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The next meeting of the King County Democrats Legislative Action Committee is Sunday, May 16, 2010 2 PM - 4 PM Bellevue Public Library 1111 110th Ave NE Bellevue, WA directions Special Guest Speakers Senator Rodney Tom Representative Deb Eddy Sen. Tom is Vice Chair of Ways & Means for the Operating Budget and one of the main budget negotiators. He also sits on both the Early Learning & K-12 and Higher Education committees. Rep. Eddy is the Vice Chair of the Majority Caucus and sits on the Transportation, Ecology & Parks, and Technology, Energy & Communications committees. Please bring your questions in these budget and policy areas for them. Meeting Notes - King County Democrats Legislative Action Committee Redmond Regional Library April 18, 2010 Guests: Rep Ross Hunter, Rep. Larry Springer, Sen. Eric Oemig ______________________________________________________________________________________ The Legislative Action Committee had a very successful April meeting with Reps. Ross Hunter and Larry Springer and Sen. Eric Oemig, talking mainly about what revenue efforts worked and what didn't, but also about some of our priority policies that are still on the table, including public campaign financing. We also talked about the Roadkill Caucus and the difficulty of getting a majority for repealing some tax exemptions. What follows are meeting notes of the April meeting taken by Sarajane Siegfriedt, LAC Co-chair. They are not minutes, since no votes were taken. The content is accurate to the best of her note-taking ability, which she claims should be viewed as "imperfect." Initiatives Rep. Hunter: I-960 requiring a 2/3 vote to raise taxes was never tested in court, in part because the Lt. Governor who presides over the Senate would not allow such a vote. We haven't passed a vote with less than 2/3, so no one has standing to sue. It could only happen if the majority passed a bill and the Lt. Governor as President of the Senate ruled against it. Possibly we could role back the 2/3 requirement in general, but retain it in a handful of instances where we could repeal a tax exemption, for example, without 2/3. We didn't have votes in the Senate for that. Sen. Oemig thinks Puget Sound voters are more sophisticated and can understand a vote like that, but the rural Senators said they didn't want to explain it to their constituents. Raising Revenue The Senate had only 25 votes for raising revenue out of 49 total Senators - the bare minimum. As House Finance Chair, Rep. Hunter proposed $25 million in closing loopholes, but got buried in email from people who objected, such as private airplane owners, whose tax rate hasn't been updated since 1949. Sen. Oemig started with "I'm sorry. The revenue conversation isn't the bright spot. There were some righteous rollbacks, such as the out-of-state banks, that we couldn't get passed." The House passed a bunch of measures that couldn't stick in the Senate. Hunter doesn't think taxing beer, pop and candy is a very good idea, compared with taxing private airplanes and applying B&O tax to mortgages, an exemption originally given to WaMu, to make them more competitive. Banks pay similar taxes in almost all other states. The lobbying pressure was huge. They argued "nexus" that merchant banks and mortgage rates would be higher if we did this, but they couldn't prove it. Hunter said: Will we do go after this again next year? Raising taxes is very painful, and we really don't have good budget projections for next year. If we don't have a big deficit, it will be very difficult to demonstrate the necessity of raising taxes. If Eyman is successful , we might not be able to raise revenues. Given the current makeup of the State Supreme Court, I wouldn't want to put a tax case in front of them. The current court isn't reading the current law correctly.
It costs a quarter to a half-million dollars to put an initiative on the ballot. The teachers were the last ones to have enough "volunteer" signatures to do this.
Hunter: Sen. Phil Rockefeller's proposal to tighten up the way tax exemptions are treated, including sunsetting them after five years, never got to the House. We do want to look at that next year. Some exemptions make a huge amount of sense, but we extended some tax giveaways that were due to expire, including the largest mining company in Canada, which owns a zinc mine in Pend Oreille County.
Sarajane asked: What about the Boeing tax break? Rep. Hunter voted for that in 2003. He believes that we would have lost most of Boeing's production over 20 years. Option B is we collect taxes from Boeing, but less. They would have moved the 787 assembly line outside the state. Our tax structure and how it affects manufacturing is a disaster. For high-tech, it's very attractive. Microsoft and other high-tech companies have one of the lowest tax structures for employees. We're 47th of 51 in terms of the total tax burden. Corporate taxes are very low, 1.5%--much lower than with an income tax. They pay more in sales tax than they do in B&O. Microsoft has some very conservative executives. Ballmer is reasonably conservative. The rank and file employees are college educated and more liberal.
What part of our manufacturing tax system is broken? The "use tax" is bizarre. We required a manufacturing firm to pay use tax in the molds they use in their lost-wax process that's used to make unique metal parts. It's an internal process. The mold is destroyed in the process. Corporate income taxes are very easy to evade. We tried to change this. Publicola did an animated video on the ways corporations evade taxes. (Hunter will post it on his website.)
Said Hunter, you can design a tax system to produce almost any amount of revenue you want. Currently we raise about $30 billion in revenue. Our revenues increase at about the same rate as the economy. Sales tax is by far the biggest piece. We have a very complicated computer model with very sophisticated inputs that allows a lot of variables.
We got the 520 bridge done this year-creating thousands of construction jobs. It was a huge win. It was Labor's big request.
Sen. Oemig noted Sen. Rockefeller's proposal to sunset every tax exemption after five years . "You can get 20 votes. The last five votes each think they are the last vote and they want something for it." We want to connect each tax giveaway to its use. We subsidize rural counties substantially, but they don't believe it. The rural Senators don't take that vote, the money keeps coming to their districts and they don't acknowledge that they are receiving welfare to schools, county governments and so on. It needs a better name. "Government welfare reform?"
Rep. Hunter: We need a better dashboard for where the money comes from and where it goes. Every year I learn more and I realize how easy it is to ignore the things that need to change. For example, how we maintain our contributions to our pension systems. Next year, it's $600 million more than it was last year, but I don't know how much it was. Unless people can see and visualize this, it's hard to make it happen. I've lost huge arguments in the Finance Committee because the members couldn't understand the complexity of the issue.
The budget system is a black hole for many people. Legislators don't understand it. At the federal level, it's the same problem. The average Congressman doesn't understand how banks work, especially investment banks. The government gives control over to the Federal Reserve System, which is owned by private banks.
Putting the tax exemptions in the hands of Joint Legislative Audit & Review Committee (JLARC) isn't working. Hunter says the reports are the most valuable tool we have in reviewing exemptions, because it is an objective look. Oemig says yes, but it's a narrow look. The Tax Preference Commission looks at exemptions on a 10-year cycle.
Brad Larsson says: The Seattle Times called the new taxes the "7-11 taxes" because they apply to everything you buy in a convenience store.
Sen. Oemig: There are structural problems and we will be back to fix them next year, assuming Eyman's I-1053 doesn't pass. Rep. Hunter: "If there's no deficit, I won't have the votes to pass it next year," referring to a tax bill.
Sen. Oemig: We could not get a candy tax out of the Senate for anything. Same with the soda tax. It helps if you're giving something back, like improving the B&O tax (easy to enforce, but regressive). We put a permanent increase on the exemption level for businesses such as Microsoft.
Sarajane asked, how will we pay for basic education? Rep. Hunter: Not with the B&O tax. Health care will shift to the federal government over time, and education will grow back to 50% from 43%. It was 39% when I started in 2003. How do we want to pay for education? The legislature can't pass an income tax. The initiative process is more likely to work. The voters who value education are the suburban voters, the Microsoft employees. These are the businesses and the votes that we tax least. It's going to have to flip around. The League of Education Voters has done some polling that voters would support this if it affected educational outcomes.
Don Smith: We need some leadership from Democratic officials to pass an income tax. Rep. Hunter: Polls show that if it comes from the Legislature, it fails. Rep. Larry Springer: That effort is going on right now. Frank Chopp is strategizing with stakeholders, but they haven't gone public yet. There's a split among the stakeholders about when to launch, including the potential funders.
Asked Margaret Shield: What about the coal tax and the oil tax, where we're trying to put externalized costs (clean air, clean water) back on to industries that are dirtying them?
Sen. Oemig: We'd like to reinvent a tax, over time. Possession of a hazardous substance or disposing of a hazardous waste-we still haven't figured out how to do this.
Here's a $10 million exemption on sales tax on coal coming from the TransAlta power plant in Centralia. All the coal is now coming from out of state, so it didn't save jobs. The other omission is the requirement by the federal government to clean up all the stream runoff from roads, the diffuse or non-point pollution taxes. Cities are mostly paying for this now. The Senate didn't have the votes to raise the tax, the Model Toxics Clean-up Act, that would have replaced the per-barrel oil fee, which Larry Springer thinks is misplaced. We got to 49 votes in the House. We couldn't get to the 50th vote. It may be part of the effort next year to fold the storm water clean-up, which is a road issue, into raising the gas tax.
It was really clear that the Governor was going to veto the TransAlta tax. The Governor is working with the coal plant to transitioning to natural gas.
Some of the revenue issues were about the economy and others are about policy. This one < the tax on barrels of oil> can come back. We haven't built a new refinery in 35 years, because nobody wants one. Tesoro would have had an exemption for any product they exported out of state.
There's a tax paid when you take possession of hazardous substances. It was voter-approved in 1987 and hasn't been raised. It seems like a better taxing source. It would go from 1% to 1.8%, would raise about $100 million a year, and would go to cities and counties to pay for new stormwater guidelines that are coming from the federal government. We just lacked the 50th vote in the House. We ran out of time.
Margaret Shield: The fee on hazardous waste needs to be modernized. It's capped at a relatively low amount and needs to be raised, according to the Toxics Advisory Council. It's capped at $1.8 million, divided by the number of companies taxed. Because they all pay the same fee, there's no incentive to improve.
Is there a way to collect on Microsoft's selling out of Nevada? No, the Dept of Revenue says we'd lose the case. We'd have to switch to a corporate income tax. The Seattle Times reporter didn't write about it. There's no real issue, just smart tax planning on their part. It's the other end of the spectrum from tax evasion. We did pass a tax avoidance bill that will go after six different kinds of tax evasion.
Rep. Hunter will post the tax avoidance video on his website today: "Tax avoidance for Dummies" on You Tube.
Voting Reform
Sen. Oemig: Campaign finance reform for the State Supreme Court-didn't pass, but Lisa Brown was very helpful in the Senate. We tried public campaign finance for the Supreme Court and almost got it through the Senate until I-960 killed it . We didn't have 29 votes in the Senate, and the Lt. Gov. ruled against it. That killed the bill. We thought we'd run the bill after I-960 was suspended by the Legislature, but then the Chief Justice registered the court's opposition, because it was based on a court filing fee <$3>. That killed the bill. The courts think they own all the filing fees.
The Chief Justice told Steve Zemke that members of the State Supreme Court opposed the public campaign finance bill as written. Steve urged us write them to support the bill. Sen. Oemig mentioned another alternative some states use that does not require that we elect judges. That approach is to have a commission that selects three judges and the Governor appoints one of the three. The next election, the judge is voted to "retain or reject." If the judge is rejected, the process starts over. We have to fix a system where a court can be bought by corporate dollars. Craig Salins and John King of Washington Public Campaigns were great this session.
The model we have today was set up specifically for judges who aren't supposed to be soliciting contributions. It won't work for other elected officials. The general model is to opt out of fundraising from large donors and opting in to small donors, under $100, that will be matched.
Sen. Oemig raised the issue of Internet voting. The Military and Overseas Voting Bill would have allowed Internet voting over the non-secure Internet. It passed unanimously in the House. It needs to be shut down. Sen. Oemig asks our help. Emails just aren't the way to do it. Anyone can go online and find out who hasn't voted. You can download the ballot online and email it in. It's too easy to spoof, to do wholesale fraud. One disgruntled employee can game it. Are there other solutions? The military get their ballots sooner and they are accepted later. How many overseas voters were received too late? We can't find a single one that was rejected past the deadline.
Steve Zemke asked about same-day voter registration and universal voter registration. Sen. Oemig prime-sponsored the same-day voter registration bill in the Senate and will keep working on it. The opposition is from the Sec. of State and the Assn. of County Auditors.
Education Reform
Education is a big problem and funding it is an even bigger problem. The funding allocation formula was changed this year. It's important that we bring more transparency. We need to state up-front how many teachers we are funding and make it a vote, not just part of the Omnibus Budget that obscures the numbers. We think the transparency and the requirement to vote directly is a big victory.
Sarajane asked if we are going to be competitive in the second round of competition for Race to the Top funding. Said Sen. Oemig: U.S. Sec. of Education Arne Duncan and others require buy-in of the teachers for reform. We do have the buy-in of our teachers for some pretty substantive reform, including how to fire teachers, change management, require longer hours, evaluate teachers, how to fund education. The Round 1 winners of Race to the Top all had almost universal agreement from their teachers unions. The feds are visiting with policy-makers to understand the political climate in different states. They told Sen. Oemig that we are ahead of the game in data-gathering and some other areas.
Housing
Rep. Springer works in the House on housing issues, which took a back burner to the budget. We got $30 million added to the Housing Trust Fund, which was excellent, considering that the Capital Budget was raided to fund the Operating Budget. Five million went to two pilot housing programs for people on the Disability Lifeline. Workforce Housing gets the other $25 million. Rep. Tina Orwall did a great job as prime sponsor of that bill. Last year's transit-oriented development bill failed. It was fatally flawed because it mandated density. We need to create incentives for cities that do have transit-oriented development funds for density. This is particularly true if you are starting something new. We weren't able to do much in the way of farmworker housing, including Skagit and Whatcom. I want to work on that next year.
Tax Reform
Regarding income tax, you can create an income tax that raises revenue. At maybe 5% for individuals making over $200,000 a year, you could be revenue neutral. If you make it such, you can pass. If you can reduce property tax, you have a leg up . I think property tax is a key. We could also increase the primary residence tax exemption. We can't afford to reduce the sales tax.
Applying the B&O tax to interest income on big banks was an opportunity that we missed. We crafted a policy that raised $50 million to the interest the banks raised on the first mortgage. Sen. Berkey was opposed and was unconvinced that it wouldn't hurt Frontier Bank in Everett-even though it wouldn't. We also couldn't get the out-of-state sales tax exemption through the Senate. Both of these would provide ongoing revenue. We need more of that. There are no more budget tricks left. We need fixes.
They did raise the B&O tax on professional services. They are taxed at the highest rate, 1.5% of gross. Retail pays the lowest rate and manufacturing pays in between. The overhead is lowest on the ones who pay more. It was raised to 1.8% for professional services for three years.
Consumer Protection
Steve Zemke asked, what about the Homebuilders Revitalization Act, or Homeowners Bill of Rights? Rep. Springer: "It got through the House and died in the Senate. We had it back in the House this session, but it had 15 yes votes in the House this year, vs. 52 in 2009. Maybe people didn't want the fight in the short session." (Steve Zemke comment on notes - House backers withdrew support because the bill was much weaker than last year's version)
Olympia Politics
Sarajane Siegfriedt asked about the Roadkill Caucus. Rep. Springer: "It's a group of House Democrats it includes Mark Ericks, Deb Eddy, Ross Hunter and Springer , who are more fiscally conservative, but also strong on social justice. We didn't feel like we spoke as a group. We formed a caucus, started by Brian Hatfield in the Senate, eight of them, 15 of us in the House. They didn't want to see unemployment rates for businesses raised this year. It was the wrong time to increase them . That's the only bill we specifically targeted."
Why the Roadkill Caucus? Springer: "It's in the nature of a caucus that's as large as ours is in the House this year. We won't have 61 next year, with eight members retiring. The Democrats are a big tent. There are born-again Christians, atheists and everything in between. There's nothing wrong with groups, but the budget has made it ugly. We're trying to figure out how to redesign our leadership team in the House, with Lynn Kessler retiring as Majority Leader. It's a huge loss."
Other accomplishments? Workforce housing applies to 80% of area median income and below, down to 30% about minimum wage. It would be mixed income, so half would be market-rate units.
We also have $15 million as a down payment for a $40 million purchase of the Maury Island gravel pit.
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stevezemke {at} msn.com, sarajane3h {at} comcast.net
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