Olympia Business Watch

Ball State U: WA Ranks in the Middle for Manufacturing

According to Ball State University's 2008 National Manufacturing and Logistics Report Card, compiled by its Bureau of Business Research, Washington ranks 25th among states best for manufacturing and logistics. Surprisingly, the report released late last week, found Missouri was rated best followed by Utah, Florida, Alabama, South Dakota and Indiana which all earned an overall grade of "A".  Washington received a "C".

Ranking at the bottom were West Virginia followed (in order) by Maine, Rhode Island, Vermont, New Jersey, Kentucky and New York which all got an "F".  Idaho, California, Michigan, Ohio, Alaska and Oklahoma received a "D".

There were 20 categories comprising the overall score primarily dealing with education, health care, R&D, taxes, unemployment, fringe benefits, crime and manufacturing growth. Here is a sampling of how we rank:

• Because we have no individual income tax, we ranked the best at #1; however, with our high state and local sales tax, we ranked at the bottom at #50 in the sales tax category. (However, if the sales tax exemption for manufacturing machinery and equipment and research and development were added in, I have a hunch Washington would be ranked better for manufacturing for taxes). Our corporate tax index put us at #31 so it is higher than average.
• In all four education assessments, Washington ranked in the top 15 which is good news.
• In long-term health care costs and health care premiums, Washington ranked 37 and 38 respectively, which is not good.
• As for employer costs for workers, there was some bad news. Washington's high fringe benefits ranked us at #49 as a share of wages and we were #36 in unemployment costs.  On the other hand, we were #12 in workers comp rates.
• Washington was 24th in growth of added value manufacturing  and 23rd in manufacturing share of the economy.

The Springfield (MO) Business Journal reported:  "Missouri earned high marks for research and development efforts as well as low long-term health care costs and health care premiums."  It also ranked #4 in unemployment insurance.

The Ball State University findings point out that costs of doing business matter.

Don C. Brunell, President (DonB@AWB .ORG)

Washington #3 in U.S. for Business

That's according to Forbes magazine, which today released its "Best States for Business" rankings. Washington jumped two notches this year, up from fifth place last year and 12th place in 2006. Virginia garnered the top spot for the third straight year; Utah earned the second-place ranking.

In its analysis, the writers at Forbes evaluated the states based on six areas:

• Business costs  - an index based on the cost of labor, energy and taxes. Washington's rank: 28
• Labor rank - a measure of educational attainment, net migration and projected population growth. Washington's rank: 2
• Regulatory environment  - a measure of the regulatory and tort climate, incentives and transportation and bond ratings. Washington's rank: 6
• Economic climate - reflects job, income and gross state product growth as well as unemployment and the presence of "big companies". Washington's rank: 7
• Growth prospects -projected job, income and gross state product growth, as well as business openings/closings and venture capital investments. Washington's rank: 2
• Quality of life - indexing of schools, health, crime, cost of living and poverty rates. Washington's rank: 25.

Today's announcement comes as good news, particularly given the current economic climate. To be considered one of the top three states in the nation for business is affirming and underscores the value -- and importance -- of keeping our sights set on competitiveness.

AWB intends to dig further into the Forbes special report. More on this topic again soon... 

Court of Appeals Misses on Municipal Tax Uniformity

Division I of the state Court of Appeals has released its decision in Group Health Cooperative v. City of Seattle, a municipal B&O tax case in which AWB submitted an amicus curiae brief.  The taxpayer actually prevailed for the most part in the case but it was an underlying issue that interested us -- the first precedential interpretation of the remedy provision of 2003's landmark municipal tax fairness legislation, EHB 2030. 

Here's what we wrote about EHB 2030 in 2003:

AWB’s tenacious six year effort to bring municipal tax fairness to Washington has finally paid off! EHB 2030 was signed into law by Gov. Gary Locke in early April. The signing of EHB 2030 marks the end of confusing local B&O tax codes, the elimination of the potential for double taxation and the preservation of the rules of fair tax treatment. Soon business taxpayers will be on the receiving end of a long-awaited, model B&O tax ordinance that creates uniformity, certainty, predictability and fairness in local taxation. Introduced by Rep. Lynn Kessler (D-Hoquiam), EHB 2030 ends differing interpretations of tax laws from the state to local level and from city to city. Thanks to this legislation, businesses that operate in multiple cities will no longer be forced to pay double or triple taxes on the same revenue. A long time priority of AWB, the Governor’s Competitiveness Council and the Gates Tax Study Commission is now a reality.

This bill, an executive request bill from then-Governor Gary Locke and Competitiveness Council priority, was enacted over the strenuous opposition of the cities.  One reason?  Section 14 of the bill, or RCW 35.102.140, provided a strong incentive for cities to come into compliance with the uniformity requirement:

A city that has not complied with the requirements of sections 2 through 13 of this act by December 31, 2004, may not impose a tax that is imposed by a city on the privilege of engaging in business activities.

In other words, comply with this law or lose the legislative authorization to impose a B&O tax while out of compliance.  In this case, it was pretty clear the City of Seattle was not complying with one of the provisions of the law relating to refund calculation -- in fact, an e-mail from the city's tax manager obtained through a public records request showed the city was actively thumbing its nose at the 2003 law.

Nevertheless, on this point, the Court of Appeals decided the Legislature couldn't have possibly meant such a draconian remedy for non-compliant cities:

While it is true that the legislative history supports the conclusion that the legislature intended the requirements of [EHB 2030] to be mandatory for cities imposing B&O taxes, there is nothing whatsoever in the legislative history suggesting that the legislature's objective was to impose a retroactive B&O tax revenue "death penalty" on municipalities found to have unwittingly enacted provisions of the model ordinance that were drafted in such a manner so as to be inconsistent with the statute.

Of course it isn't so much the Legislative history as the text of the law itself ("A city that has not complied . . . may not impose a tax . . .") where the Legislature's objective was clear -- and since we helped draft the statute, we felt pretty confident on this point. 

But, this decision is another reminder -- like last month's unemployment insurance decision from the Supreme Court repudiating another major 2003 enactment -- that what seems so clear before the Legislature often looks completely different through the prism of the judiciary.   

 

Politics, Red Tape Doom Tri-Cities Project

Proving the press corps doesn't take the interim off, Chris Mulick has a nifty piece of investigative reporting in the Tri-City Herald on the loss of "a major economic development score for the state" -- 400 new jobs, and possibly 625 current jobs, to neighboring Idaho.  The PI also picked up a version of the piece. 

Focusing mostly on intriguing back and forth between project proponents and the Governor's office, the story says a lot about the sometimes chilling effect of our state's legendary permitting process and peculiar environmental politics on our economic competitiveness. 

Boeing Wins a Big One

Today's good news is very good: The Government Accountability Office sustained Boeing's protest of the Air Force's award of the tanker contract to Northrup Grumman.

“Our review of the record led us to conclude that the Air Force had made a number of significant errors that could have affected the outcome of what was a close competition between Boeing and Northrop Grumman.  We therefore sustained Boeing’s protest,” said Michael R. Golden, the GAO’s managing associate general counsel for procurement law.

It seems certain to guarantee Boeing another shot at the contract, with better information and good prospects. Coverage in The News Tribune, the Puget Sound Business Journal, the Seattle PI, and  practically every other NW media outlet. (cross posted at WashACE.com)

Mike Flynn Reports on WashACE

Mike Flynn, formerly publisher of the Puget Sound Business Journal, has launched a valuable new blog, Flynn's Harp. In today's post, Mike reports on the Washington Alliance for a Competitive Economy. He captures the concern of many of us with the current state of the Washington business climate.

Business interests are concerned that policymakers and elected officials may be basking in the glow of national media praise for Washington’s sunny economy and failing to focus on economic storm clouds looming. Foremost among those is the likelihood that the 2009 Legislature will have a $2 billion-plus budget shortfall to deal with.

Read the whole post to learn how we're planning to respond.

And for more on the budget gap, see my column in today's Herald.

Unionization of Colorado Public Employees Moves Ahead: The Minority Rules

In January we posted on the curious, nearly subterranean, ways in which public employees in Colorado gained collective bargaining rights. Odd that we always say it that way, as if all public employees in Colorado wanted collective bargaining. Although I'm not thrilled with the outcome, at least in our state, expanded collective bargaining came about by legislative action and a gubernatorial signature. In Denver, the governor slipped it through by executive order.

Now, we see that the unions continue to gain ground. Hard to tell if it's a move the average public employee supports.

About 6,900 state workers from a pool of 22,500 who were eligible participated in the election, which gave them a choice between Colorado WINS or no union representation. Of those, 5,481 supported the union.

The results were based only on the number of votes cast, but even those who did not vote will now be represented by the union — regardless of whether they pay the voluntary union dues.

Hardly an overwhelming endorsement.

Per Capita Economic Growth Not So Strong Here

Kriss Sjoblom, economics and VP for the Washington Research Council, recently took a look at our state's economic performance. After he saw to this post, he contacted me to say, in essence, not so fast. (So you don't have to click through, the earlier post referred to our state's 2007 economic growth of 4.3 percent, third best in the country.)

When he saw me at a meeting yesterday, Kriss handed me this. Using recent federal data, Kriss examined per capita growth in real (inflation-adjusted) GDP by state from 2000 to 2007. On that basis, we don't look so good, coming in 38th, and sliding from 9th in per capita GDP in 2000 to 11th in 2007. Essentially, our population grew faster than the economy.

Interesting data.

And congratulations to the WRC for a successful 76th Annual Meeting yesterday.

Columbian Look at "Costs" of Tax Exemptions

Today's Columbian offers an editorial evaluation of a tax incentive passed a few years ago (HB 3190). The editorial points out that analysts initially estimated that the state would lose $1.2 million under the deal. Further, they note, it was a very targeted proposal.

This particular bill ...offered the tax incentive to companies manufacturing 12-inch silicon wafers. In other words, the bill essentially screamed “SEH America,” a Vancouver-based manufacturer that does precisely that. But the tax breaks came with crucial requirements. To benefit, a company must first spend $350 million on construction, building improvements or equipment.

SEH America made the investment and got the break. It's paid off.

SEH employment has increased in two years by 43 percent, from 767 workers to 1,093 workers, three-fourths of whom earn more than $31,000 annually, and one-third of whom make more than $62,000 a year.

The Columbian thinks it was a good deal. And quarrels with the analysis that fails to count the economic benefits of the increased investment.

Granted, the state sacrificed, in a way, $1.2 million that would have been gathered without the tax break, if all things had stayed the same. But that’s the key; there’s no way of knowing if all things would have stayed the same. But here’s something we do know. Even with the lower tax rate, the state has collected 15 percent more from the affected businesses.

The problem with that kind of calculation is that, as they say, "there's no way of knowing" whether the incentive was necessary to secure the investment. These are not easy calls. The state does have a good system for evaluating such tax preferences, through the Citizen Commision for Performance Measurement of Tax Preferences, on which I served for a time. It's not easy stuff.

For the economy of Clark County, however, it's nice to see that this one worked out.

90 Percent Meet Reading and Writing Standards ...

Yesterday the Superintendent of Public Instruction announced that 90 percent of this year's high school seniors passed the state's reading and writing standards. That clearly good news, properly celebrated by Terry Bergeson, parents and teachers. Here's Bergeson from the OSPI press release.

"This is a moment we’ve been waiting to celebrate for more than a decade," she said. "Washington’s educators have spent so much time making sure every student is well prepared for college, careers and citizenship, and these results show that hard work has paid off.

And she underscores the key point.

"For the first time ever, we know that the students leaving our high schools have the reading and writing skills they need to succeed in their lives, no matter what paths they choose."

Nothing up yet on the WEA website, but the Seattle PI suggests union critics of the WASL aren't happy.

"There are a huge number of kids who are missing," said Shannon Rasmussen, president of the Federal Way Education Association and the head of a task force that studies education reform. "The presentation today hasn't eased our concerns."

Her gripe is with the exclusion of students who dropped out or were reclassified in other grades. Well, the test is designed to assure that those who graduate have the appropriate skill set. Students who've dropped out (I guess that makes them former students) or are still in school because they've fallen behind would seem to be appropriately excluded.

The Spokesman-Review quotes Bergeson-challenger Randy Dorn, who makes a different point.

"When you have one out of 10 kids not passing, I don't see that as something to celebrate," said Randy Dorn, a former principal and state legislator and current director of the Public School Employees of Washington, who is running against Bergeson.

Sure, you'd like to see everyone met the standards. I'm guessing that unless there are consequences for failure, the motivation to succeed just won't be there for everyone. The students who didn't pass have options (scroll down).

Other stories in the Seattle Times, along with a good editorial, and The News Tribune carries the AP story.

Update Bruce Ramsey provides the graduation rate details in his Seattle Times blog.