This week’s Q&A is all about jobs: The Governor, Senate and House Republicans, House Democrats and Senate Democrats have each introduced their own “jobs packages.” I wanted to find out: What are the philosophies behind (a couple of) them, who would benefit, and where is there common ground. I spoke with Sen. Jim Kastama, a Democrat, and Sen. Janea Holmquist, a Republican.
I always learn something in these interviews, and this week is no exception. Keep reading and you’ll find details on plans that are still in the works, including a BRAC-style government reform commission, a bill to protect Initiative 960 and more.
First, Sen. Kastama. This interview was conducted Wednesday evening in his office.
Q: There are four jobs packages. What are the crucial elements of yours?
Kastama: I think the Senate we have made it pretty clear we are continuing on the economic agenda we set last year.
We have to focus on the here and now. Sixty-five percent of the employment growth that we’re going to get coming out of this is in small business. That’s what our proposal is focused on.
First, work force. We’re going to make sure that there’s money in the budget to educate approximately 6,000 people who are unemployed and could be working in these jobs that are highly in demand. We’re going to make sure that happens.
I just had a proposal in higher education to create a dedicated funding source by converting the lottery’s purpose to higher education specifically. In other states where they have done it, it’s allowed them to market the lottery for the purpose it goes to and they sell far more tickets. In Georgia, it increased sales to $800 million and they’ve sent a million students to college with their Hope Scholarship
Our lottery, unfortunately, has flattened out. We bring in $130 million. We really can’t market it for what it goes toward, which is K-12 education because if we say it’s going to education, local school districts worry their bonds and levies won’t pass. So what they tell people is, buy a lottery ticket and you’ll get a swimming pool or a nice house. They’ll buy a lot more if they think it’s going to an altruistic purpose.
So, we’re looking at the workforce and infrastructure. We had a tax increment financing bill – a minor adjustment to the tax increment financing bill that we passed last year. For very little money — $2.6 million — you can bring thousands of jobs to Washington state.
And we want to coordinate the whole green industry in order to do weatherization better, to emphasize job growth.
Transportation: We will keep the $4 billion that we have in transportation going through the biennium. That’s a good budget item that actually does provide good paying jobs.
We also want to invest in entrepreneurship. We want to make sure that Washington state is a good place for companies to thrive and to start, so we’re putting in place many things that will help. One is that small business assistance will be able to expand services.
Also, we’ve got a small business tax credit that would give anywhere from $2,000 to $4,000 per new hire. That’s a three-year program that we expect probably to bring about 15,000 new jobs from that alone. We also have a bill that deals with the small business development centers that tries to give more stable funding to the small business development centers in Washington state
We’re really trying to rationalize the business developments system in Washington state so small business know where to go. We’re requiring that the Commerce Department go through and organize the systems in a manner that a person wanting to start a small business will know exactly where to go.
In the area of investment, we have the Stars program. Stars was just started a few years ago by good bipartisan support. The idea was that we go out and get the best minds, the best intellects around the world and bring them to our research universities for the purpose of turning their ideas into businesses.
One came from Denmark and she works in cellulosic biofuels. We brought her to WSU in Tri-Cities in a facility shared with Pacific Northwest National Labs. She has already started one company. She has brought in approximately $30 million in private and federal grants. And she will clearly lead the way on the next fuel front.
The next individual was from Cal Tech and we brought him to U.W. His area of specialty is nanophotonics, it’s a new area of computing. He’s started two companies, brought in additional $5 million and is set to receive an additional $15 million. Venture capitalists are looking at potentially new companies he could create.
So this is how we prepare for the future. Really creating the industries of the future. I am very concerned that in the area of innovation, we are getting behind our competitors. There’s a study on innovation indicators in which we ranked dead last in the increase of innovation indicators. We’re already at a fairly high place, but other countries are focusing on higher education more. China doesn’t want to be the manufacturer of the world forever. In probably 15 years, they want to be innovation based. They’ll outsource manufacturing themselves.
Having said that, I do think that if I could give a message to companies right now in Washington state, it would be that one way that could help Washington recover is to sell outside Washington state to other countries. Now is the time to export if a company has had any thought to exporting.
China has an annual growth rate of 11 percent. Taiwan, India, South Korea — while the U.S. is down here at 2 to 2.5 percent range, the rest of the world is starting to take off and we have to take advantage of that. That is the only way we’re going to recover is by exporting.
Q: Are there pieces of other plans that you think you can work with, that you think are good ideas, or that you think are bad policy?
Kastama: I’ve heard the other proposals that are out there. The highly construction related projects out of the House — we have to look at all of those. But I do want people to know about this: This is not a U-shaped recession where we just basically have to provide jobs in the bottom and we’re going to come out. This is probably as significant a transformation as the U.S. economy went through when we transitioned from an agrarian economy to an industrial one. This recession is almost of equivalent magnitude. We’re going from a domestic economy, where the U.S. literally was the global economy, to the position where it’s truly a global economy. We’re going to have equivalent competitors. With the ending of the Cold War and countries emerging, we’re in a global climate right now.
Having said that, I don’t think we’re going to come out of this in a typical way. We’re going to have to really innovate and compete. We’ll have to have a good K-12 system, more access to higher education and focus on those things that really give people opportunity.
So, I don’t mind the (House) program, their jobs plan. But this is not the 1930s — the Great Depression — this is a truly transformative time. I also know that there are bills that focus on the area of regulatory reform. In my committee, most of the bills tend to be somewhat bipartisan. I try to listen to both sides and I will continue to do so when it comes to regulatory issues. We don’t want senseless regulation.
I know that the workers compensation, unemployment insurance — all of those are hot issues. I think they are things that need to be thoroughly examined.
That said, I don’t handle those two areas specifically. I want to be competitive, but I also want financial stability. Twenty-seven U.I. trust funds have gone bankrupt. So I want to make sure that ours is stable because if we have to borrow money from the federal government, we have to pay it back and all of that comes home.
On the workers comp, I want to make sure we have a fair system that isn’t overly onerous to business.
These are things that are going to need a lot of work.
Q: Any other thoughts about the plans?
Kastama: I think that I haven’t seen them. But I would clearly — we have a shortage of funds of $2.6 billion, or anywhere from $1.5 to $2.6, depending on what numbers you’re looking at. So looking at broad tax relief or even broad business relief on B&O, you have to look at the expense of that and how you may redirect funds in a more concentrated manner.
An example: I was talking to a business group and talking about business services like Lean, like Six Sigma, Like ISO 9000 certification. And they were amazed that a legislator actually would know about these types of things. Fact is, we can provide those through Impact Washington. We can, for a very low amount of money, we can train hundreds of companies. Or if companies want to sell to other countries they have to be ISO certified. We can get a company ISO certified for $5,000 to $10,000 and you open up the world.
How much impact do these types of services have? Boeing has been building the 737 since the late 60s. In 2001, they finally adopted the Lean method of manufacturing that Toyota, for the most part, uses. They went from building a 737 in 21 days down to 11, and they’re on their way to 8. Employees are happier, profitability is up and so is quality.
Q: So, we’ve talked about your plan, what you like about other plans. Tell me what’s the driving theory behind your approach to creating jobs.
Kastama: It’s definitely a bottom up process. It’s not a top down process. That is the theory. Really, you have got to start with even K-12 education and go up from that point. I think that there are certain areas of expertise in Washington state: We have world class talent in health sciences in Spokane, viticulture in Walla Walla, alternative energy in Tri-Cities, marine industry in Bellingham, world class talent in IT, global health. In Clark county, you’ve got computer chip technology, you’ve got fishing, you’ve got really world class, top-of-the-world talent. Bringing that all together is going to be important. I think that kind of synergy, that type of connection — bringing these assets together and innovating – that is how we’ll come out of this. It’s not creating any new areas — it’s when you cross them. I view Washington state as one big business park. When you connect all of those outlets together, that’s when you have innovation.
So, it’s not top down, saying: This is what we’re going to be excellent in. Instead, you try to facilitate the expertise, bring it together and through that, the economy flourishes.
Q: What else are you working on?
Kastama: There are probably two issues of high interest to me.
I see in the long run, I see a very difficult time for state government and federal government. I look at our budget and this next session will be, we’re looking at a $3 billion deficit. I think on the federal level, they’ve accumulated a deficit that in 10 years will have an influence on what the federal government can spend money on. So there’s this pressure that’s coming.
I don’t believe that we’re going to return to these robust times. I think times are lean. I myself don’t think that a negative savings rate is a healthy thing. I think a 6 to 7 percent savings rate is healthy. I don’t really want people to go back to the mass consumption rate that they were at before.
So government is going to have to live within the means that we have here. I don’t think people will be that accommodating to that much of a tax increase. How do we do that? How do we right this ship? How do we make sure that government is doing what se should?
I went ahead and dropped a bill. I just dropped it – and it would create a BRAC-style commission for Washington state. The BRAC commission – the base closure commission at the federal level – was created because there were bases around the U.S that needed to be closed, but we couldn’t close them because it was such a charged issue. But we knew we had to close some so we appointed people that were somewhat above the clouds. We said: You have the resources, make an assessment. You go to Congress, Congress says yes or no. No amendments, no minority opinion, just a yes or no. I wrote a piece of legislation that does that for the state.
It’s called the ARROW commission: Agency Reallocation and Realignment of Washington Commission. It would include Booth Gardner, Slade Gorton, Sid Snyder, Ruth Walsh Macintyre, John Spellman and Dan Evans.
They are, in effect, given the resources to look over six years what the projected revenue is going to be. They cannot consider revenue increases, so they have to live within the projected revenue. And they’re given the ability to go in and restructure government. That means close agencies down, consolidate, start new agencies. It’s fairly extensive. Then, in the upcoming legislative session, there’s a proposal before House and Senate — only thumbs up or thumbs down with no amendments.
These are people who I think are above the clouds in Washington state. They have been tested, they’re statesmen. The system itself down here, it’s gotten to the point on the federal and state level where it’s too difficult to make the dramatic changes that we need to have made. Between interest groups, constituencies, lobbyists and more, they all have too much influence and it’s too hard to make the changes that are necessary.
Government has become like a bus and every lobbying group, every city, every town, every group are all in their seats. And they each have a brake lever. You can’t operate the bus any longer. So we need something like the ARROW commission.
I just introduced that bill, it has a healthy group of sponsors of my colleagues who feel the same.
The second thing the lottery redirection. I have a lot of passion about higher education. Only 19 percent — 19 percent — of our 9th graders go on to get a two- and four-year degree in Washington state. We rank, when it comes to four-year degrees, we rank 47th in the nation. I know what you’re thinking: We have a highly educated workforce. But the dark secret to Washington state success is that we import a lot of our talent. And among our upper talent, we import most of it.
Don’t get me wrong, I don’t mind that. When I come in contact with someone from another state, I say thank you. If they all want to come here, I’m OK with that. But our own people deserve those jobs too. We need to be more conscious of the fact. Again I’m not at all wanting to put up any wall.
I’m a ski patrolmen – I just started. And in training, there two other candidates, one from Germany, one from Canada. I welcomed them both and said, I assume you are both at the top of the field in your countries.
I feel fortunate to live in a place where they want to come.
Now, Sen. Janea Holmquist.
Q: There are four jobs packages. What are the crucial elements of yours?
Holmquist: The Senate Republican and House Republican caucus are focusing on protecting jobs that we are lucky to have and creating more jobs. We understand that our economic recovery depends on our business climate and the ability remove regulatory obstacles. When we had our jobs package press conference, we had employers from all over the state to join us that day and we heard their personal stories. And it was clear that the two issues in regards to business continuing to be viable and for them to be able to grow is unemployment insurance cost and workers compensation cost. Those are the two areas that we would like to move the focus on and adopt reforms to start reducing cost.
We have a bipartisan workers’ comp proposal that adopts three best practices by other states in the nation to help reduce costs. One is to develop a settlement option, another is to better define occupational disease, and then establish a medical provider network.
Again, these are best practices that other states are using. Right now, employers are faced with L&I raising taxes by $117 million. On top of that, they face U.I. tax increases to the tune of $352 million. They’re already hurting. If we think it’s bad this year, holy cow. What’ are we expecting next year because it’s going to be worse.
On the issue of workers’ comp, there’s basically a nationwide trend where workplaces are becoming safer. Claims are reducing. And while claims are reducing, costs should also reduce. In Washington state, claims are reducing, but costs are continuing to increase. It highlights the issue that we need to adopt the best practice strategies to help reduce costs.
Those three are the comprehensive reform bill. I introduced a stand-alone bill on the settlement option last year, and it sat in committee and didn’t receive a hearing.
Also with workers’ comp, we are only one of four states in the nation that specifically prohibits private competition. We have created a government monopoly. We have Liberty Mutual in Seattle, the number one seller of industrial insurance in the nation, and they can’t sell it in Washington. We have this mandated government monopoly in the insurance sector. So that’s another factor, and more important than even these reforms: We need to allow a private option. By allowing private competition, we’ll decrease costs for businesses.
So that’s Senate Bill 6799, which you’ll find on today’s intro sheet – it allows for the private option.
So, employers receive $117 million tax increase and now $352 million on U.I. and I am concerned because I know that if they are hurting now, wait until next year. This is what we expect next year (points to chart). In 2010, just for unemployment insurance, taxes will rise dramatically. There’s an expected $690 million tax increase.
In 2012, there will be another huge tax increase. So one additional measure in the jobs package is to help smooth out this expected spike. It’s using a technique that the state uses in our pension system and it does that while protecting the UI trust fund balance.
Q: How does it do that?
Holmquist: We cap the social tax factor. In the UI rate, there’s the experience factor and then the social factor. This bill caps the social tax just until 2013 and that way it helps all employers in the state and we are not messing with experience rating portion. The numbers from the Employment Security Department shows it protects the integrity of the UI trust fund, so it wouldn’t dip below 9 months of reserves.
This bill should cut the spike to about half. We’d still see a spike, but not a $700 million spike. It’d probably be closer to $350 million.
We also have Sen. Joe Zarelli as the prime sponsor of a bill to help new businesses. The number one cause of new business failures is the Business and Occupation tax, which again, Washington state is an outlier in this as well. We are one of only four states in the nation that tax employers on gross receipts regardless of if they make a profit or not. We have a bill, Senate Bill 6645, that would give a B&O tax exemption for new business and small businesses with 25 or less employees. They’d be exempt for the first 2 years, then pay 50 percent in third year. And he found a revenue source so it would be revenue neutral.
Q: What’s the revenue source?
Holmquist: It would take a small portion from the Life Sciences Discovery Fund – it’s a $35 million the fund and I think in the first year this would cost $2-point-something million. So a very small portion to help new businesses be successful. Again, we’re the second in failure rates of new businesses. This is our number one concern.
Another issue is having the highest minimum wage. So (another bill) would allow the minimum wage to be calculated taking into consideration the economic realities of a recession.
Q: One thing I’m curious about: You’ve talked about a lot of bills you’re introducing, and mentioned some that haven’t even gotten a hearing. What does it mean to be in the minority party?
Holmquist: I’m the optimist. My glass is always half full. I’ve served in the Legislature for 10 years, first in the House, then I moved over to the Senate just as we lost the majority. So I’ve never been in the majority. It takes working across the aisle to pass a bill. I really like focusing on the issues. I like to look at the issue, figure out the cause of the problem, and focus on the solution.
I talked with and invited all of my colleagues — all 47 of my fellow senators — to sign on to workers’ comp reform and the U.I. smoothing bill. I met with the governor and she seems very open on the idea. It’s something we can do to help employers — all the employers — that doesn’t impact the General Fund. So all I can say is my glass is always half full. I know that the key to our economic recovery is employers being able to create jobs.
I think this time, words mean little and the citizens are expecting action. I hope this session that folks can set aside their party affiliation and really move toward action on a solution. To be quite frank, if it’s a solution that I even came up with and it will get through easier if a Democrat primes it, I’d much rather do that and get the bill passed.
Q: Are there proposals others have created that would fit well with what you’re working on? Are there things you consider bad ideas?
Holmquist: I haven’t read every bill out there yet but my impression from at least the Senate Democrats is that I like their B&O exemption. Anything that helps exempt business from this B&O tax, which makes us very uncompetitive. But I think their focus tends to be more on using public funds on economic development and I’m all about let’s get the obstacles out of the way so that the private employers can provide jobs for Washington citizens.
I found it interesting that at our jobs press conference, we had over a dozen employers that spoke of concerns with U.I. and workers’ comp and that their proposal doesn’t include any workers’ comp or U.I. tax smoothing. And I hope again that they’ll consider ours. Also their press conference looked like there was maybe one private sector individual who happened to receive quite a bit of taxpayer funds.
So it’s a different perspective: Do we use public funds to create jobs or to we cut red tape and allow the private sector to grow?
My experts are the employers that are actually in business, trying to keep their doors open. if you open your ears, U.I. and workers’ comp are what comes up every time. Businesses say, you’ve got to do something to help reduce costs. Also, I take the approach that government isn’t always the solution. We don’t need to go in and do it for them. In this case, government is the obstacle. We’re an outlier in workers’ comp, B&O, we have the highest minimum wage. It’s expensive to do business in our state. Also the message to employers is really important: We want to tell business to move to our state. That’s a different approach I’ve noticed from across the aisle. Last year, numerous bills they proposed seemed to single out businesses and tell them to leave.
Holmquist: The gag order bill. Some of the bills that would have negatively impacted the building industry that is suffering so much right now. The Retro bill – that’s part of workers’ comp that is actually working.
This year we’ve got the “let’s kill aerospace” bill.
Q: What’s that?
Holmquist: The bill to take away the tax incentives if a certain amount of production isn’t done here. That’ 15 percent of our economy and that doesn’t’ even include the 2.7 multiplier effect of each aerospace job. I want to keep our machinists in our state. I want every job. I want to send every message we can to protect them and create new jobs, not send messages that we don’t want you.
I’m really, I guess, discouraged with some of the messages I’ve seen from my colleagues. I hope to help encourage them to start sending a positive message: We want you and you’re vital. Without the employers providing the jobs, we don’t have the means to provide the services. Every program depends on our business climate.
Q: Anything else? Any issues you’re working on? Things you feel we haven’t covered?
Holmquist: I look forward to working with the employer and employee community as well as my Democrat colleagues on solutions. I’m tired of talking about reforms. I’d like to see some action.
Q: One thing I wanted to ask you about: Sen. Kastama mentioned yesterday an idea for a process for state government similar to BRAC – to get reform to really happen. Thoughts?
Holmquist: I see this year as a real opportunity to streamline and reprioritize. I haven’t seen Sen. Kastama’s idea. I’ve put the word out there that anyone who has a reform idea, I’m open. I still am really interested in looking more at auditor Brian Sonntag’s recommendations. He did performance audits and found something like $3 billion of potential cost savings, yet we haven’t adopted those recommendations. Three billion dollars has already been identified in cost savings.
Another big passion for me this year is to protect Initiative 960. I think it was put in by the citizens for times like these. This is why that protection is in there. I want to ensure that tax increases are the very last resort. If we streamline government and reform I don’t think taxes would be necessary. Yet if we get to a point where we do need a tax, it needs to be one that has enough support from Republicans and Democrats that it would get two-thirds of the vote. But I have real concerns that they will amend or gut I-960 just to raise taxes and set us up for an even rockier future.
Last year, we were able to protect the taxpayer and protect integrity of the U.I. trust fund when they tried to raid it. They had more than one bill to raid funds. One made it out to the Senate floor and the I-960 challenge I brought got a positive ruling from the president because he realized that if you drain funds, that means a tax increase. We can’t afford to increase benefit and taxes on employers.
Tomorrow I will be dropping a bill that in regards to I-960 that would state that, when and if 960 is amended or gutted, it would reinstate the original initiative and send it out to people for referendum.
— End of interview —
Note: As usual, the senators were each asked the same questions, and posted them in the order in which they were conducted. (And: They were conducted in the order in which the two were available.)