large to fit through the Panama Canal). That meant one massive ship would arrive or depart Cherry Point every 18 hours.

After careful consideration of all the information available over sixteen months, the Corps determined the project would in fact harm the Lummi Nation’s treaty right to harvest fish and therefore, on May 9th 2016, responsibly followed the letter and spirit of the law of the land and denied the permit. Shortly after, on June 6th, 2016, the Washington State Department of Natural Resources (DNR) denied the permit application for an aquatic lease because the proponent had failed to get the required permit from the Army Corps. On January 3rd, 2017 the Commissioner of Public Lands changed the boundary of the Cherry Point Aquatic Reserve to remove a dock-shaped cut out retained in 2000 for the potential dock.

The state Department of Natural Resources received approximately 5,000 responses in favor of the critical boundary change. Ten letters, including one from the chair of the Senate Energy, Environment & Telecommunications Committee, opposed the measure.

The data-driven Sightline Institute reminds us that global financial markets are rapidly and forcefully changing the face of the fossil fuel industrial complex.

The old times of massive subsidies from taxpayers, unquestioned permits and denial of treaty rights is over.

State and federal officials in Donald Trump’s shadow now have the power of the pen for a time. But they face a united, engaged and passionate public in our state against allowing Washington to be among the largest exporters of coal on our planet.

Your partner in service,

Reuven.

Sharing the burden of governing

December 6, 2016

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Each year prior to the start of a new legislative session members of the House and Senate are allowed to ‘pre file’ legislation. Some legislators take advantage of the opportunity while most wait until the formal start of the session to officially file their legislative proposals. It’s hard not to notice a trend in that some colleagues use the opportunity to introduce ‘message’ bills that appeal to their base supporters while simultaneously enraging the opposition.  What is disappointing about the tactic, however, is that it shows that some colleagues do not appear to feel the weight of the burden of governing.

We simply do not have the luxury of tired political stereotypes of old.

At a time of enormous disequilibrium in our nation, we need to find a pathway toward reconciliation, collective ownership of the work of leadership, and alignment on tough policies from education to jobs to the environment. There are already 30 bills profiled. Some are innocuous but some are unsettling at best and politically incendiary at worst. From restricting the right of women to reproductive rights to reducing recent gains in gun safety and eliminate the state’s paramount duty to amply fund public education, some proposals seem to be introduced to elicit an aggressive reaction from Democrats. They are designed to show an invitation to battle not to dialogue. Many of them are particularly designed to enrage opponents more than engage in policy discussion.

One perennial bill would create a new state, Liberty, in the area of Eastern Washington. And each year our Democratic friends from Eastern Washington quietly and respectfully ask fellow Democrats not to take the bait and respond in such a way as to further inflame emotions of the sponsors. Yet year in and year out the bill resurfaces and is formally introduced and, to avoid inflaming relationships further, dies a quiet death in the legislative process. What would happen if majority Democrats in the House, for example, allowed the bill to move to the floor of the Chamber for a vote?  Is that really what the Republican leadership wants to say to the seven million people of Washington?

Imagine for a moment if the tables were turned and some urban Democrats pre-filed angry, resent-filled bills that unleashed cliches about urban versus rural narratives designed to stir the emotions of the other side and appeal to anger rather than calm dignity of governing. It is easy to imagine editorials statewide and the public at large condemning the move as undignified. And they would be right to do so.

With the incoming Trump Administration introducing unpredictability in financial markets, federal revenue sharing, global trade and more, we need a sense of unity and alignment as One Washington more than ever. We need a thoughtful recognition of our collective challenges. We need partnership not division to change the tone and tenure of the conversation.

The economic and social challenges of urban and rural America are real.  We need a new dialogue, a new approach and a recognition that shared prosperity is our only path forward in the long run. We need to honor the discord as an opportunity to listen more deeply to one another.

We face unprecedented challenges as a state. We have so much to be grateful for.  Yes, rural areas are the breadbasket of agriculture and small town quality of life.  But they are so much more. Yes, urban areas are an economic powerhouse of innovation.  But they are so much more. There is room for us to stretch outside of the bounds of tired cliches and see the quiet dignity in our entire state.

Now is not the time not to retreat into status quo political battles but to rise to a shared sense of moral and public obligation to govern.

Together we can do all those things we cannot do alone.

We are so much more than what we’ve become.

Your partner in service,

Reuven.

Note:  I had elected to take a break from blogging but am now back in the game.

Reflections on Sound Transit Reflections

August 14, 2016

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Recently I penned a guest blog post on Publicola outlining my reservations about the structural integrity of the $54 billion financing of Sound Transit 3.

I made the case that the poorly constructed financing plan negatively impacts public education by effectively transferring some key property tax authority from the state–currently not being utilized but still reserved for education–to the Sound Transit special purpose taxing district.

As I expected, the reaction to my thought piece has been overwhelmingly negative.  And understandably so.

I myself find it distasteful to peel away the layers of how we as a state with an economically inefficient and inequitable tax structure have chosen to finance $54 billion.  Aside from some exceptions of a few truly mean-spirited private Twitter comments, I will acknowledge that I have been generally comfortable with the harsh reactions because it shows a deep desire to do more for transportation and education outside of the tired constraints of a broken revenue structure.  We need to build the energy for responsible tax reform to be the global leader we envision.

Still, because so much of the Sound Transit conversation is about the exciting spending and investment side (who gets what and when), I believe the overall public dialogue is improved by raising tough issues of how we responsibly pay for it.

Following my post, in addition to Heidi Groover’s fair coverage at The Stranger, two insightful policy responses are The Urbanist guest post by community activist Robert Cruickshank and Seattle Transit Blog’s Zach Shaner.  Friendly reminders that we can engage in civic dialogue, battle over ideas and understand each others’ positions respectfully and substantively.

First, in reflecting on the response, I restate what was lost, in that I very much care about building a modern, 21st Century public infrastructure including rail, transit and an integrated network of transportation.  It’s core to quality of life.  I enjoy and support Sound Transit and I want it be successful and a robust part of our region’s future.  I’m thrilled that after years of promises Northwest Seattle is finally in line to receive direct service and not just pay taxes.

The idea from some social media comments that I’m “anti-transit” because I had the chutzpah to publicly ask serious financial questions about how we raise $54 billion is ridiculous.  Have we reached a point where a Democratic state legislator from Seattle–legally sworn to uphold the state constitution including the paramount duty clause–can’t openly question the accurate costs and bonding implications of a $54 billion financing plan because such probing could be seen as insufficiently progressive?  That strains credibility.  My district wants robust transit very, very much–and benefits enormously from this package–but our constituents also expect us to read the fine print of how to pay for it.  That’s why we’re paid the big bucks.

I don’t mean to be flippant in reminding us that we’re spending $1.2 billion on a controversial deep bore tunnel to replace the Viaduct that has easily received 1000 times the policy debate, media coverage and activist scrutiny than the financing details of a $54 billion borrowing plan that will permanently alter the landscape of our taxation scheme.

Second, I should have been clearer in my first post:  I am not in any way leading the charge to defeat the measure, I am not a warrior to start over, I am not joining any organized opposition, nor do I expect others to share my viewpoint.  I simply went public with my private reservations about what I consider an inferior $54 billion financing plan after advocates prodded me to take a public stand on ST3.  They were right to ask honestly and I think I was right to answer honestly instead of hiding behind obfuscation.

In deference to my constituents–among the most educated, engaged and thoughtful in the state–I believe I showed appropriate respect to my district to publicly share my financial concerns and not merely hide behind balloons and banners pretending there are no negative implications to this funding framework.  It doesn’t mean in any way that I’m right and others are wrong it merely means the financing side of the package matters and should be on the front page and not buried in the footnotes.

Third, when Sound Transit came to Olympia with their proposed financing plan, I was chair of the House Finance Committee and I specifically raised the predicament of using the state portion of the property tax–reserved for education–for transportation.  Here are some of my public positions outlining my strong and consistent opposition to redirecting the property tax away from education to Sound Transit here, here and here.

Understandably, Sound Transit would not, in any way, shape or form, enter into meaningful discussions with me about alternative financing options including my recommendation of a modest business and employee transportation fee with an exemption for small businesses of 50 employees or less.  I made the case privately that premier companies such as Boeing, Amazon, Microsoft, Expedia, Starbucks and others may actually view an employee transportation fee as having a relevant, direct nexus of value worthy of discussion.   If we are going to prioritize the spine in order to get people throughout the region, shouldn’t regional employers be a more robust part of the solution?  I think many of our business leaders would be open to that constructive discussion.  It’s not an entire solution but a modest link in a more progressive package.  I made the case that it was at least worth private discussions with the broader business community to assess the option and potential of a deal based on a strong nexus of value.

With due respect and deference, I believe a modest business employee fee–designed in partnership with the business community for transportation–shouldn’t be a holy untouchable revenue source.  Nor should additional targeted regional tolling.  Moreover, designing a 50-year revenue model is hard.  At a structural level, outside of the property tax, I think building 61% of the broader model on a sales tax base that is shrinking by the year (due to Internet, goods vs. services, etc.) is a mistake.  Philosophically, I have long advocated a more ‘pay as you go’ approach to government.

Of course, Sound Transit knew that redirecting the state’s portion of the property tax was still preferable to other options for their internal needs:  1) using local property tax authority that would have been felt by their own city and county members; 2) risking upsetting the business community essential to support and funding of a pro-Sound Transit 3 campaign;  3)  risking upsetting the more volatile Republican-led Senate and the deals needed to get authorization in the first place.  Finally, they had other senior Democratic legislators on board so my complaints about the property tax component were, understandably, more of an outlier nuisance.

In fairness, in their shoes, I may have taken the same political position and I harbor no ill will toward individuals or the institution.  In designing this package, they did what was in their best financial interests to keep ST3 moving forward.

Finally, there is a hippocratic oath in politics as in medicine:  do no harm.  I lost the battle in Olympia and I respect the broader desire to move forward with the current spending and revenue plan.

The teachable moment for me is a profound–and deeply powerful–reminder that in the end we at the state level don’t have the same passion, spirit, energy and drive to build a world-class education system that has been displayed in Seattle to build a 21st Century transportation system.

Your partner in service,

Reuven.

 

Recklessly toying with a $4.5B risk

May 5, 2016

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(Note:  While this is a personal blog not paid for with any public funds, I rarely discuss overtly political issues or campaigns.  This entry is intended to raise the financial issues associated with a proposed initiative before the public.)

Our state budget is complex.  The nearly $40 billion biennial budget struggles under the constant pressures of constitutional, statutory, federal mandates and moral directives to support public education, health care, housing, environmental cleanup, foster youth, nursing home and child care center inspections and so much more.

Financial risk is inherently part of the deal of running a multi-billion organization serving seven million people.  Still, we as a state–regardless of party leadership–rarely recklessly ignore legitimate financial risks to our credit ratings, balanced budget and critical services.

Today, however, it seems Washington is now dangerously flirting with serious financial risk as I-1515–Just Want Privacy— begins the process of hiring paid signature-gathering firms to reach the initiative ballot.  The opposition is organizing simultaneously led by the business community I suspect in large part because of the financial risks involved.  They see what is happening in North Carolina.  This is exactly the same social policy regarding transgender people and bathroom access that is bringing North Carolina to it’s knees as the federal government directly threatens the state with reductions in federal support due to that state’s aggressive pursuit of discriminatory legislation.

A new report from the respected Williams Institute–a policy shop out of UCLA–outlines in detail how Washington would likely realize at least $4.5 billion in annual federal spending reductions if the initiative reaches the ballot and ultimately passes. The Stranger, hardly a bastion of conservative fiscal discipline, outlined the risks as well.

Education support, state and local matches in key programs and much more would all be endangered if Washington follows the same path as North Carolina.  More than 50% of the entire state budget is dedicated to early learning, K-12 and higher education.  Why would we risk our entire financial partnership with the federal government in order to pursue a controversial social policy that has yet to be shown to even be an actual problem?  The entire issue seems to have surfaced only after conservative social organizations raised the concern based on anecdotal complaints.

I’m a risk taker in pursuing disruptive technologies and new market opportunities in my business and entrepreneurial life.

Regardless of politics, policy, ideology, ethics or social values that’s not a hat I suggest we wear as citizen legislators.  We have a fiduciary obligation as budget writers in the Washington State Legislature on behalf of seven million people to minimize risk not purposely detonate a financial bomb.

Your partner in service,

Reuven.

 

 

 

 

 

 

 

 

 

 

Opening the books on Boeing’s taxes & investment in Washington

April 29, 2016

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Does a tax break work?  Does it provide a compelling return on investment for taxpayers?  The public now has a new level of visibility to decide for themselves.  In my view, today we are able to learn first hand with hard data that the deal Washington taxpayers struck with The Boeing Company is, in fact, a win-win.

One of the driving passions of my work in the Legislature has been the powerful idea that the public has a right to know the value of a tax preference for companies, organizations and industries so they can more effectively and objectively determine the return on investment themselves.  The legislation I crafted as chair of the House Finance Committee has transformed the accountability, transparency and analysis of tax preferences and in many cases opened the books for the public.  Following the legislation’s passage, the public activism for open data and transparency by the Seattle Times played a key role as well in pushing and prodding for comprehensive disclosure.

As an architect of the Boeing tax and investment package, I’m proud of the fact that today Boeing proactively met the spirit of the law as well as the letter and opened the books of their tax preferences.  They did so in a comprehensive, responsible fashion that provides broad context to allow the public to measure the effectiveness of the tax preferences granted by the Legislature in both 2003 and 2013.

Boeing received in 2015 tax preferences valued at $305 million.  That number–previously hidden from public view– should be analyzed in the context of the overall $13 billion investment in our state including wages, supplier payments, capital investments, state and local taxes paid, community giving, tuition waivers for employees and more.

Washington is the global center of innovation in the aerospace sector.  In 2003 we represented about 32% of Boeing global workforce.  Today, we represent about 49% of their global workforce at more than 79,000 employees.  While that is down slightly from 2013, it is up dramatically since 2003 as we continue to grow as the anchor of Boeing’s workforce.

I worked hard with our team strongly behind accountability to negotiate solid accountability provisions in the Boeing package.  We proposed formal job requirements, levels, clawback provisions, inclusion of engineers in the package and much more.  We did pass key provisions to secure the future of carbon fiber in our state and those elements will help our state for generations.  Many of the other accountability provisions did not survive the final cut, and I regret the Legislature’s failure in that area.  I hope the company and machinists and engineers and others can continue to build bridges to protect the jobs of tomorrow.  Yet, I stand by the overall package as a compelling return on investment for the taxpayer of Washington as we march into the 21st Century of aerospace with the 777x and carbon fiber as the material of tomorrow.

I learned and grew a great deal during the Boeing tax negotiations.  The special session was personally difficult and politically fraught, and yet we found a pathway forward.  The idea that we can come into special session and pass a major tax package without more due diligence, process and transparency itself remains frustrating.  It was a flawed process that did not serve the public as well as a longer, more thoughtful effort could have.  But in the end, our state moves forward, learns and adapts to the economy of tomorrow.

In my view, we are a great state in part because of the enormous economic powerhouse of our aerospace sector.  Today’s public data is just more hard, objective evidence that respects the intelligence of the public and allows them to judge for themselves.

Your partner in service,

Reuven.

 

 

 

 

Next generation tax preferences: Sales tax on construction

March 6, 2016

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The big picture of the 2016 Legislative Session spans the state budget, McCleary, body cameras, voting rights, ethics and more. In the more mundane, daily business of legislation, however, there are also hundreds of relatively modest bills that float under the radar of public attention.

House Bill 2839 effortlessly passed the House of Representatives with a strong 84-13 bipartisan vote during the rushed hum of internal deadlines.  Nate Silver would likely grant a 99%-plus probability of flying through the Republican-controlled Senate.

In government language, the bill grants a new tax preference by eliminating the sales tax on the construction of a building facility for airplane maintenance and repairs. In English it’s a tax preference for one company, Clay Lacy Aviation, to construct and lease their new facility at Boeing Field in Seattle for private airplanes. The tax preference eliminates the sales tax on the construction of their new facility.

It’s a benefit we granted to Boeing as part of the broader $8.7 billion package, so the policy framework is hardly inconsistent or unreasonable from the company’s perspective. One also assumes, as an aviation firm, the company benefits from the same generous B&O rates the broader aerospace sector enjoys.

It’s also an understandable request from the firm given that Washington is one of only five states that charges sales tax on most forms of construction, with many other states providing modest variations or exemptions (such as primary residence, etc.) But we’re also only one of seven states without an income tax thus freeing any local executives and staff from personal tax liabilities, so there are tradeoffs everyday.

The immediate financial impact of the bill is relatively modest since the Legislature has quickly learned to hide the true cost of spending and tax legislation outside of the four-year budget horizon.

Yet on a serious public policy level the bill offers a teachable moment of reflection and education about tax policy and politics for the public and lawmakers alike.

While there are dozens of tax preferences reducing or eliminating the business and occupation tax for companies, industries and sectors, there are relatively few that eliminate the sales tax on construction of buildings. It is one of the few remaining categories that as a general statement the Legislature has been reluctant to aggressively institutionalize as tax exemption policy.  Nine of the 10 exemptions were granted between 1996 and 2008, so the idea itself is less than 20 years old.

The reason this thoughtfully constructed bipartisan tax bill is so important to understand—and worthy of a rigorous public dialogue—is that it unfortunately represents what I see as the next generation of tax preference requests we will see in Olympia for years to come. It is time to decide whether we will respond to such proposals with intentionality or quiet acquiescence.

The sales tax accounts for 47.3% of Washington’s revenue collections in 2015, among the highest in the nation. Construction activities from both residential and business accounted for $821 million, with businesses paying 57% or $472 million and residential construction accounting for 43% or $349 million. When the Great Recession hit in 2009, sales tax on construction saw an immediate and ferocious downward spiral.

Today, of the 694 tax preferences in Washington, only 10 eliminate the sales tax on construction with a modest total fiscal impact to the budget. Other examples of the elimination of the sales tax on construction include farm worker housing, incentives for manufacturing in high unemployment areas of the state, air pollution control facilities, warehouses and grain elevators, anaerobic digesters for dairies and semiconductor materials manufacturing facilities. Boeing’s carbon fiber plant for the 777x is eligible for this benefit, and due to transparency legislation that former Sen. Rodney Tom and I passed in 2013 the Seattle Times reported the company realized sales tax savings on construction of $19.5 million in 2014.  Agriculture and aerospace seem to account for the overwhelming majority of the benefits.

The bill, carefully crafted by veteran and well respected Olympia lobbyist Steve Gano, clearly meets both the letter and spirit of our transparency legislation requiring greater accountability and return on investment for taxpayers.  First, the company will pay the sales tax on construction of the new building; then the state will reimburse the company once it has been certified that construction occurred with at least 100 construction jobs between January and June of 2021 with average annualized wages of $80,000; the value of the tax preference becomes public under the law and the audit committee will study the results.

Fair enough. The bill is unquestionably more analytically and financially rigorous than in years past, and the company deserves credit for the seriousness of its proposal. I offer no critique of the company, lobbyist or short-term return on investment. They are merely advocating for their own financial interests as any of us would in a similar position. They wrote a reasonable bill that would provide a substantial and impressive return on investment for their investment in legislative advocacy as is their democratic right.

A profoundly important and serious public policy problem for legislators, however, is that the central premise of the bill rests on the idea that the company will not construct the facility without this tax preference. This is inherently a subjective question. The company testified that Washington’s sales tax on construction makes us uncompetitive, and they are likely to build elsewhere without this tax preference.  A ‘game theory’ argument can be made that the key customers of the private airplanes the company wishes to serve are located in the Seattle market, and better supporting those key clients requires facilities here at Boeing field regardless of state tax policy.  The company operates, according to its site, “two full-service jet facilities at Los Angeles’ Van Nuys Airport and Seattle’s Boeing Field, with regional offices and aircraft operations based at 10 additional U.S. cities.”

Still, the much more important question remains whether it is the job of state tax policy to politically select winners and losers based on the political sophistication of the company?

We have a broader public obligation to ask a series of tough policy questions: Are we in the business of mitigating the negative externalities of our tax system for select companies at the promise of jobs regardless of the number, or is our job to depoliticize our tax code with fewer winners and losers contests, and let the market function with less government interference?  Do we grant tax exemptions at the promise of any number of jobs under any conditions in an era when the Seattle region has an unemployment rate of 4%?  What is our actual criteria for Keynesian-type public investments?  What would those 100 jobs be worth in Grays Harbor County versus King County?  What is the policy rationale for why would we grant this tax exemption to an aerospace firm serving private airplanes and not a multi-billion skyscraper construction project for a Fortune 100 firm in downtown Seattle?

We are a sales tax state. That is not an inconsistent secret. The market functions and companies make choices everyday whether or not to serve the Washington consumer with goods and services.  Sales tax on construction is an unpleasant byproduct of our state’s broader tax structure, but it is equally unfair and annoying for residential homes, commercial skyscrapers and leasing companies for private corporate airplanes.

A more structural problem with the bill is that it inoculates us to the next generation of tax preference proposals to eliminate the sales tax on construction for businesses of all sizes, shapes and industries. As this legislation likely passes, it is assured as January rain in Seattle that we will see many, many more such requests from individual companies, industries and sectors in 2017 and beyond.

Over the years the Legislature has, in its wisdom, generously reduced or eliminated from meaningful contribution of the business and occupation (B&O) taxes key sectors industries including information technology, aerospace, agriculture, timber and more. With the B&O tax largely combed over for tax preferences by companies, legislators and lobbyists alike, we now move onto the sales tax.  No thank you.

We are so much more than what we’ve become.

Your partner in service,

Reuven.

 

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