Olympia Business Watch

All-cuts budget will come first, then talk of new revenue

Partisan divide was clearly on display as AWB's annual Legislative Day began this morning in Olympia. Members of the first panel, Tax & Fiscal Policy, agreed that lawmakers in Olympia will produce a balanced budget that does not include new taxes.

But once they have done that, the talk will turn to taxes. And the disagreements will begin in earnest.

Sen. Joe Zarelli, R-Ridgefield, one of four panelists, began by noting that the recession isn't the only reason the state finds itself in a budget hole. Years of overspending also contributed to the problem, he said.

He also reminded the audience that despite the dire straits the state budget is in, there is actually more money than there was in the last biennium.

"It's very important that we balance the budget, as difficult as it may seem to some, within available revenue," Zarelli said.

Brunell: Thank goodness for farmers

With the holiday season nearly upon us, AWB President Don Brunell gives thanks to America's food producers, a group that leads one of the few bright spots in a persistently glum economy.

America's agricultural exports reached a record $127 billion this year and they are expected to grow another $2.3 billion in 2012, Brunell writes.

The sector got another shot in the arm last month, too, when Congress ratified new free trade agreements with South Korea, Columbia and Panama. Tariffs and trade barriers will fall as a result, and Washington state stands to be one of the biggest beneficiaries.

The trade agreement immediately wipes out a 24 percent tariff South Korea imposed on Washington cherries, reducing prices by 75 cents per pound.

It also phases out South Korea's 45 percent tariff on most apple varieties over the next 10 years and immediately eliminates that nation's 18 percent tariff on frozen potatoes.

"So while our nation and state struggle with record budget shortfalls and a skyrocketing federal deficit, it is good to start this year's holiday season with some good news," Brunell writes.

 

McKenna, fresh from campaign kickoff, shares his 'New Direction' with AWB

On Tuesday, Rob McKenna reportedly served up "some familiar Association of Washington Business-style bromides" regarding government regulation.

That's how the Seattle P-I.com described part of the attorney general's breakfast speech kicking off his 2012 gubernatorial campaign, anyway.

On Wednesday, McKenna stopped by AWB's office in Olympia for a lunchtime visit with some of the state's business leaders, and he took aim at the remark.

"I just have to point out that people who write things like that have never been in a position to deal with the regulations that we're talking about here, as all of you have, as I have been as private legal counsel to small businesses and large companies," McKenna said. "This is not an abstract or hypothetical or idealogical issue. It is real and it has to be addressed in a real fashion."

McKenna makes it clear how he would address the problem in one of three white papers that lay the foundation for his campaign. The first of the papers, A New Direction for Job Creation in Washington State, offers a detailed list of proposals aimed at reducing unemployment.

They include an examination of regulatory policy, as well as competitive tax reform, ending the state monopoly on workers' compensation and liability reform.

But just as he did Tueday in his kick-off speech, McKenna spent much of his time Wednesday talking about education issues.

Brunell: Are we near the tipping point on minimum wage?

With Washington's minimum wage set to go above $9 next year, AWB President Don Brunell wonders in his weekly column whether it's about to reach the tipping point where it does more to harm workers than help them.

Ensuring that people can support themselves is a laudable goal. But as economics professor Bradley Schiller wrote recently in The Wall Street Journal, there is overwhelming evidence that higher minimum wages reduce the availability of jobs at the lowest end of the job market.

Part of the debate over minimum wage is about its purpose, Brunell says. Should it be high enough to support a family? Or is it a floor -- a minimum -- for unskilled people entering the job market?

Research suggests it's the latter. Most adults work at minimum wage jobs only for a short time; more than 70 percent of workers Dr. Schiller studied had moved onto higher paying jobs within two years.

That's similar to Brunell's own experience. He recalls busing tables and scrubbing pots for $1 an hour in the summer of 1963.

It may not have been a lot of money, but the family that owned the restaurant struggled at times to pay him.

"Eventually, they hit a tipping point," Brunell writes. "When they could no longer absorb additional costs they lost their business."

US gov't runs $1.3 trillion budget deficit in 2011

According to the Associated Presss today, the government ran a $1.3 trillion for the budget year that ended last month.  It is the third straight year it has operated more than $1 trillion in the red bringing the nation's debt to $14.8 trillion.

The 2011 budget deficit was the second highest on record. It's slightly ahead of the previous budget year's $1.29 trillion deficit but below the $1.41 trillion imbalance record in 2009. Our record debt is making it difficult for the U.S. government to borrow.

A decade ago, the government was running surpluses and trillion-dollar deficits seemed unimaginable. But those deficits now loom over tense negotiations in Washington.

Congressional lawmakers, led by Washington's Sen. Patty Murray (D), are under pressure to agree by Thanksgiving on where they can cut $1.2 trillion over the next decade. If they cannot, automatic cuts to Medicare, defense spending and other critical areas of the budget would go into effect in Jan. 2013.

As of this very minute, according to the federal debt ceiling clock, each U.S. citizen owes $47,508.  Even more troubling is that each taxpayer owes a whopping $132,165.

 

Brunell: Will America still aspire to space greatness?

Given the country's $14 trillion budget deficit, coming up with the $18 billion needed to launch a test flight of NASA's new space launch system could be a challenge, AWB President Don Brunell writes in his weekly column.

And that's just the beginning. The total price tag for the rocket program that would eventually carry U.S. astronauts to Mars is currently estimated at $35 billion, and it could cost more than $60 billion for an accelerated program.

Why spend the money?

For starters, the U.S. space program has solidified America's leadership role in the world, fostered incredible advances in science and technology, produced thousands of innovations and products we use in our daily lives, and inspired millions of American youth to pursue careers in science and math, Brunell writes.

In addition, we have a clear lead in space. So as other nations emphasize innovation as they attempt to attract research and development, America already has the space technology and R&D here.

Finally, reaching beyond our planet to the stars has long been part of our greatness as a nation.

Our struggles with debt and China's ambitious space agenda are prompting Brunell to wonder, "Do we as a nation still aspire to greatness in space and beyond?"

Thinking BIG about manufacturing and the economy

Don't you wish you had one of these for the drive home on I-5?

 

The team at Lampson International was kind enough to let AWB's Gary Chandler, Kris Johnson and Amy Johnson kick the tires of this crawler for a 3,000-ton capacity crane this morning.

Staff from AWB are in the Tri-Cities today to meet with manufacturers like Lampson (featured here in the spring 2011 edition of Washington Business magazine), Areva and The Bogert Group to hear what they think are the biggest barriers to job growth, expansion and innovation in our state.

Attendees also discussed workforce development and training issues, regulatory concerns and of course, the current state of the economy. The group met at the Port of Pasco's new Osprey Pointe Business Park.

As we've previously noted in this blog, manufacturing is still one of the better paying industries in the state and nation, though it has not been immune to the Great Recession and other economic fluctuations. Still, as Jay Timmons, president and CEO of the National Association of Manufacturers, pointed out this summer,  "manufacturers want to create jobs."

Today's meeting is a continuation of a manufacturing listening tour started in August with a stop in Moses Lake. Tomorrow, we'll be meeting with other manufacturing businesses in Vancouver. Future meetings are also set for Everett and Mount Vernon. 

 

 

 

 

 

 

Brunell: The reality of world competition for America's factory owners

The story of FormFactor, a one-time California company that moved to Singapore in order to survive, illustrates the challenges facing businesses in today's cut-throat global competition.

The company founder didn't want to move his operation out of America, where he made his fortune, but he found himself competing with a Korean company that copied his device and started making it cheaper, AWB President Don Brunell writes in his weekly column.

When Singapore's Economic Development Board offered tax holidays, free property for a plant and headquarters and substantial grants for equipment and materials, he had little choice but to accept the deal.

His company was rapidly headed toward extinction and U.S. officials brushed him off his request for assistance.

As U.S. officials look for ways to restore jobs, they need to consider the reality of today's global economy, Brunell writes. And they need to make decisions carefully, based on economics not politics.

 

Brunell: Withdrawing new EPA rule is a good start, but there's a bigger problem

President Obama's decision to order the EPA to delay implementing new industrial ozone emission standards is a temporary reprieve that will save U.S. businesses as much as $90 billion per year, AWB President Don Brunell writes in his weekly column.

The price tag is that high because, as the EPA admits, the technology to comply with its proposed rules doesn't exist yet. Industry would have been forced to invent it within the next few years, or shut down.

But critics charge that the EPA has shown a pattern of inflating the projected environmental and economic benefits of its proposed regulations, and failing to back up the claims with scientific evidence.

"Federal regulations add hundreds of billions of dollars each year to the cost of doing business," Brunell writes. "Federal law says agencies can add to that burden only when they clearly justify the need and show there is no workable alternative. There is a disturbing pattern that the EPA is ignoring that requirement."

 

R&D moving offshore too

I've been reading Andrew Liveris' book: Make it in America." Liveris is the Australian-born CEO of Dow Chemical Company who believes America is not only losing manufacturing jobs, but the innovation is moving offshore as well because of several factors---costs, proximity to manufacturing facilities, R&D incentives and necessity.

Liveris, a chemical engineer, uses the case of Amazon partnering with E-Ink to develop the Kindle based on a new electronic ink that was developed in the MIT Media Lab in Boston.  But because of costs and LCD technology shifted to countries like Taiwan, the manufacturing of Kindle and Barnes and Noble's Nook, is located in foreign countries such as Taiwan. 

So while it was some solace that even though the manufacturing was occurring elsewhere, R&D was still in America.  Then my bubble burst when Liveris makes the point that China and India are making a strong bid to become the "innovation superpowers" as well.

To back it up, the first e-mail I opened this morning came from the National U.S. India Chamber of Commerce located in Denver citing a Deloitte report outlining the steps India is taking to become the innovation superpower.  And, it is just not India as Deloitte's report states:

"Countries, world over, attract R & D investments by providing benefits in the form of tax credits, super deductions, tax exemptions, grants, etc. Certain countries provide wage bill credits as well."

So while some prominent U.S. politicians and activists distort the real issues and rail about "corporate greed, or tax loopholes and government give aways," China and India are content to let us wallow in uncertainty and carve one another up.

In 2006, the Chinese government launched a 15-year plan to make China into an "innovation-oriented society."  To achieve that goal it needs to increase R&D investments by 85% by 2020. So it is offering incentives to U.S. companies to not only move their production, but R&D there too.  Meanwhile, our Congress and state legislature are toying with the idea of letting the modest R&D incentives simple slip off the books by not acting to reauthorize.

As Liveris states: "where the manufacturing goes, the ideas follow!"  Considering how important manufacturing is to Washington State, we ought to be thinking about what we can do to keep it here and enhancing its ability to compete.

Don C. Brunell, President (DonB@awb.org)