Spokane Journal of Business

Shortfall looms over session

Businesses, universities here brace to protect gains achieved during past years

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As they watch the gathering clouds of a $1 billion state revenue deficit, Spokane-area business leaders and state higher-education institutions, allied in many economic-development efforts here, are hoping to keep a likely difficult 2002 legislative session from sweeping away past gains or leaving a tide of new taxes in its wake.

Although they continue to champion certain projects and reforms, business associations and universities here and statewide concede that the massive budget shortfall cant help but put them on the defensive.

Dan Kirschner, public affairs director for the Spokane Regional Chamber of Commerce, says business interests here will have their hands full trying to preserve gains made during the past legislative session.

Were planning on being vigilant to protect the gains weve made and to be watchful for initiatives that directly or indirectly increase the cost of doing business, Kirschner says. We really have no new initiatives of our own, right now. The thrust of our effort will be to keep what we have and guard against direct and indirect cost drivers to business.

The over-riding issue for everyone is going to be the budget shortfall, says Don Brunell, president of the Olympia-based Association of Washington Business. Estimates have placed the difference between the states budget and projected revenues at about $1.2 billion. When you have those kinds of holes, you know there are going to be efforts to increase taxes or eliminate incentives.

Washington State University and Eastern Washington University, both of which strive for support from businesses here, have set proposals for new programs aside for now. WSUs point man in Olympia, Larry Ganders, says the university expects such a difficult legislative session that it plans to make no requests for new kinds of funding in 2002.

It would be fruitless to do that, says Ganders. He says he believes the school will need to work to preserve past gains, perhaps including programs offered by WSU and other schools at Spokanes Riverpoint Higher Education Park.

Im already seeing more of a focus on the issue of branch campuses this year than in past years, he says. Theres a lot of turnover this year in the Legislature, and (there are new) people who havent heard why branch campuses are a good idea. Im afraid we may have to sell that issue all over again.

Impacts are inevitable

The states universities are well aware that the shortfall will affect their operations. Ganders, who also serves as assistant to WSU President V. Lane Rawlins, says the university is resigned to the likelihood that budget reductions will be necessary.

Cuts are inevitable this year, and the only issue is how they will be taken, he says.

Eastern Washington University also is bracing for cutbacks, says George Durrie, the universitys governmental-relations director. Yet, faced with an over-enrollment during the current academic year of nearly 475 full-time students, EWU will need to make a supplemental budget request of about $2.5 million, Durrie says.

Kirschner says business interests in Eastern Washington fared well in the 2001 legislative session, particularly in the funding of construction projects. Although Gov. Gary Locke initially reacted to the projected state budget shortfall not long ago by freezing expenditures for those projects, he lifted that freeze this month. Efforts such as the $3.6 million design of a building to house the new EWU School of Computing and Engineering Sciences, which is intended to meet an expanded business need for skilled high-technology workers, now are back on schedule.

Possible chamber initiative

Kirschner hints that the Spokane chamber might champion an initiative in the coming session to seek more local discretion in funding economic-development efforts through a sales tax measure, but declines to discuss specifics for now. He says the chamber wont support other efforts seeking any new money, however, and that maintaining funding for important regional projects and agencies, such as the Spokane Intercollegiate Research and Technology Institute, will be the main focus of the chambers efforts.

Preserving funding for SIRTI is probably our top priority. It seems like the Legislature takes a run at SIRTIs funding almost every session, he says.

The AWBs Brunell says protecting hard-won business incentives is a priority because they are vital to the development of business and jobs in Washington, which has higher business taxes than many other states.

Businesses here pay more than half of the state and local taxes collected, while businesses in most other states pay only about one-third of those taxes, he contends. It makes it difficult to compete for new business.

Kirschner, however, is optimistic that lawmakers are mindful of such concerns.

I think the attention that weve managed to generate within the Legislature regarding the business climate here has succeeded in creating a lot of sensitivity to issues of business cost and business climate, he says.

The Inland Northwest Technology Education Center, or INTEC, created to help train workers in emerging technologies through partnerships between businesses and universities here, also is a chamber priority, Kirschner says. Another is the construction of a cultural and education center at Mirabeau Point in the Spokane Valley, he says.

We got $2 million of the $3.6 million we sought for Mirabeau Point in the last session and were going to work to preserve that, rather than try to pick up the rest of the request this year, says Kirschner.

The need for one incentive that the AWB will lobby hard to preservemanufacturing machinery and equipment (M&E) sales-tax exemptions passed by the Legislature in 1995already has been challenged in statements by a lobbyist who represents Seattle-area municipalities, Brunell says.

Applied initially to manufacturing companies that buy new equipment, and later expanded to include other types of capital investments, the M&E sales-tax exemption resulted in $1.8 billion in new investments by manufacturers during the first three years it was in effect, Brunell claims. During that same period, manufacturing companies statewide also created some 58,000 new jobs, he says.

We know for certain that in 1995, when the M&E exemption was delayed, at least one high-tech manufacturing company in Vancouver nearly moved an investment of more than $1 billion to Oregon, Brunell says. We cant assume that just because Boeing has large facilities in Everett, Kent, Renton, or Seattle that additions or new investments will be made automatically in those locations, he says. If we assume that, we will lose companies.

Another tax exemption the AWB hopes to preserve is one that prohibits taxation of intangible business assets, which Brunell says is a concept promoted by Western Washington cities, that the Legislature rejected last year.

The concept involves taxing things like company logos and other intangible business assets, he says. The Legislature didnt know how to tax intangibles and decided not to try to tax them at all. Its our hope that there wont be an effort to repeal that exemption.

The AWB also may attempt again to get the Legislature to overturn ergonomic regulations developed by the state Department of Labor and Industries and scheduled to take effect in mid-2002, Brunell says. An effort to toss out the regulations proved unsuccessful during the last session, and the AWB earlier this year filed a suit, which still is pending in Thurston County Superior Court, that seeks to prevent implementation of the regulations.

We have tried to work with L&I on these rules and even attempted to have legislation passed to have them overturned or modified, but we were blocked in every instance, he says.

While the state agency maintains that the new rules will cost businesses a collective $80 million in the first year of implementation, separate studies estimate that cost at $725 million, Brunell asserts. Studies and testimony from ergonomics experts also suggest that the regulations wont reduce ergonomic injuries significantly, he says.

Kirschner says the Spokane chamber and local business interests are concerned about the cost of complying with the new regulations, but doubts legislators will address the issue in the upcoming session.

I think its critically important that we keep pounding the drum on that issue, he says, but I dont see the Legislature having the appetite to intervene.

Brunell says the AWB might support some new fees or tax increases to pay for funding transportation-improvement programs.

There are highways that need significant improvements in the Puget Sound area and in other parts of the state, says Brunell. There is the area from north to south in Spokane, and along the highway between Spokane and Pullman, which should be four-lane highway all the way, but isnt. That wont happen without additional gasoline taxes or license fees, or toll fees. There just isnt any other way.

Maintaining university programs

One of WSUs major thrusts in its discussions with legislators will be maintaining the quality of university programs in the face of budget cuts.

Things such as state-funded research and building maintenance often take the brunt of legislatively mandated cutbacks, because the Legislature typically requires state universities to make cuts in areas deemed to be non-instructional, Ganders says. While such requirements tend to allow universities to maintain the number of instructional programs they offer, Ganders asserts that such cuts often have the unintended effect of prohibiting the schools from improving the quality of their instructional programs.

Maybe you can raise tuition or make some programs smaller, shrink them or offer fewer classes. If you do that, you can still maintain the excellence of your programs attract quality in instruction, research, and outside funding, he says.

WSUs administration is becoming increasingly concerned about the need to maintain and create outstanding programs, which is all somewhat contrary to how the Legislature deals with the budget, Ganders says.

We would like total discretion in where we take cuts. This will require a somewhat different perspective on the part of the legislature, he says. Let the people who are closest to the issues make the decisions. You cant manage a university from 300 miles away.

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