Legislative Affairs - Legislative Successes

2006 Legislative Successes                 2007 Legislative Successes

2006 Session End WEDA Lobbyist Report

Legislature Addresses WEDA’s Top Priorities

Customized Workforce Training - SB 6326

Both Senator Shin and Representative Kilmer introduced legislation that would provide for customized workforce training. As the separate bills moved through the respective chambers, this provided WEDA the opportunity to weigh in on the importance of workforce training incentives in attracting businesses to the state and to allow our in-state businesses to expand.

Through the evolutionary legislative process, both bills ultimately became tax credit bills that were estimated to impact the biennial revenue stream from $1 to $1.5 million per biennium. However, SB 6326 went further. Shin’s bill establishes an Employment Training Finance Account that is used to pay for the initial cost of customized training. A qualified employer who is taking advantage of the program has to pay one-fourth of the training cost upon the completion of training and must pay three-quarters of the cost within 18 months. At the same time, the employer also receives a B&O tax credit equal to 50 percent of the cost of the training up to $500,000 per calendar year. Essentially, under this new plan, expanding businesses are not burdened with an up front training cost that discourages expansion. The payback of the business expense occurs over a reasonable period of time when the tax credits for the company are realized. The State Operating budget provided $3.15 million for this perpetual account.

House amendments to the bill before final passage encouraged the SBCTC to give priority to companies under 50 employees. A second amendment adopted the standard reporting requirements for firms who are taking advantage of state tax credits. With the two bills progressing through the two houses, it was ultimately decided by legislative leadership that the Shin bill would be the vehicle for final approval. While the bill received bipartisan support in the Senate, House Republicans generally opposed SB 6326. With modest amendments and Representative Kilmer’s insistence, the Houses adopted the new legislation on a 63 to 32 vote that pretty much followed party lines.

Other Successes for Workforce Issues

WEDA monitored and weighed in on a variety of issues that either directly contributed to workforce training opportunities, focused educational efforts to supply a workforce for high demand industries, or increased the prospects of students entering the high demand fields. The following legislative outcomes will contribute to WEDA’s workforce preparedness goals:

• Job Skills - The State Board for Community and Technical Colleges received an additional appropriation of $1 million for administration and customized training contracts through the job skills program. In addition, the legislature has encouraged the board to use special programs to produce efficiencies in purchasing goods and services. Savings incurred in this manner are authorized to be expended in the Jobs Skills Program which ultimately could provide additional revenues to the plan. WEDA has supported this program as a vehicle for delivering training for industry firms and associations.
• High Demand Fields - WEDA members have consistently encouraged the legislature to prioritize funding to encourage students to enter high demand field programs where enrollment access is limited and employers are experiencing difficulty finding qualified graduates to fill job openings. This year the legislature appropriated $900,000 to the Higher Education Coordinating Board and $1.5 million to the State Board for Community and Technical Colleges to increase enrollments in these fields.
• Opportunity Grants – WEDA supported Representative Kenney’s bill, HB 2630, that created the opportunity grants program. Originally, the bill set up a process to identify high demand skill needs of business and established a grant program to give low income students the resources to enter and become educated in these fields. While the bill failed to pass the legislature, the final Supplemental Operating Budget included a $4 million appropriation for the opportunity grants pilot program. It provides funding for a program designed to test strategies for increasing access to postsecondary education for low income students in job-specific programs.
• Apprenticeship Opportunities – HB 2789 creates opportunities for secondary school students to prepare for technical careers through apprenticeship partnerships.
• Higher Education Priorities – HB 2817 places a priority on increased access, delivery models, enrollment slots, and degree opportunities in the fields of engineering, technology, biotechnology, science, computer science, and mathematics. Public institutions must determine local student demand and report findings to the Legislature by 2008.

Tax Increment Financing is Now LIFT - HB 2673

Following three sessions of efforts to expand the state’s inadequate Tax Increment Financing law, it appears that the legislature has finally adopted a plan that will utilize the increment of sales tax estimated to be obtained by local government from a proposed economic development project. Known as the Local Infrastructure Financing Tool (LIFT), Representative Linville led the effort to obtain a new economic development tool. Upon signature of the Governor, the new device can be used to develop public infrastructure starting in 2008.

The bill provides that local governments may finance public improvements within a defined area called an infrastructure improvement area and using revenue generated through a new sales and use tax, up to $1.5 million per project per year can be allocated. The local government will receive a credit against the state sales and use tax which must be matched with an equivalent amount of local resources.

The public improvements that may be financed are infrastructure improvements that include street and road construction and maintenance; water and sewer system construction and improvements; sidewalks and streetlights; parking, terminal, and dock facilities; park and ride facilities of a transit authority; park facilities and recreational areas; and storm water and drainage management systems.

The Community Economic Revitalization Board (CERB) will administer the program and qualify applicants. At minimum, local governments must show the expectation that the improvement will encourage private development and that any related private developments will be consistent with the local comprehensive plan.

If an applicant qualifies, the Department of Revenue may impose a new local sales and use tax. The rate of tax is calculated to equal the lesser of the amount of increased state sales tax expected in the area or $1.5 million per year. Money from the tax must be used for principal and interest payments on bonds issued for an eligible public improvement and must be matched with an amount from local public sources. The tax expires when the bonds are retired but not more than twenty-five years after the tax is first imposed.

Applications may be made between August 1, 2006 and September 30th three years after the first application. The Board may approve projects up to the annual state contribution limit. In addition to these applications, the board is directed to approve three demonstration projects before approving any other application. Those projects include the Bellingham waterfront redevelopment project, the Spokane river district project and the Vancouver river west project.

The aggregate statewide limit for credit against the state sale and use tax is $5 million per year. The $5 million cap is adjusted by the fiscal growth factor each year beginning July 1, 2008. The local government using LIFT must provide an annual report to the Department of Revenue and include an accounting of revenues allocated, as well as business, employment, and wage information pertaining to the revitalization area.

Related Economic Development Successes

Business Tax Incentives to Encourage Economic Development

• SB 3190 Semiconductor Cluster – Provides a lower B&O tax rate for manufacturers of semiconductors. Also provides tax exemptions for the sale of gasses and chemicals used by the manufacturers. Revenue impact – No fiscal impact for biennium.
• HB 2466 Aerospace Manufacturing – The legislation essentially extends the 2003 Boeing tax incentives to aerospace support manufacturing firms which are engaged in tooling, support equipment and manufacturing general aviation aircraft. Extends the sales and use tax exemption for computer equipment and software used primarily in commercial airplane development to non-manufacturing firms. It also extends B&O tax credits to preproduction development expenditures and allows a B&O tax credit for leasehold excise taxes. Revenue impact - $2.9 million
• SB 6874 Timber Tax Incentives - The B&O tax rate in the timber industry varies from 0.471 percent up to 1.5% depending upon the activity. This bill phases in B&O tax rate reductions across the industry. A reduced B&O tax rate of 0.4235 percent applies from July 1, 2006, to July 1, 2007, and 0.2904 percent applies from July 1, 2007, to July 1, 2024 when the special rate expires. Revenue impact - $4.6 million.
• SB 6558 – Motion Picture Industry Incentives - Authorizes a Business and Occupation tax credit for contributions to an Approved Motion Picture Competitiveness Program, up to $1 million per taxpayer per year, subject to a state maximum. Revenue impact - $3.5 Million.
• HB 2348 - Aluminum Industry Tax Extension - The B&O tax incentives for aluminum smelters are continued through 2012. The sales and use tax credit and the natural gas use tax exemption for aluminum smelters are continued through 2012. Revenue impact - $1.2 million.
• HB 2778 Convention/Tourism promotion - Exempts from the B&O tax, amounts received by nonprofit entities from governments for the purpose of promoting conventions and tourism. Revenue impact - $200,000.

Governor’s Office

• Economic Development Strategic Reserve Account. $4 million Legislation enacting the Economic Development Strategic Reserve Account was passed as SB 5370 during the 2005 legislative session. However, due to an oversight, the operating budget failed to give the Governor the authority to make expenditures from the account. This supplemental budget corrected this error and allows the Governor to use $4 million to carry out the act.

Upon recommendations from the Director of CTED, the Governor may authorize expenditures from the account to support workforce development, public infrastructure, and other assistance provided contractually with an assurance of job creation or retention. Funds may also be used to attract businesses, prevent business closure or relocation and in support of the Economic Development Commission. Guidelines are established for the expenditures. The program is funded by earmarking one-third of unclaimed prize money from the state lottery.

Washington Manufacturing Services (WMS)

• Representative Chase and Senator Shin led the effort to reference WMS in statute. With the passage of HB 2726, Washington State will join a majority of states who provide statutory confirmation of non-profit organizations that assist small manufacturers through the National Institute of Standards and Technology (NIST) Manufacturing Extension Partnership.

WMS sought this legislation in order to better leverage federal matching funds as well as available grant monies. This new recognition should allow the organization to bring additional educational opportunities and assistance to Washington State’s small and medium sized manufacturers.

Economic Development Appropriations to CTED

• Cluster Based Economic Development $400 thousand HB 2498 –Establishes an industry cluster-based approach to economic development. A competitive grant program is created to assist communities to fund activities designed to further regional cluster growth.
• NW Agriculture Incubator $50 thousand
• Small Business Incubator $400 thousand * This funding was predicated on the passage of HB 1815 which was held in the Senate. Consequently, this appropriation will lapse.
• Grants and Assistance $140 thousand SB 5330 passed as amended by the House. The bill directs the department to make an inventory of grant opportunities for state agencies, local governments, and other community organizations engaged in economic development activities.
• Aerospace Industry Outreach $157 thousand Creating a new position in CTED’s Economic Development Division, this appropriation will help complete the Master Site Agreement with Boeing and assist in implementing the statewide aerospace industry strategy.

Supplemental Budget Overview

Seldom in recent history has a legislative body been fortunate to have a substantial revenue surplus. This year, following four quarters of positive economic improvements, the legislature had the good fortune and the challenge of what to do with a nearly $1.6 billion surplus. Good news is sometimes only in the eyes of the beholder and the resulting revenue surplus simply led to further disagreement and debate among the political players in Olympia. Following is an overview of the highlights of the supplemental budget, its impact on the overall 2005/07 biennial budget and a summary of the disagreement between leaders.

• Estimated Revenue Forecast as of February 2006 (Adjusted) $27.52 billion
• 2005/07 biennial budget appropriated in 2005 $25.95 billion
• New 2006 Supplemental Budget
• Maintenance level and new Policy Expenditures $522.4 million
• Appropriations to Reserve & other accounts
• Student Achievement Fund $275 million
• Health Services Account $200 million *
• Pension Stabilization $350 million *
• Total Reserve $825 million
• Projected ending fund balance $221 million
• Total supplemental budget consideration $1,568.4 million
• Total New 2005/07 operating budget (less ending fund balance) $27.3 billion

* Note: A portion of the funding of these accounts will be spent in the 2005/07 biennium. Consequently, the carry over from these accounts to the next biennium will be only $720 million rather than the apparent reserve of $825 million.

Considering available reserves in the dedicated accounts and the estimated ending fund balance, the state will have a carryover of nearly $940 million that can help to offset the "bow wave" expense increase that is expected to occur in the 2007/09 biennium.

This is where legislative leaders start to differ on the 2006 supplemental budget. Democrat leaders adopted this budget proposal for several reasons. They felt that it was important to fund past citizen initiative expenditure requirements and provide for increase costs due to fuel escalation and caseload increases. By appropriating the monies to dedicated accounts, it could possibly avoid ill conceived citizen initiatives that would divert the surplus from general fund use. Past initiatives have diverted necessary monies from the general fund. The result subjected the state to serious revenue shortfalls and inordinately large reductions to state programs and services.

Republicans voiced opposition to this budget because of their concern about the impact on future spending. They estimate that 800 employee positions will be created by this increased appropriation. With only one year left in this biennium, this appropriation only accounts for half of the actual biennial cost. The dollar impact to pay for these positions will double in the next biennium since the salaries will then have to cover a two year period. There are also phased in salary adjustments that will also add new costs. This expenditure increase is commonly known as "the bow wave effect" that leads to inordinately larger expenses than would have otherwise occurred.

The other concern that Republicans expressed is that the process of appropriating monies to the special accounts has the effect of increasing the spending limits both for this biennium and the next biennium. They believe that if the monies had been placed in reserves without increasing the appropriation, then the next legislature would be more strictly contained in their biennial spending.

Regardless of the differing points of view, it is clear through this supplemental budget process that both sides of the isle have legitimate concerns regarding revenues available to sustain present state spending. Health care and pension obligations are clearly growing faster than state revenues. Under the current revenue forecasts, most pundits believe that the next legislature will be faced once again with a serious budget shortfall. Early estimates believe that the shortfall will be at least $500 million for the 2007/09 biennium.

WEDA is Grateful to Economic Development Leaders

Economic development interests had a very productive session this year as the legislature addressed customized workforce development, a new tax increment financing proposal called LIFT, and a variety of tax incentives for the aereospace industry, biotechnology industry, timber industry, and the semiconductor cluster. WEDA owes a significant "Thank You" to many legislators for their efforts on behalf of economic development.

Senator Paull Shin and Representative Derek Kilmer were unquestionably the strongest voices for customized workforce training this session. Their legislation followed a rocky road of consideration in front of the Economic Development Committees, the Higher Education Committees, Labor and Commerce Committees and the Fiscal Committees. Along this arduous route, they received outstanding support from Senator Prentice, Senator Hewitt, Representative Haler, and Representative Kenney who were instrumental in moving the customized workforce training issue forward.

While we were all cautioned not to use the term "Tax Increment Financing (TIF)", the fact is that Representative Linville led the charge for a TIF pilot project that utilizes a new sales tax component. In the Senate, Senator Brown and Senator Zarelli worked diligently to refine the proposal and yet still have protections that would allay the concerns of Speaker Chopp.

Please join me in thanking these legislators for their dedication on these important economic development issues and be sure to express appreciation to the legislators in your districts for supporting those leaders who have made economic vitality a priority.