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Home / Washington Business - January/February 2005 / Previewing the 2005 Legislature and the Issues it Confronts |
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Previewing the 2005 Legislature and the Issues it Confronts |
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Written On: January/February 2005 |
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Written By: by Paul Schlienz |
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Washington’s business community faces uncertain prospects in the 2005 legislative session. Major issues including the budget, taxation, health care, workers’ compensation, unemployment insurance, environmental regulation, tort reform and transportation hang in the balance.
The 2005 Legislature is not the same body that made laws in Olympia during the 2003-2004 biennium. In the November 2004 general election, two veteran GOP lawmakers, Sen. Jim Horn (R-Mercer Island) and Sen. Don Carlson (R-Vancouver) lost their seats to Democrat challengers. As a result, the balance of power shifted in the Senate from Republican control to a 26 to 23 Democrat majority.
Meanwhile, in the House of Representatives, Democrats gained three seats and expanded their majority to an advantage of 55 to 43 by taking down two incumbents, Rep. Lois McMahon (R-Olalla) and Rep. Jack Cairnes (R-Covington) and one appointee, Rep. Bob Lawrence (R-Lakewood). Coupled with Democrat Christine Gregoire’s controversial but ultimately successful bid to become governor after two recounts, Democrats are firmly in the driver’s seat in Olympia. Indeed, not since the 1993-1994 biennium have Democrats held the trifecta of the Governor’s Mansion, the Senate and the House of Representatives.
At the helm of the new Senate are Majority Leader Sen. Lisa Brown (D-Spokane) and Caucus Chair Sen. Harriet Spanel (D-Bellingham). The Senate Democrats will focus on balancing the budget, providing health care, and funding education are high among this caucus’s priorities.
The Senate’s Republican minority is led by Sen. Bill Finkbeiner (R-Kirkland). According to Finkbeiner, access to higher education and protecting the state’s poor and vulnerable residents while remaining fiscally responsible are major priorities for the Senate GOP.
Speaker of the House Frank Chopp (D-Seattle) and Majority Leader Rep. Lynn Kessler (D-Hoquiam) have indicated that their caucus will focus on transportation funding, providing health care coverage to all of the children in the state, and pursuing education reform.
The House Republicans will be headed by new Minority Leader Rep. Bruce Chandler (R-Granger) and Deputy Minority Leader Mike Armstrong (R-Wenatchee).
“Our focus will be on building a stronger economy, expanding opportunities for people starting businesses and building businesses, as well as creating well paying jobs in the state,” Chandler said.
Budget: Issue Number One
What do all these changes mean for Washington’s business community?
While many of the Democrats and Republicans’ priorities are similar, there are great differences in the details of how these goals would be realized. Most significant of all, the two parties have widely divergent views on the funding of government.
Looming over all else is a budget shortfall of $1.6 billion. While this budgetary gap is smaller than 2003’s $2.6 billion deficit, which was balanced without raising significant new taxes, this year’s shortfall will be more difficult to remedy.
“There was more low hanging fruit — expenditures that were easy for the Legislature to cut when it balanced the budget in 2003,” said AWB Vice President of Government Affairs Gary Chandler.
Washington’s business community currently pays 54 percent of all state taxes. With the state’s economy slowly rebounding from a prolonged recession, Chandler and other business leaders strongly argue that Washington should live within its current revenues instead of resorting to new business taxes that would stall the recovery.
Will the Legislature’s Democrat leadership heed these concerns?
Rep. Helen Sommers (D-Seattle), chair of the House Appropriations Committee and the House’s chief budget writer, doubts there will be new business taxes, but insists that new revenues will be needed to balance the budget. She is especially concerned about education funding and the effect that rising health care costs are having on the budget. Moreover, Sommers bemoans the effects voter approved initiatives have had on the budget.
“There’s no doubt about it that we need more money, but the voters have been cutting or restricting our revenues,” Sommers said. “At the same time our citizens have also been voting for programs that cost money, and these become unfunded mandates.”
One possibility for revenue generation can be found in the proposed budget submitted by Gov. Gary Locke in December 2004, shortly before he left office. Locke’s proposals included tax increases on such items as wine, liquor and soda pop.
Sommers also believes that revenue increases are necessary to pay for major transportation projects including the replacement of Seattle’s Alaskan Way Viaduct and the construction of a new Evergreen Point Bridge with greater capacity. She would support a gas tax hike to accomplish these goals.
Sommers’ insistence on increasing revenues is shared by many of the Legislature’s Democrats, but faces resistance from the minority Republicans.
“We in the Legislature need to make sure we’re spending people’s money wisely,” Senate Minority Leader Finkbeiner said. “We can do that without raising taxes.”
Finkbeiner, however, acknowledges that his goal of balancing the budget without raising taxes will be a challenge. He insists that the Priorities of Government (POG) method of budgeting, which successfully closed the 2003 revenue gap without new taxes, must be followed.
Under POG, essential services are identified and protected. Less essential expenditures may then be cut.
Speaker Chopp outlines a three step budget process that starts with examining Gov. Locke’s budget to see if it’s accurate and appropriate. Then the Legislature will look at alternate ways of saving money on state services.
The next step will be to identify the Legislature’s top priorities for funding. By this part of the process, the state will have likely issued a new revenue forecast. Then the final budget decisions will be made.
“It’s too early to say whether we need a revenue increase at this point,” Chopp observed. “Any budget we approve should make sure the public schools and the people in need, particularly the most vulnerable among us, are funded.”
As the Legislature scrambles to balance the budget in the face of a shortfall, it is unclear what will happen to the research and development tax incentives that have encouraged investment in Washington’s high-technology sector.
Currently, businesses that conduct activities in advanced computing, advanced materials, biotechnology, electronic device technology or environmental technology are allowed to take a credit against the business and occupation tax and an exemption from the sales and use tax on construction of R&D and pilot scale manufacturing facilities.
Legislation passed in 2004 extended the sunset date for the incentives to 2015, but also reduced R&D tax incentives by approximately 65 to 70 percent through changes in the incentive calculation formula. Without the full incentives in place, many companies cannot or will not invest in R&D activities in Washington state.
“We would like to see the Legislature eliminate the cut in R&D tax incentives for Washington’s employers and return the incentive calculation to the form originally approved by the Legislature in order to attract and preserve high paying jobs for Washington’s citizens,” Chandler said.
Health Care Costs Rising
Closely entwined with the budgetary issues is the increasing cost of health care. How the Legislature addresses this problem is of tremendous interest to Washington’s business community.
“We need to look at how we can make health care more affordable with fewer mandates,” Chandler said. “The big question is: How can we drive health care down to point where small businesses can afford to provide it for their employees?”
Sen. Karen Keiser (D-Des Moines), chair of the Senate Health Care Committee, may re-introduce a bill from the 2003-2004 biennium that would allow small business owners to sign up with the state’s Basic Health Plan. Currently, the plan is only open to very low income people.
Keiser says other possible health care fixes that may be considered by the Legislature include allowing small business to go into groups of larger purchasers or having the state directly subsidize health care premiums. Keiser is, however, cautious about the latter option.
“Direct subsidies could be a slippery slope,” Keiser observed. “This option has to be watched carefully, but I’m open to looking at it.”
Another health care option that may be considered is known as “pay-or-play.” This proposal would give large employers with 50 employees the choice of providing health care to their employees with a premium in the range of $250 per month or being assessed a fee to enroll the employee in the Basic Health Plan.
AWB opposes “pay or play” and other methods to mandate health care purchases by employers. In contrast, a free market approach to health care is much preferred by the business community.
“Allowing insurers to offer truly basic plans to encourage more participation from small business would be a welcome move from the business community’s perspective,” Chandler said.
Keiser remains unsure which health care option will gain the Legislature’s support.
“I don’t think there’s a silver bullet in this health care problem,” Keiser said. “We have to look at all kinds of different approaches and take action on many of them because there isn’t one simple, little answer. I wish there were.”
One of the major forces driving up health care costs is an explosion of medical malpractice lawsuits. In response to this growing problem, two rival initiatives — Initiative 330, sponsored by the medical community, and Initiative 336, sponsored by a coalition of trial lawyers and labor activists — have been submitted to the Legislature.
I-330’s provisions include capping pain and suffering awards between $350,000 and $1.05 million, depending on the number of individuals and institutional defendants; allowing full recovery of actual damages; limiting attorneys’ share of damage settlements; allowing future damages of over $50,000 recovered although the share would drop as the settlement rises; allowing future damages of over $50,000 to be paid off over time; allowing juries to know all other sources of payment to the patient; and requiring defendants to be responsible for their share of faults.
In contrast, I-336 would revoke licenses of doctors with three jury verdicts against them for preventable medical injuries during a period of 10 years, ban secret settlements in malpractice cases, require public hearings and open books for insurance companies that want to increase malpractice rates by more than 15 percent, and establish a supplemental insurance fund for clinics, hospitals and health-care providers.
The Legislature can either pass these measures into law, send them directly to the voters, or send them to the voters along with an alternative measure written by the Legislature.
Keiser believes there will be legislative hearings on both initiatives. “It can’t be ducked,” said Keiser of the medical malpractice issue.
One thing that is unlikely to pass the current Democrat controlled Legislature is a comprehensive tort reform bill of the kind that AWB and numerous other business groups supported during the 2003-2004 biennium.
“Tort reform is a complicated issue,” Senate Majority Whip Debbie Regala (D-Tacoma) said. “I personally believe it needs to be broken down into smaller bits.”
Workers’ Comp and Unemployment Insurance
Of great interest to Washington’s employer community are the issues of workers’ compensation and unemployment insurance. With Democrat majorities in both houses of the Legislature, plus a Democrat in the Governor’s Mansion, there are real concerns that there may be attempts to reverse the unemployment insurance reforms of 2003.
“I hope the Legislature will let the new unemployment insurance system work,” AWB’s Chandler said. “The benefits of the reforms are just now starting to come into effect.”
With the fourth-highest benefits package among the 50 states, Washington’s workers’ compensation system has been costly to the business community. Indeed, the state leads the nation in the loss of manufacturing jobs. AWB and other business advocates have long argued that workers’ compensation costs need to be brought down in order to make the state more competitive in attracting and retaining businesses.
Key members of the Legislature’s leadership, however, remain unconvinced that this kind of comprehensive workers’ compensation reform is necessary.
“Washington state’s workers’ comp system is one of the best in the nation,” Chopp said. “We have a high level of benefits, but it’s very low cost — fourth from the bottom among the systems across the country that actually provide more benefits to workers.”
Chopp, however, has indicated that he may be open to instituting some changes to Washington’s workers’ compensation system in order to make it more efficient and effective.
The Environment
In the realm of environmental regulation, there have already been significant proposals. Late in his term, Gov. Locke announced an initiative to combat global warming, which called for mandates on renewable energy, carbon dioxide reduction and efficiency standards for construction. This initiative set the stage for a bill, sponsored by Rep. Ed Murray (D-Seattle), which would mandate that Washington adopt California’s emissions standards for automobiles.
AWB is deeply concerned about this initiative.
“Washington’s manufacturing sector cannot sustain additional upfront energy costs at a time when it is just starting to recover from the energy crisis,” AWB Governmental Affairs Director Kristen Sawin said. “There is no evidence to indicate that steps taken by Washington will have any measurable impact on carbon dioxide emissions and global warming. This is a costly initiative without measurable environmental benefit.”
Other environmental initiatives that may surface during the legislative session include bills to prevent mercury amalgam fillings or require dentist’s offices to separate out waste so it captures the amalgam before it goes to a public sewage treatment plant. Legislation to further restrict flame retardants and increase funding for the persistent bioaccumulative toxin (PBT) program is also likely to emerge during this session.
With a sympathetic Democrat majority firmly in control of the Legislature, Gov. Gregoire has announced that her own priorities include funding for health care and education. On rebuilding the state’s economy, Gregoire’s approach is likely to emphasize investments in higher education and the high-tech industry. This is in stark contrast to her GOP opponent Dino Rossi who was much more focused on creating a better business climate by reducing state regulation.
One thing is sure: Neither the governor nor the Legislature will be able to ignore the state’s economy.
“I know Chris Gregoire feels very strongly about building the economy,” observed Sen. Jeanne Kohl-Welles (D-Seattle), chair of the Senate’s Labor, Commerce, Research and Development Committee. “I think she’ll put a high priority on getting our economy going in a stronger direction, and that’s really positive.”
As the 2005 legislative session begins, AWB is preparing to defend the business community’s past gains while attempting to block new legislation that would place new burdens on the economy.
With a new governor, a new cast of characters in the Legislature, and the dominance of one political party over the entire state government, this session will be addressing significant issues at a critical moment when Washington is just starting to emerge from its long recession.
“We see this as a particularly challenging and important time in the life of the people in this state,” House Minority Leader Chandler concluded. “In this session, we’ll be making decisions we’ll have to live with for at least a decade and maybe longer.”
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