Thursday Q&A: Reps. Hunter and Orcutt on 960, taxes and the budget

On the news that the Senate and House Democrats were introducing bills to amend and suspend Initiative 960 and raise revenue, respectively, I scheduled this week’s Q&A with Rep. Ross Hunter — sponsor of the tax package — and Rep. Ed Orcutt — who wants no new taxes. Read the interview below. (And cut me some slack on the questions: I got the revenue bill explainer 3 minutes before seeing Rep. Hunter.)

First, Rep. Ross Hunter:

Q: Tell me what your goal is with this bill.
Hunter: You know we have a budget issue. We’ve lost a huge amount of revenue this year because people are buying fewer things and the state is collecting less tax.
The state has a responsibility to provide some things, like basic education for students, we have an obligation to do some of the other things that we do – like healthcare for indigent children, administer the foster care system. There are a lot of things that the state needs to do and it’s why we’re here.
The situation that we’re in now, which is almost completely caused by the national and international economic meltdown, results in budgets that look like what the governor proposed in December, which I’m not willing to do and she made clear she’s not willing to do either.
We’re going to have to buy back some of the things that she cut. And we can do that with some federal government money, which is like manna from heaven.
But most people who look at the budget say, you know what, we’re probably gonna have to raise some revenue.
What I wanted to do with this bill is start with a set of things that we probably would have done a while ago were we not subject to 960. There are clear arguments why all the stuff that’s in this bill is a good idea, even when we don’t have a revenue problem.

The way the system should work is that taxpayers in similar situations should have a similar tax burden. You see a bunch of things in here that react to court rulings – like DOT foods, which was a crazy outcome. That was just a crazy outcome because it provides a tax exemption for out-of-state companies that in-state companies don’t get. It’s large enough that it’s going to provide an incentive to in-state companies to leave. We have to overturn that.

So what you see in the handouts here are some proposals that we’re making that fix problems in the tax code or that repeal exemptions that have probably become outmoded or aren’t working.
For example, the first mortgage deduction. Banks make money by lending money to people and earning income interest on that money. We exempted certain banks because we were trying to provide a tax incentive for one large bank that was based in our state. But the way it was done was to provide some incentive for all banks. We no longer have that bank. But we do have a bunch of small community banks that are very important.

The problem is, we’re giving a credit to out-of-state banks so they can compete, in some ways, unfairly. They got all this TARP money, these federal bailouts, that our guys don’t get. So we’re making a change in that and repealing the exemption because the economic conditions have changed. We’re trying to make changes to the tax code that protect in-state business.
Q: The banking industry seems like one with plenty of lobbyists. And a few of these other bills would target other big industries and special interests. Aren’t you expecting a lot of push back?

Hunter: Of course. Of course.

On the banking side, it’s interesting. You’re going to find, I think, that the community banks may actually be positively affected by this bill. The Nexus changes, for example. We’re hearing the governor’s bill on Friday and this includes that. It will be a net positive in many instances.

Right now, we don’t tax out-of-state businesses, but we do tax in-state businesses. That’s not fair. This bill is trying to capture businesses that are located out-of-state that do business in state. I don’t think it’s fair that our in-state businesses pay taxes that an out of state business doing business here isn’t required to pay. I think they should pay the same taxes.

It’ll probably be good for the smaller banks, but the larger banks that have been exempt will now be paying taxes.

Q: So this bill to fix loopholes and end exemptions needs the Senate Bill to amend and suspend 960 to work, right? Or can you end an exemption without “raising revenue” under 960?

Hunter: There is no confusion about it. Under 960, removing a tax exemption increases revenue to the state, and that counts. And while the bill was reasonably poorly written – Mr. Eyman is not known for the clarity of his Legislation – it was clear that any action or combination of actions that increase revenue for the state were subject to the two-thirds vote requirement. There’s some cases where we need to be able to make changes.

The 960 bill does two things: In the short run, it’s a temporary suspension. And it’s also making some specific, targeted, long-term changes to make it actually work. We need to be able to respond to court rulings and things that come up without a two-thirds vote. I can’t always get a two-thirds vote on when people want to adjourn for dinner.
Now, I’ll give you two examples that are not silly, like the dinner example. In California, when they passed their budget last year it was hugely contentious. They have to have two-thirds vote to pass a budget there, and the last vote to Constitutional Amendments, the last guy to vote got huge projects in his district. That guy got bought.

Another example: The health care bill out of the (U.S.) Senate. The only reason Nebraska might ever pay its fair share is the guy’s being shamed into it. That last vote got bought. That’s what happens with those kind of supermajority requirements. To do normal government, the majority of the people need to be able to make a decision like this. Otherwise, a small minority, for no other reason than they can, can really bollux up the system.

So, we’re suspending the two-thirds vote to respond to court rulings so that we can make necessary changes. We’re suspending the two-thirds vote so that we can modify existing tax preferences like exemptions and special rates.

If we’re going to do economic development work, we need to be able to undo it as well. We’re much less likely to be able to do targeted tax work if we think we can’t repeal it.

So this is a narrow set. We’re also suspending 960 to deal with voter approved initiatives. There’s some initiatives that got passed and cost a lot of money, but the initiative doesn’t have a way to fund it. Voters will look at something and say, I’d love to do that. I’d love to provide extra training for healthcare workers. But they don’t think of a way to pay for it. So what do I do? I can’t take a budget that’s strained already and add in funding for something else without raising revenue.

So people ought to think about that. Even when 960 wasn’t in place, the Legislature didn’t always raise taxes to pay for those things. And that ends up taking away money from something else.
Q: So why do these tax exemptions and why now? They don’t get you all the way, and it’s controversial to mess with 960 and end some of these exemptions, probably.

Hunter: This doesn’t get far. This is not a revenue package that’s designed to solve the budget problem. We’re not going to make long-term decisions on the budget until we have the data in hand. And certainly not at 3 or 4 weeks. We’re dealing with, in a short session, the kind of budget that we’d normally struggle within a long session.
We don’t have a revenue forecast until next Friday, and we won’t know what the federal government is going to do until who knows when.
When we find that stuff out, that’s when we’ll be able to say: These cuts get progressively more awful, raising this revenue gets progressively more awful, so where’s the intersection of awfulness.
No one is going to be happy with this year’s budget.
As for this kind of action, I wanted to do this now because these are complicated issues that I think I would do even in times where we didn’t have a budget problem.

Q: So, you said you can’t write the budget until you know what Congress might chip in. But that might not be before session is over.

Hunter: If Congress doesn’t make a decision until we have to leave town, we will make an appropriate decision. We will be filled with angst but we will make a decision. We’ll take some actions now, some early savings like the furlough bill that we moved out of committee. We’ll do that this week on the floor of the House. And then we’ll see.

Q: So, why do these now?
Hunter: This stuff is worth doing now. It’s hard to imagine a scenario where we wouldn’t need this much revenue. This is not a lot of revenue, but we need it.
And I think this is good policy even in a time when we have revenue because we have to make these kind of changes to the tax code. I’m not going to let this Dot Foods things sit there. I could make some change to balance that out and it would ‘increase revenue.’ It’s such bad policy to allow that to stand, I’d rather do that than cut something else.

Q: When will the budget come out?

Hunter: There’s a lot of speculation on where we’re going to go. We’ll make decisions when we can. I don’t know how to do that until I actually know what we’re dealing with.
There’s lots of people making proposals. We’ll look at those proposals. That’s my job, to look and make a recommendation.

And now for Rep. Ed Orcutt. A note: He did this interview yesterday afternoon, without seeing the revenue bill.

Q: Let’s talk about the bill to get rid of some tax exemptions.

Orcutt: If you’re eliminating a tax exemption, you either will cost jobs or you will delay the rehiring of those who have already lost their jobs.

Q: I know this is new and no one’s had time to look it over, but: Rep. Hunter said some of the tax exemptions unfairly advantage out-of-state business. Are you opposed to getting rid of those?

Orcutt: Anything that unfairly is an advantage to an out of state business are ones we should look at because there’s the potential to lose jobs out of state and we don’t want to do that. The question is, Is that a tax exemption or is that something out of a court case? A court case is something different than a tax exemption that we have passed, has been through committee, debated on the floor and signed into law by the Governor.

If this is a court case then we should go back and look at that court case and say, Was that the right decision? That’s one I think we need to look. But let’s make sure it’s being characterized properly.

People characterize tax exemptions as tax loopholes when in fact they weren’t unintended, they were very deliberate. That’s one thing I want to look at. And: Do they have the effect that people are claiming they have?

Q: There are 500-some tax exemptions. Is now the time to go through all of them and see if they’re effective?

Orcutt: We’ve been looking at them for a few years now. There’s a whole citizen commission on tax exemptions that is working with JLARC (Joint Legislative Audit Review Committee) and they’re already reviewing them. If somebody is using a tax exemption in this state for business in this state, then it’s protecting a job.

Q: When does that report come out?

Orcutt: We had a preliminary report. They came to us early in session with their preliminary report.

Somebody said out of all the recommendations they’ve brought to us over the last three years, we’ve implemented one.

I’m going to go back to what I said previously: If a tax exemption is being used then it’s protecting a job.

Q: Ok. Again, I know you haven’t seen these yet, but here’s one on the press release: “Minimum Nexus Standards.” It would get $73 million in this biennium, $375 million in the next. It says some Washington-based businesses would see their B&O tax decrease, and it would extend the B&O tax to certain out-of-state business to “level the playing field.” Thougths?

Orcutt: How do they do that? I gotta see what the real effect of it is and I don’t know how it does that. We’ll get estimates of what will happen, but who knows if they’re correct. Somebody just told me that another state had proposed an increase in taxes. They said it was going to bring all kinds of money in and they lost $90 million. Without seeing the details, it’s really hard to say anything. It’ sounds great on the surface, but we get a lot of bills that sound great when you read the intent statement, but end up being the opposite.

Q: What are your thoughts on Senate Bill 6483 – the bill to amend and suspend Initiative 960 and make it easier to raise taxes?

Orcutt: It looks very similar to what I predicted they were going to do. I predicted that they were going to suspend the two-thirds vote requirement to July 1, 2011.

The reason why I expected them to do that was so that they could increase taxes to get us through this biennium and to be able to increase taxes next year for the next biennium.

This is similar to what they did in 2002 when they suspended 601. I believe they suspended it to July 1, 2003. So that gave them the means to increase taxes in ‘02 and ‘03.

Q: This tax exemption bill gets a couple hundred million – progress, but it’s not the bill that will save the state budget. Since you predicted 960 correctly, can you tell me what’s going to happen with the budget?

Orcutt: In reality, I do think that the budget writers are waiting to see how much we’re going to get from the federal government — which is tax dollars. And it’s just going to be more borrowing and it’s just going to increase the national debt. And then they’ll have to wait to see what happens with the revenue (forecast).

Q: You’ve told me you think the state can fix the budget without raising taxes. After working on the budget for a while, is that still your opinion?

Orcutt: I think it’s possible for us to cut our way out of this. The term that I use for the way we need to do this is a haircut budget — just a little off the top. We need to go through different programs and look at eligibility requirements. There are some programs where people are getting assistance for up to three times the poverty level, like S-CHIP. Do we need to fund that at 300 percent of poverty level? Or is 200 percent of poverty level more appropriate? We can do that to other areas as well.

Q: Does that get you to $2.6 billion?

Orcutt: You know, I don’t know if that alone gets us there, but we already took a step in the House to cut off some of the WMS bonuses, which saves money. I think we need to start reducing the number of WMS personnel – that’s Wash Management Services, or Olympia-level management. Then we need to find some efficiencies in government — such as House Bill 3090, which I prime sponsored.

Q: What’s that?

Orcutt: What it does is get rid of the duplication and triplication of effort and assign natural resources permitting to a single agency.

It would say that on the day-to-day administration of issuing permits, it would be one agency doing it. Not two or three or more agencies. So an example would be forest practices – this isn’t the entire bill, it’s an example. But instead of Fish and Wildlife and the Department of Ecology weighing in on individual forest practice permits, they’d no longer do that.

So then they wouldn’t need quite as many staff people. So they could reduce their staff. They would still have the ability to weigh in when a rule was being promulgated. So it still protects the resource.  Other agencies with other expertise and from other disciplines would still have the ability to comment on actually the writing of the rule. But when it came to the administration of the rule, it would only take one agency.

Example: In forest practices there’s a difference in the size of buffers you have to leave if a creek is 1 ½ feet versus 2 1/2 feet wide. Do we need Fish and Wildlife to go out and measure the stream? No. Because the forest practices from DNR can do that.

This is the buffer of timber. If it’s less than 2 feet, it’s this other buffer. DNR can figure that out. They don’t need Fish and Wildlife or the Dept. of Ecology to say, We measured it. This goes back to what Gov. Gregoire said in her State of the State. We don’t need three different agencies to have boots in the creek.

Q: Where’s that bill now? Did it get a hearing?

Orcutt: It is in the Natural Resources Committee. I don’t know if it’s going to get a formal hearing. There will be a work session on the bill maybe next week. And I would contend that this bill is necessary to implement the budget, so it should get a hearing.

I am definitely going to continue to push to move this bill. That will provide us some additional savings.

Q: How much?

Orcutt: I don’t have a number. I haven’t seen the fiscal report. Of course, the agencies are probably going to write the fiscal report.

Q: Back to the budget and whether you can get there with cuts, would you be in favor of something like Gov. Gregoire’s Book One budget?

Orcutt: I’ll have to go back and look. Probably there were problems. It’s an issue of priorities. I think there’s reorganization that can be done to protect some of the cuts. I have not studied that budget recently to see all of what’s being cut and where.

Realistically, the House is going to write a budget and the Senate is going to write a budget and it may not look anything like the Governor’s budget.

Q: Anything else?

Orcutt: I think where we need to focus is on education, on public safety and on our most vulnerable citizens. Seniors, developmentally disabled, those who need a little bit of assistance, not all of them need total assistance to be cared for, but they do need a helping hand. And that’s where our absolute priorities should be.

Tags: Hunter, Orcutt, Q&A