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Business fears I-695 will shift state tax burden
Business fears I-695 will shift state tax burden
by Robert T. Nelson
Seattle Times staff reporter
Boeing, the real-estate and construction industries, and Washington businesses
in general have portrayed themselves as civic do-gooders for their opposition
to anti-tax Initiative 695.
But behind all their talk about the need to fund transportation and education
adequately are two very real concerns: this region's ability to accommodate
growth and the very real possibility that tax revenues lost under I-695 will
come out of the pocketbooks of business.
If approved, the measure would reduce the state's car tax to a flat $30 fee,
regardless of the value of the vehicle. It also would require public votes on
all future tax and fee increases.
Should the initiative succeed, state and local governments stand to lose $750
million annually in revenues. The Legislature, then, would have three options:
cut spending and services, tap a $1 billion surplus or ask the public to approve
a tax increase.
Don Brunell, executive director of the Association of Washington Business,
thinks he already knows the answer. He and other business leaders fear voters
would be more likely to support increased fees and taxes on business than on
themselves.
What they fear most is a restructuring of the business-and-occupation (B&O)
tax, which is levied on businesses based on gross revenues.
"This state's taxes on business are higher than most states," says Brunell.
"What did they do in the recession in 1981 - '93? They went after business with
higher taxes."
Taxes on business make up about 50 percent of the state's annual revenues.
A recent study of seven Western states commissioned by the Utah Tax Commission
found that Washington has the highest taxes on business and the lowest on residents.
According to a 1997 study by the Institute on Taxation and Economic Policy,
Washington ranks fourth in the nation in the percentage of tax burden borne
by business.
"Because we don't have an income tax, we are forced to rely heavily on the
sales tax and the B&O tax," says economist Kriss Sjoblom, vice president of
research at the Washington Research Council. "You don't see the B&O tax anywhere
else, and to get a high yield from the sales tax, we extend that to a number
of business transactions."
Yet as high as present taxes are, they have been crafted in ways Washington's
most influential businesses can live with. Boeing planes and Paccar trucks aren't
subject to the sales tax. Neither is manufacturing equipment.
The B&O tax is based only on gross revenues, so it benefits companies with
higher profit margins such as Microsoft. Because the state doesn't have an income
tax, wealthy business owners and executives also are free of an additional tax
they would face in many states.
Finely tuned tax structure
Business leaders fear the state's finely tuned tax structure would change
if I-695 passes and voters, not legislators, are suddenly called upon to decide
which taxes should be increased.
"I would think business would really be concerned about that because it wouldn't
control the (political) process," says economic forecaster Dick Conway, a member
of the Governor's Council of Economic Advisors. "Were I a cynic, I'd say it's
a lot harder for business to control the public than the Legislature."
Business does, when necessary, go public in its opposition to higher tax measures,
and often prevails. The Children's Initiative, early in this decade, is one
example of business opposing a popular proposal that was subsequently defeated
at the polls.
And business leaders routinely make dire predictions about Washington's business
climate. In the early 1990s, then Boeing Chairman Frank Schrontz warned that
the economic climate in Washington state wasn't conducive to expansion and wondered
aloud if Seattle was in danger of becoming the next "Rust Belt" city.
On Friday, in a speech to the state's business leaders in Spokane, Debby Hopkins,
Boeing's chief financial officer, warned that because of labor costs and taxes,
the state is in danger of pricing itself out of the airplane-manufacturing market.
Hopkins, who joined Boeing in February with a mandate to increase profits,
said that with high labor costs, crowded highways, lagging school-test scores
and education standards, Washington is below average compared with other places
the company does business.
"I hate to say it, but out of the 27 locations where Boeing has plants and
employees, Washington came out 16th," said Hopkins. And the main reason the
company rated the state that high, she added, was its historically low energy
rates.
Hopkins used the speech to urge defeat of I-695, which she called a misguided
tax cut.
Transportation funds are concern
Boeing also has a more-vested interest - the roads and bus service that serve
its Everett plant.
To expand that facility to build the 777, the aerospace company agreed in
1990 to contribute $47 million for expanding high-occupancy-vehicle lanes, adding
more bus service and widening turn lanes on the Mukilteo Speedway. The speedway
is a major route for plant workers.
The plan was to leverage Boeing's contribution with federal and state money,
for a total of $260 million in transportation improvements in and around Everett.
The state's contribution, however, has lagged and Boeing deferred $6 million
of its share until the state could figure where the public money was going to
come from. Last year, a source of cash was created when voters approved Referendum
49.
Under Referendum 49, much of the state's car-tax money has been earmarked
to pay back the bonds on $2.4 billion in statewide roadwork. Without that revenue,
state lawmakers say the projects are in jeopardy.
"If 695 passes, there are some very serious impacts on these projects," warned
Paul Roberts, director of planning and development for the city of Everett.
State Transportation Secretary Sid Morrison has already halted work statewide
on all new ferry, rail and highway-construction projects - which were to be
funded by Referendum 49 - until after the Nov. 2 vote on I-695.
Roberts and other government officials think passage of I-695 would make it
nearly impossible for cities and counties to enter into future impact-mitigation
agreements such as the one with Boeing because there would be no guarantee voters
would approve the matching funds.
Initiative viewed as anti-growth
Stan Finkelstein, executive director of the Association of Washington Cities,
goes a step further. His organization's lawyers have concluded that I-695's
requirement of a vote on all taxes, fees and rate increases would prohibit local
communities from imposing impact fees on developers and businesses without a
public vote.
According to Finkelstein, publicly owned utilities would also be prevented
from expanding services to accommodate a new business or residential development
without first putting the proposed expansion, and accompanying rate increase,
on the ballot.
"Anything that may require a rate increase to pay off the bonds, you can't
do that without voter approval," he said. "At that point, 695 becomes an anti-growth
measure. That's a real interesting problem and there are so many implications.
One reason the real-estate and construction industries are so concerned about
695 is it would turn off growth quickly."
Tim Eyman, a self-employed businessman who is sponsoring I-695, doesn't disagree
with any of those predictions. He says big business, especially Boeing, has
had its way with the Legislature for too long, and he sees his initiative as
a chance to expand the arena where tax and growth decisions are made.
Eyman says businesses could voluntarily agree to pay impact fees such as the
ones Boeing already pays in Snohomish County. But he contends local governments
could no longer require them, although they were authorized to do so by the
Growth Management Act.
Eyman agrees that water and sewer districts could no longer expand their systems
to accommodate growth, and raise rates, without a popular vote.
"We believe that government raises taxes too often and our initiative makes
it tougher for them to do that," he said. "We don't care if you call it a tax,
or a fee, or a rate increase. If you want to take more money from people and
from businesses, you have to make the case for it and ask the taxpayers' permission
before you do it."
