Article by Erik Smith. Published on Friday, April 23, 2010 EST.
Gregoire Signs $794 Million Tax Increase – Time to Tie Up Loose Ends
By Erik Smith
Staff writer/ Washington State Wire
UPDATED 5 p.m. April 23 to reflect governor’s bill-signing.
OLYMPIA, April 23.—The central drama of the 2010 Legislature ended Friday when Gov. Christine Gregoire signed the bills to enact the $794 million tax increase lawmakers approved this year.
It wasn’t the end of the 2010 Legislature. That came last week, during the wee hours of April 12, when House and Senate wrapped up 90 days of lawmaking and called it a session. By now most legislators have returned to their home districts and are sleeping safely in their own beds.
And if the session really ends when the last bill is signed – Friday’s ceremony wasn’t the finish, either. Gregoire still has to sign the budget, among other bills. The constitution gives her until May 6.
Yet Friday’s bill-signing certainly marked the end of the biggest and most contentious drama of the year, the one that kept lawmakers at the Capitol a full 30 days after their scheduled adjournment, and the one that caused most of the session’s yelling, fuss and bother. There was even a bit of suspense in the final act.
Not that there was any doubt the governor would sign. Gregoire was as much an author of the tax deal as anyone in the Legislature.
But observers had to wonder – when the spotlights were turned on and the TV cameras were running, and the governor picked up her pen – would there be anyone standing behind her?
Turned out there was a crowd. But of the 75 or so people who showed up for the ceremony, most of them were aligned with social-service organizations – and only one of them was a legislator.
Time to Wrap Up
And so the story ends – which makes this the right time to tie up the loose ends of the session.
The big question of the year, of course, was whether it was a good idea to raise taxes in the middle of a recession – but it was far from the only one.
And that question really wasn’t settled, either. Lawmakers will get to deal with it again next year, in an even bigger way.
Worse Problems Ahead
This year’s tax increase doesn’t solve the state’s fundamental budgeting problems – it just puts off the day of reckoning. The trouble really got started in 2003, when a booming economy began handing the Legislature massive increases in tax revenue, without requiring it to raise taxes. Lawmakers spent nearly every penny available to them, launching new programs and awarding pay and benefit increases for state employees that obligated the Legislature to maintain the increased spending in future years. Even before Wall Street crashed in late 2008, projected spending for 2009-11 was $3 billion more than the state expected to collect in taxes.
Senate Majority Leader Lisa Brown, D-Spokane, has argued that lawmakers didn’t have much choice about much of that spending. It’s not just a matter of caseloads and pent-up demands from constituent groups, she says – if the state had kept the money in the bank, voters might have passed a tax-rollback initiative. But the state also has enormous unfunded liabilities in its pension system, the result of benefit increases over the years and a reluctance to fully fund obligations as they arise. During the boom years, the state didn’t use its one-time windfall to catch up – and so pension payments will have to triple to unprecedented levels, some $2 billion, within the next three years.
The recession delivered an enormous whammy – the eventual shortfall, over the last two years, totaled a staggering $12 billion, more than a third of the state’s budget. Lawmakers last year and this year took a patchwork approach, scrambling for every source of money they could find – one-time federal money, raids on dedicated state accounts, cutbacks in projected spending, even cutbacks in actual spending. And this year, majority Democrats said they’d done everything they could, and they had no choice but to raise taxes.
Even so, state spending remains out of whack with revenues. Lawmakers face another shortfall next year – anywhere from $2 billion to $3 billion – and next time the easiest cuts will have been made, and the federal government may not be able to bail out the state.
Efficiencies Not Considered
Minority Republicans, who didn’t have much say in the matter, point out that the Legislature didn’t do everything it could – it missed a chance this year to consider more fundamental reductions in ongoing state programs. The biggest symbols were its failure to consider selling off the state liquor stores and eliminating the state Department of Printing. Both were strongly opposed by the Democrats’ allies in public-employee unions. Democrats were loath to cross them after canceling their cost-of-living increases last year and ordering state-employee furloughs this year – unions already are threatening to withhold campaign contributions.
Although the budget made surgical cuts to state spending within programs and managed to reduce last year’s overall spending plan by about a half-billion dollars, new spending within this year’s budget totaled $400 million.
Democratic leaders say it’s hard to cut spending in the middle of a crisis. The only problem, they concede, is that it’s even harder to say no when the state has plenty of money. Meaning there’s never a good time to cut.
The Session’s Biggest Irony
What kept lawmakers in town an extra 30 days after their regular session ended March 11 was a tussle between the Democrats in the Senate and the Democrats in the House. To raise money, the House hoped to play a popular political card – it would close tax loopholes and make the fatcats pay. But it turned out those tax exemptions for business weren’t as big or as easy to close as the leadership would have liked. Every one of them had supporters; most could make a compelling argument.
The Senate Democrats went along with the easiest choices, but said the last few hundred million dollars ought to come from a general sales-tax increase that would be paid by every resident of the state.
That raised the hackles of liberal groups everywhere – the sales tax is regressive, meaning that it takes a bigger bite, percentage-wise, from people with lower incomes.
In the end, the Senate blinked. The inside line is that House Speaker Frank Chopp, D-Seattle, won big at the expense of Brown’s Democrats in the Senate.
The final deal, brokered by the governor, offered an enormous irony. To avoid one regressive tax increase, Democrats picked one just as big. The final tax deal raises taxes on candy, gum, soda pop, cigarettes, bottled water, and cheap beer – the sorts of things those same low-income people buy whenever they visit the 7-Eleven.
So to avoid a tax on those who aren’t wealthy, the Legislature targeted Joe Sixpack instead – and Democrats had to struggle to explain the difference. That spending is optional, they said. Convenience store owners take a rather different view.
Oil Tax Averted
In the biggest lobbying fight unconnected with the budget, a proposal to raise the state’s hazardous-substance taxes to pay for Puget Sound cleanup was defeated. It was really a tax on oil, which pays nearly all the tax, and would likely have boosted the price of gas. Environmental groups found 24 votes for the proposal in the Senate, but never could find the 25th they needed to pass it.
Now they’re denouncing “big oil,” saying their defeat had to do with big-spending lobbying efforts. The state’s oil refiners certainly were in the center of the fight, but there was more to it – the opposition built a coalition involving more than a dozen industries and user groups. One of the most important components was the state transportation lobby, which feared that if gas prices were increased, it might be harder to raise gas taxes for road projects in the future.
And there’s a chance the effort might boomerang. The state’s service station operators have filed suit to challenge the tax on constitutional grounds. That could kill the golden goose – a tax that has generated hundreds of millions of dollars for environmental cleanup.
Business and Labor
Long-festering complaints from business about workers’ comp and unemployment taxes got no relief in this year’s Legislature. Recession forced dramatic increases in tax rates this year, but small-scale reform proposals got nowhere due largely to opposition from labor. Now it appears that the fight will bypass the Legislature – the Building Industry Association of Washington is collecting signatures for an initiative that would permit private insurers to compete for the state’s workers’ comp business.
Meanwhile, the Service Employees International Union won one battle and lost another. A budget proviso that would have imposed a “gag rule” on the long-term care business – blocking employer opposition to union organizing efforts – was removed in the final budget deal.
Yet for political reasons, lawmakers allowed SEIU’s Initiative 1029 to take effect. That 2008 measure, financed almost entirely by the union, required an intensive training program for every home-care worker in the state, but didn’t provide resources to pay for it. The measure will cost the state a few million dollars the first year, but will cost private businesses even more. There was plenty of support on both sides to delay its implementation for a second year in a row, but it would have taken a two-thirds vote, requiring GOP support. Republicans had made a stink this year about the repeal of Initiative 960, which would have made it harder to raise taxes, and decided they wanted to do nothing that would challenge the “will of the people.”
Initiative 937
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