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Competitiveness challenges go local |
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Written On: July/August 2003 |
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Written By: By Richard Davis, President, Washington Research Council |
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It could have been so much worse. Business won some competitiveness victories in Olympia this year. Over time, those victories will lead to a stronger state economy for everyone.
Give lawmakers credit. Among the signal accomplishments of the regular session: a budget without general tax hikes, municipal tax fairness and transportation finance and accountability legislation. In addition, laws were passed to streamline regulation, ease the tax burden on the semiconductor industry and increase infrastructure funding.
Business asked for more. Lawmakers failed to create an independent office of regulatory reform, repeal unnecessary and costly ergonomics regulations and began the process of reforming the state’s unemployment insurance and workers compensation laws.
Still, consider the progress. A decade ago, the Legislature responded to budget shortfalls with massive tax increases. This year, lawmakers heard a clear message from all industry sectors in every corner of the state: Washington must become a better place to invest and create jobs, or our economy will continue to suffer.
The effort must continue, and move beyond Olympia.
The competitiveness agenda is neither static nor exclusively a matter for state government. The catalog of policy changes required to enhance our business climate must expand and evolve to meet new challenges. The competition launched by Boeing for final assembly of the 7E7 illustrates the point.
State capitols capture most of our attention but, continuing a trend that began nearly a decade ago, a power shift to local and regional governments will accelerate in the coming years. As it does, the decisions made by city and county councils, even school boards and public utility districts, will increase in importance.
Consider taxation, regulation, and transportation:
Taxes. Sluggish revenue growth, rising labor costs and Medicaid spending limit the flow of money from state treasuries to cities, counties and schools. As a result, local officials work aggressively to increase revenues.
In the recent legislation session, bills were introduced to boost city and county utility taxes, provide additional sales-tax authority for counties, grant counties B&O taxing authority and increase property taxes. Some would have required voter approval (small comfort to the businesses who would bear the tax). All but one died in the regular session. They’ll be back.
Already, there’s substantial unused local option taxing authority on the books. Only 37 of 297 cities, for example, levy the local B&O tax. Local officials have good reasons to want to add to the mix, though. Tax bases vary among communities, some taxes are more easily adopted than others, and a number of the existing options are for restricted purposes.
The money hunt even leads some local governments to embark on speculative business ventures. Several PUDs and some cities have attempted to move into telecommunications, laying fiber optic cable to compete directly with private sector providers. By using their cash reserves to support the new investment, they heighten the risk of higher energy or water prices for their customers. While not technically taxes, these rate hikes have identical consequences for businesses and households.
Regulation. Businesses often complain about regulation without specifying which unit of government has caused the problem. Interstate comparisons of regulatory burdens are hopelessly complicated by the variation in local governments’ approach to regulation. Every developer, however, can tell you which cities are business-friendly and which are not. Progress in state regulation can be effectively nullified without corresponding improvement at the local level.
Inconsistent regulation plagues businesses operating in multiple jurisdictions. A strong, independent state office of regulatory reform could help resolve differences, without overriding local authority or crippling a community’s regulatory reform efforts.
Even were such a process in place, however, “feel good” citizen initiatives can still throw up substantial barriers to job creation. For example, in Seattle, Initiative 80, a complex proposal to restore salmon habitat by “daylighting” streams that will be on the fall ballot, poses large potential problems for real estate development in the city.
Implementation of growth management policies by local governments under state guidelines poses additional risks. Increasing local flexibility under the GMA improves the process. When that is successfully accomplished, however, the local battles remain.
Transportation. Sharp political and ideological divisions in our state frustrate regional and statewide efforts to improve transportation systems. Urban congestion does not directly affect rural communities. Within urban areas, transit backers contend with pavement partisans. And even when they agree on the nature of the investments, people disagree on the mix of taxes and fees required to support them. The legislature has recognized that the total solution will not come from Olympia, and expanded the ability of local governments to address their local and regional transportation problems.
How these regional solutions play out has substantial business climate implications, affecting transportation, taxation and regional governance. Sound Transit increased taxes in the Central Puget Sound, and passage of the Seattle Monorail further boosted the burden of taxpayers in that city. In the next year, a broader regional transportation plan, emphasizing road construction, will be before voters in the three Central Puget Sound counties. If it passes, it will undoubtedly affect the willingness of urban voters to support statewide transportation tax increases.
The successful devolution of transportation to the regional level, therefore, should be of concern to everyone in the state.
Currently, resolution relies on voluntary cooperation, negotiation and horse-trading among local officials.
Over time, it’s likely new regional governance structures will emerge to address problems that cannot be contained within city limits or county lines.
Conclusion. There are some 2,400 units of local government in Washington. Every business considering location or expansion in the state, like every business hoping to survive here, locates in several sub-state jurisdictions—a city, county, school district, PUD, port, fire district and so on. Many of these jurisdictions elect their political leadership this year. To assure continued progress on the competitiveness agenda, employers must make their voices heard in these local races.
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