Article by Erik Smith. Published on Thursday, March 18, 2010 EST.

Jobs Plan Sounded Better When Nobody Got the Tab

By Erik Smith

Staff writer/ Washington State Wire

OLYMPIA, March 18.—A nearly billion-dollar jobs plan approved by the state House Tuesday is touching off a back-room lobbying frenzy, as lawmakers consider paying for it with a steep increase in utility taxes – or perhaps something else.

            The state treasurer’s office is taking a hard line against a plan from House Capital Budget Chairman Hans Dunshee, D-Snohomish, insisting that if the state sells bonds, it ought to have a way to pay for them.

            Dunshee’s plan would ask voters this fall to approve an $861 million bond issue. The money would be used to retrofit and repair schools and other public buildings, and in the process Dunshee says the state would put 38,000 people to work. It would be a boon to the segment of the workforce that has been hardest hit by the recession, he says – in some places as many as 50 percent of construction workers have been idled.

            A public vote is required because the plan would exceed the state’s constitutional limitation on public debt. But the plan has run afoul of sober and conservative folk at the Capitol who worry that the plan will plunge the state into debt at a time when the state needs more than ever to protect its high bond rating. That bond rating, now at a 30-year-high, allows the state to obtain low interest rates when it goes to Wall Street for money.

            State Treasurer James McIntire says that if the bonds are issued, the state ought to dedicate a funding source to pay for it. That could mean a tax increase. And it’s why the state’s electric utilities are mighty worried right now. One proposal now afoot could increase utility taxes by more than 20 percent, they say.

            Treasurer Takes Conservative Line

            It’s not that there’s no way to pay for the program. But as Dunshee envisions it, the state would issue what are called “general obligation bonds,” meaning that they are backed by the state’s general fund. That means everybody pays. If the bonds are paid back over a period of 25 years, that means the state is on the hook for annual payments of $63 million.

            The state treasurer’s office says the bonds ought to be tied to a specific funding source – either a tax increase or a stream of revenue that is already flowing into state coffers. That means the state could issue “revenue bonds,” which don’t affect the state’s debt limit.

            With the economy in the toilet, Wall Street is going to take a dim view of any effort to exceed the state debt limit, maintain officials in the state treasurer’s office. “The way it’s issued, at this time, in this economy, the proposal out there has the potential to hurt the state’s bond rating,” said Chris McGann, spokesman for McIntire.

            “The important thing is having a stream of revenue to repay the debt.”

            McIntire has been beating that drum for weeks. Late in January, he issued a statement warning legislators against Dunshee’s plan. Nothing wrong with the goal of putting people back to work, he said. “However, we must make sure the solutions do not imperil our state’s solid financial management policies that help us maintain our good credit rating for low-cost borrowing. I believe that we can achieve the same objectives within existing capital resources – and create more jobs this year and next – without going to the voters to approve bonds that are beyond the debt limit.”

            The treasurer’s stand is one reason Dunshee’s proposal has faltered this session. The House gave quick approval to the proposal, House Bill 2561, but it died in the Senate Ways and Means Committee. Now that the Legislature is in a special session, every bill that remains in play must be approved by House and Senate a second time. Tuesday’s vote in the House gave the proposal another push, but all minority Republicans voted no, demonstrating that the GOP has serious doubts. So, apparently, do the Democrats in the Senate and in the governor’s office. Treasurer McIntire is a Democrat as well.

            Three Proposals on Table

            Here’s where the story gets a bit hazy, and ventures into the realm of rumor and conjecture. Under the Capitol rotunda, where lobbyists congregate, it is common knowledge that McIntire forwarded three proposals to the governor and to legislative leaders. One of them is an increase in the state’s utility taxes. Most lobbyists take that to mean an increase in the taxes that are paid on electricity.

            As for the other two proposals – nobody’s talking.

            That plays into the usual legislative strategy that the easiest tax to pass is the one that nobody knows about until the last minute.

            But lobbyists for the state’s electric utilities are doing their darndest to defeat the one they know, and their heightened activity is evident amid the throngs of lobbyists that hover outside the House and Senate doors. If electric utilities have to pick up the entire tab, depending on the payback schedule, they say the taxes they pass on to homeowners and businesses will increase on the order of 22 to 25 percent.

            “Folks are having a tough enough time paying their electric bills as it is,” said Collins Sprague, lobbyist for Avista, the Spokane-based private utility that serves much of Eastern Washington.

            And David Arbaugh, lobbyist for public utility districts in Chelan and Snohomish counties, said, “My clients are looking at it very carefully. Given our economic situation, there is likely to be concern about any increase in the public utility tax.”

            Republicans shake their heads and say it demonstrates the folly of the plan. Electric utilities have already had to jack up rates because of Initiative 937, which forces them to purchase costly windpower they don’t need, said state Rep. Ed Orcutt, R-Kalama, the GOP’s point-man on taxes. “We’ve already had huge increases in utility rates, and we’ll have more as 937 kicks in. It’s going to further burden homeowners and employers, and long after the jobs are gone, it will be the tax that keeps on taking.”

            Giving Ammo to Opponents

            Republicans maintain that the jobs created by Dunshee’s plan will last only a few months, while the debt will linger forever. “There’s no way it will live up to the speeches,” Orcutt said. Opponents point out that the state had enough bonding capacity to accomplish the same thing, until Democrats raided the capital budget last year to bail out the state general fund. They say that if the goal is to fix schools, school districts ought to pass their own bond issues.

            And the idea that taxes might have to increase to cover it makes it seem all the worse, they say.
            The whole flap frustrates Dunshee, who maintains a simple plan is being picked to death. By tying the program to tax increases, his fellow Democrats are giving ammunition to the opposition, he said.

            General obligation bonds make good sense, he said. If voters approve the plan, the state’s debt service would increase by only 1.7 percent – hardly enough to cause Wall Street to break into a sweat, he said. He notes that the state has exceeded its debt limit in the past. And he points out that if the state issues revenue bonds as the treasurer suggests, rather than general obligation bonds, it will have to pay a much higher interest rate – meaning that the cost of the program would skyrocket.

            Last year Dunshee came up with a plan that was more than double the size. McIntire raised the same objections, but said that a plan of less than $1 billion would pass muster on Wall Street. Now it seems that the treasurer’s office has reversed its position, Dunshee said. For its part, the treasurer’s office declines comment on the turnabout.

            The underlying issue is that the state ought to do something to boost the construction industry, Dunshee said. That’s the kind of role government ought to play in an economic crisis. And he said the debate reminds him of the handwringing in Congress during the nation’s last great economic meltdown, in the Great Depression.

Your support matters.

Public service journalism is important today as ever. If you get something from our coverage, please consider making a donation to support our work. Thanks for reading our stuff.