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Headlong Rush To Oil Tax Overlooks a Promising Idea

Article by Erik Smith. Published on Friday, March 19, 2010 EST.

Unheralded Ecology Plan Solves Environmental Problems, Avoids Gas Price Increase and Keeps Hands Out of the Cookie Jar

 



By Erik Smith

Staff writer/ Washington State Wire

 

OLYMPIA, March 19.—Hang on a second!

There may be a better way to solve the state’s environmental cleanup problems. Lawmakers wouldn’t have to raise taxes or gas prices. And better yet, they’d have to keep their mitts off the money, once and for all.

The solution is buried in an official report from the Department of Ecology that no one at the Capitol seems to have read.

            Sometime within the next few days, lawmakers are expected to do battle over a plan to raise the state’s hazardous-substance tax – doubling it or more. The tax hike would finance new water-pollution projects on Puget Sound and around the state. But it also would raise gas prices and place a financial burden on one of the state’s biggest industries, the oil refiners of Western Washington.

That could kill the golden goose. Furious industry groups are planning to go to court, threatening one of the proudest accomplishments of the state’s environmental lobby – a unique financing scheme that over the last 20 years has generated hundreds of millions of dollars for environmental cleanups.

            And yet – there may be another way out.

            The little-noticed report suggests another solution. It has none of the drawbacks of the plan that lawmakers are contemplating. And it solves a problem that the current tax proposals don’t. It keeps lawmakers from raiding cleanup money when budgets are tight.

            The solution is simple.

            The state just has to use its credit card.

 

            State’s VISA Comes With Insurance

 

            The idea is contained in a report from the Department of Ecology with the eye-catching title, “Model Toxics Control Act Remedial Action Grants – Alternative Financing Evaluation.” The 120-page report was issued two months ago and has attracted no attention whatever in this year’s Legislature. The department didn’t even issue a press release.

            And the report assumes a few spending decisions that lawmakers might want to question.

            But the meatiest part is this: The report points out that the state could issue bonds against the money generated by the Model Toxics Control Act. That’s the 22-year-old tax on hazardous substances that has generated millions of dollars for environmental cleanup statewide. Without raising taxes a penny, the report suggests lawmakers might be able to generate an immediate $1.4 billion or more for environmental cleanup programs.

            And unlike the tax increases that lawmakers are currently considering, this one has an important side-benefit. It leads lawmakers from temptation. That’s because revenue bonds tie the tax money directly to payback. The Legislature can’t spend the money on anything else. 

            That has been one of the biggest issues for the state’s green lobby, for local governments and for every other entity interested in environmental cleanup. Last year cash-strapped lawmakers raided the cleanup account to the tune of $180 million, and they are contemplating doing it again this year.

            Revenue bonds have no impact on the state’s debt limit and don’t have a direct effect on the state’s credit rating. The state would have to pay interest but it wouldn’t have to worry about inflation, as it does now with its pay-as-you-go plan. And the Ecology report notes that the state could get the money right away and create more than 40,000 steady jobs in cleanup – more than Boeing, the University of Washington, and Washington State University combined.

            So how come nobody has heard of the idea?

           

            Idea Has No Sponsor

 

            Momentum is carrying lawmakers in another direction. For the last two years the state’s environmental lobby has been looking for a way to tax the oil industry to pay for stormwater programs. Part of the idea is that oil contributes to water pollution – exactly how much hasn’t been determined. But oil also is far from a popular industry, especially in green circles, and its pockets are thought to be deep.

This year the battle has narrowed to a single proposal – an increase in the hazardous substance tax. That tax is paid by users of everything from pesticides to volatile chemicals, but by far the bulk of it is paid by the oil industry – some 84 percent of it. And in an indirect way, it is paid by everyone who fills up a gas tank.

            The tax hike has strong support from Democratic lawmakers aligned with the green lobby as well as from Gov. Christine Gregoire.

And the bonding proposal?

It’s actually been around a bit longer. It just doesn’t have a powerful lobbying group behind it. The Department of Ecology has been considering the idea since 2007, when the Legislature directed it to come up with a 10-year plan for the Model Toxics Control Act programs. It was ready to make a major push for the bonding plan in 2009. Then the recession hit, and long-term funding for environmental programs became the least of the Legislature’s worries. Lawmakers found themselves with a unprecedented shortfall that eventually grew to $12 billion, and Gregoire herself proposed the raid on the cleanup fund.

There may be a good reason that the Department of Ecology hasn’t been trumpeting the idea. Not only could it contradict the governor’s position, it also could inject the agency in a debate it hopes to avoid. Stormwater funding is a political issue, said agency spokesman Curtis Hart, and it’s the kind of thing that ought to be worked out between the Legislature and the governor.

            But because no one has called attention to the report, it seems no one has read it, either.

            State Sen. Jim Honeyford, R-Sunnyside, a top critic of the stormwater-tax increase proposals before the Legislature, said he thinks the report came to his office, just like dozens of others that fill lawmakers’ in-boxes every week.

            “I think it’s on my table,” he said. “I’m going to have to go back and take a look at it. It’s an interesting idea.”

 

            An Enormous Pot of Money

 

            It should be noted that the Department of Ecology isn’t presenting the idea as a way to deal with all the state’s cleanup problems. The report aims to identify ways to finance current and contemplated hazardous-waste cleanup programs with existing tax money. It says nothing about the costly new stormwater cleanup programs that are just around the corner.

            But it’s also possible to read between the lines.

            The report points out that for every $25 million the state receives in tax, it can bond for $350 million. Right now the tax generates $114 million a year. If the state plays it safe and ties up only $100 million, that means it can pick up an immediate payment of $1.4 billion.

            Which raises the question – how much does the state need?

            Nobody has an exact answer to that question, but $1.4 billion might be close.

 

            Hazardous Cleanups Mushrooming

 

            Back in 1988, when environmentalists convinced voters to approve the hazardous-substance tax, they sold it as a way to clean up “orphan” waste sites. That means contaminated sites left behind by companies no longer in business, or which couldn’t afford to clean up their own messes. And the program has worked – over the last 20 years the biggest, nastiest, and most-urgent orphan sites have been cleaned up. Today only about 400 of them are left, and the state figures it can deal with them over the next 10 years for about $50 million. That’s a small fraction of the money the state will receive.

            Instead, the bulk of the money goes to a grant program for local-government agencies. The state picks up half the cost of their cleanup efforts.

            What few remember is that the program was devised at a time when gas prices were less than a third of what they are today. Originally the tax generated about $30 million a year. When gas prices shot through the roof a few years ago, it was hard on consumers but a windfall for the state. The plans started getting bigger to match the budget. Spending on the grant program shot through the roof.

            Just before lawmakers snatched the money, the fund was flush with cash. Ecology was considering $1 billion in new mega-projects, of which the state would pay half. Most of those projects are at port districts – including a $350 million cleanup on the Lower Duwamish Waterway at the Port of Seattle, the largest single cleanup project ever contemplated by the state.

            Not coincidentally, the report was overseen by a steering committee heavy with port-district officials, and it assumes that the Legislature will say yes, eventually. The report figures the new projects would absorb every available penny generated by the bonds.

 

            Stormwater Needs About the Same

 

            One of the strange things about the stormwater debate is that the Legislature is considering raising taxes to pay for an effort in which the costs are unknown. But most guesses seem to be in about the $1 billion range. If the state picks up half, that’s about the same amount it would pay for the port-district cleanups.

            The stormwater plans are being driven by a set of increasingly stringent federal regulations that hand the tab to city and county governments. After a generation of tackling water pollution from factories, sewage plants and other “point sources,” regulators now are training their sights on the contaminated water that trickles from roadways and gutters to storm drains and out to sea. In Washington, city and county governments have raised $250 million for drainage projects, but that doesn’t come close. Dave Williams of the Association of Washington Cities points to a recent survey of local governments that shows $760 million in new spending plans over the next six years. Eventual costs are likely higher.

            Local governments don’t have that kind of money, he said. That’s why they have gone to the Legislature, and are backing the effort to raise the oil taxes. It’s not that they’re interested in taxing oil in particular. But it’s the best idea that’s come along so far.

“We’re looking for money from somewhere,” he explained. “We keep on saying to people, ‘If you don’t like this idea, give us another.’ And they never do it.”

What about bonding?

Williams says he can’t offer comment on that one.

 

How Much is Enough?

 

There’s a big problem in looking at the problem as a trade-off, say environmental advocates. The state shouldn’t have to decide between one type of cleanup or the other. It should do them all.

“It’s really a false choice,” said Brendon Cechovic, spokesman for the League of Conservation Voters. “For us it’s never been about one or the other. The total sum of the problem is far greater than what a lot of people believe.”

All along the opposition has argued that the existing tax could pay the bill, and the environmental lobby says it won’t. But no one has any figures.

And the math gets a little fuzzy when you consider that some of those port-district projects serve stormwater goals. 

That’s the problem with the environmental case, said Grant Nelson, lobbyist for the Association of Washington Business. So much remains uncertain. AWB contends lawmakers ought to take a pass this session, and take a close look at the issue over the summer and fall.

“There really needs to be a summit,” Nelson said. “What are our priorities? What is needed to accomplish those priorities? These are questions that need to be asked and answered.”


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