Washington again has nation’s highest workers’ compensation benefit costs.

The Washington Research Council reports that workers’ compensation benefit costs in our state are again ranked highest in the nation.

Last week the National Academy of Social Insurance (NASI) released its annual report on workers’ compensation benefits, coverage, and costs across states. For 2015 (there’s a two-year lag), Washington’s benefit costs were $788.62 per covered worker. This was the highest in the country, followed by California ($751.70) and Alaska ($719.93). Although Washington’s benefit costs have been the highest in the country since 2008, they have been declining since 2010, when they reached $865.67 per worker.

Interstate comparisons of workers’ comp costs are difficult, complicated by Washington’s state-run system. The WRC explains,

We consider benefit costs to be the best measure of the worker’s compensation system’s costs as well as the most straightforward way to compare costs across states, as we explain in this report

Additionally, since 2012, the NASI report has included a section on employer costs. As the 2017 report explains, they add up the premiums and deductibles paid, benefits and costs paid by self-insured employers, and assessments for special funds. This is not meant to serve as a comparison of costs across states because it does not control for differences in industry mix.

The Council’s report provides good context for understanding the complexities of the comparisons. 

The Association of Washington Business also writes about the workers’ comp benefit costs and the coming rate decision.

The [NASI] report comes just as the state Department of Labor and Industries (L&I) announced it is proposing an average 2.5 percent reduction in tax rates for 2018, or roughly half of the average 5.9 percent the agency could have reduced rates and still covered forecasted benefits and administration for the year.

The rate reduction “is a move in the right direction,” said AWB President Kris Johnson in a statement last month. But, he said, there is more work to be done “to find ways to make Washington’s system more competitive, to lower costs and complexity for all employers and their employees, and to make the state more attractive to expand and locate a business.”

AWB provides information on the public hearings scheduled to begin later this month. 

Washington remains at No. 17 in new Tax Foundation “State Business Tax Climate Index”

Washington has the nation’s 17th best state business tax climate, according to the Tax Foundation. That’s unchanged from a year ago. Again, in the TF calculations, Washington benefits from the absence of a personal or corporate income tax.

As the Tax Foundation writes,

The absence of a major tax is a common factor among many of the top 10 states. Property taxes and unemployment insurance taxes are levied in every state, but there are several states that do without one or more of the major taxes: the corporate income tax, the individual income tax, or the sales tax. Wyoming, Nevada, and South Dakota have no corporate or individual income tax (though Nevada imposes gross receipts taxes); Alaska has no individual income or state-level sales tax; Florida has no individual income tax; and New Hampshire, Montana, and Oregon have no sales tax.

This does not mean, however, that a state cannot rank in the top ten while still levying all the major taxes. Indiana and Utah, for example, levy all of the major tax types, but do so with low rates on broad bases.

Despite not having a personal income tax, Washington is dinged in the rankings for the way the Business and Occupation Tax is imposed. Here’s the somewhat wonky explanation.

As a zero rate is the lowest possible rate and the most neutral base, since it creates the most favorable tax climate for economic growth, those states with a zero rate on individual income, corporate income, or sales gain an immense competitive advantage. Therefore, states without a given tax generally receive a 10, and the Index measures all the other states against each other.

Two notable exceptions to this rule exist: the first is in Washington and Texas, which do not have taxes on wage income but do apply their gross receipts taxes to limited liability corporations (LLCs) and S corporations. Because these entities are generally taxed through the individual code, these two states do not score perfectly in the individual income tax component.

We’ll restate our caveat from last year.

As usual, we’ll provide the caution that opinions will vary regarding the weightings, measures, etc., of any index. But we’ll add that the Tax Foundation does good, objective analysis and that the information provided here will be useful to policymakers and others interested in understanding state tax systems and their effects on business.

The top 10 states are: 1) Wyoming, 2) South Dakota, 3) Alaska, 4) Florida, 5) Nevada, 6) Montana, 7) New Hampshire, 8) Utah, 9) Indiana, 10) Oregon.

To better understand Washington’s overall ranking of No. 17, it helps to look at how the state ranks on the various subindexes. 

  • Corporate tax: 46
  • Individual income tax: 6
  • Sales tax: 48
  • Unemployment insurance: 27
  • Property tax: 17

The weightings of the subindexes are:

  • 33.0% — Individual Income Tax

  •  23.3% — Sales Tax

  •  19.0% — Corporate Tax

  •  15.1% — Property Tax

  •  9.6% — Unemployment Insurance Tax

There’s a wealth of good information – fodder for policy discussions – in the report. The Tax Foundation reminds us of why tax policy matters:

The modern market is characterized by mobile capital and labor, with all types of businesses, small and large, tending to locate where they have the greatest competitive advantage. The evidence shows that states with the best tax systems will be the most competitive at attracting new businesses and most effective at generating economic and employment growth. It is true that taxes are but one factor in business decision-making. Other concerns also matter—such as access to raw materials or infrastructure or a skilled labor pool—but a simple, sensible tax system can positively impact business operations with regard to these resources. Furthermore, unlike changes to a state’s health-care, transportation, or education systems, which can take decades to implement, changes to the tax code can quickly improve a state’s business climate.

It is important to remember that even in our global economy, states’ stiffest competition often comes from other states.

Something to remember in the coming legislative session.

Seattle seeks a “refresh” with Amazon in letter signed by legislators, city council members and other local leaders

When Amazon’s search for a second headquarters (HQ2) outside Seattle was announced, we wrote that while the announcement initially launched a wave of speculation about what city would land the new headquarters,

The speculation, however, is less interesting than the introspection occurring in Washington…

Ideally, Amazon’s decision will help focus debate on how Washington can advance opportunity and job creation…Amazon has reminded the state that, with all the advantages Washington and metro Seattle provide, we still must compete.

The Seattle Times reports that some Seattle leaders are responding to concerns that the city sends business the wrong message.

A letter signed by a majority of Seattle City Council members as well as some state legislators, port commissioners and education officials, says to the extent the company’s headquarters decision “was based on Amazon feeling unwelcome in Seattle, or not being included in some of our regional decisions, we would like to hit the refresh button.”

The letter is worth reading. It suggests formation of a “joint task force” to address transportation, freight mobility, public safety, the gig economy” and public education.

There’s scant mentionof tax and regulatory concerns that might influence Amazon’s thinking, other than this.

Seattle has received widespread attention for its first-in-the-nation law allowing “for hire” drivers (think Uber and Lyft) to unionize. The city also has adopted an income tax and council members have proposed a new tax on high-grossing businesses.

The Times adds,

Seattle itself isn’t bidding to host Amazon’s second headquarters, but instead is lending its support to a joint proposal by King County and Snohomish County that suggest the company use any of a range of sites, from Everett to Bellevue and Tukwila. 

GeekWire also reports on the city’s overture. We wrote previously about the benefits of the regional response to the HQ2 competition.

A ‘refresh’ conversation on what makes a good business climate just might be beneficial.

Spokesman-Review calls Prop. 2 rail initiative “well meaning but misguided.” It’s also most likely illegal and unenforceable.

On the November ballot in Spokane is an initiative that would regulate rail traffic through the city, imposing fines on trains carrying oil or coal. The Spokesman-Review editorial board considers the measure “well meaning, but misguided” and urges a no vote.

Two crucial questions for Spokane voters are: Should individual cities impose restrictions on rail transport, and what would it mean for interstate commerce if they could? A patchwork of rules and regulations across the country would throttle the economy. Critics of Prop. 2 make a compelling case that it runs afoul of the Interstate Commerce Act, and there is a long list of court cases that demonstrate the supremacy of federal law over local ordinances…

Ultimately this is a federal matter, so voters should turn down Prop. 2.

This is, as we’ve written previously, has statewide ramifications. The S-R also reports on how the measure reached the ballot and the local politics.

Mayor David Condon, who has contributed his voice to the campaign against the proposal, said although he understands the concerns of citizens about safety, imposing fines ignored federal actions to make the shipments less prone to derailment as well as efforts to improve the emergency response…

The initiative’s opponents, including Condon, cite legal opinions from the city’s hearing examiner, Brian McGinn, and the City Council’s policy adviser, Brian McClatchey, that the measure would have a slim chance of surviving a legal challenge.

Both men identified different sections of federal law to conclude that an ordinance passed at the local level would be trumped by rulemakers at the national level, opening the city to potential litigation and courtroom costs if the commodities, railroad or someone else filed a lawsuit to block its enforcement.

If the measure were to pass next month, the legal challenges are inevitable.

Two new surveys show diverging trends: Consumer confidence is up; CEO confidence is down. There’s a public policy dimension.

Initially, this seems odd and contradictory.

The University of Michigan’s highly-regarded survey of consumer sentiment reports consumer confidence in early October reached its highest level since 2004. The National Association of Manufacturers chief economist writes

This was well above the consensus estimate, which was for little change in the measure for the month. Richard Curtin, the Survey of Consumers Chief Economist, writes, “The October gain was broadly shared, occurring among all age and income subgroups and across all partisan viewpoints. The data indicate a robust outlook for consumer spending that extends the current expansion to at least mid-2018…

But Chief Executive magazine reports CEO confidence dims amid geopolitical worry.

According to the two latest surveys by Chief Executive, September and October’s ratings for expected business conditions 12 months from now have slumped to their lowest level since November 2016. In September, respondents rated their level of optimism for the year ahead at 6.75 out of 10. In October, it was slightly higher, at 6.85. This was a sharp decline from the period of May to August, when confidence ranged from just 7.03 to 7.01, with little change.

But it turns out the CEOs feel pretty optimistic about business prospects.

But even as many of the nation’s chief executives wait on presidential promises to materialize, three-quarters of those surveyed nevertheless say they are anticipating a boost in their firm’s revenue (78%) and profits (73%), and half plan to increase the number of employees (51%) along with capital expenditures (52%).

The Chief Executive survey looks at CEO confidence by sector and size.

While transportation started the year as the least confident of sectors, with a forward-looking index of 5.40, it has since clocked in an upswing of 34%, making it the second most confident industry this October, tied at 7.25 with Energy…

On the other end of the spectrum, health care flip-flopped from its number one spot as the most confident sector in January, with a rating of 8.25, to the bottom of the pack in October (5.82)—a drop of 29% over ten months. It is important to note, however, that in January the sector had just come off the heels of a 6.64 rating in December 2016 and, as data shows, immediately returned to a somewhat similar level in February with 6.13. 

And there’s little difference in the views of small and large firm CEOs.

When broken down by company size, the confidence of small (6.88), mid (6.70) and large company (6.61) CEOs in business conditions one year from now is relatively in line with the overall index of 6.85 for the month.

The drop in CEO confidence is to a degree attributed to recognition that their expectations for pro-growth public policies from Congress now appear stalled or unrealizable.

CEOs we talked to during the September survey said that while they remained highly confident in their market opportunities and the economy in general, political turmoil here and on the world scene was making it difficult to stand tall in that belief.

In October, factors such as uncertainty over the outcome of tax reform, particularly with respect to corporate rates and the foreign profit repatriation plan, as well as the Fed’s upcoming interest rate strategy and the wavering future of the health care bill appear to have further clouded earlier optimism.

The consumer and CEO surveys show a certain convergence, then, as both groups remain somewhat optimistic about the economy while accepting that it could be better. As the economist for the University of Michigan survey, Richard Curtin, writes,

While the early October surge indicates greater optimism about the future course of the economy, it also reflects an unmistakable sense among consumers that economic prospects are now about as good as could be expected. This “as good as it gets” outlook is supported by a moderation in the expected pace of growth in both personal finances and the overall economy, accompanied by a growing sense that, even with this moderation, it would still mean the continuation of good economic times.

Optimistic, but not euphoric. Probably an apt assessment.

Friday Roundup: Tech’s economic impact, Running Start success, state business climate, Seattle business tax proposed

There are always a few items we’ve read during the week that deserve more attention but don’t make it into our regular posts. So we bundle them for the Friday roundup.

Here’s this week’s bundle:

TechAlliance: Tech’s Impact on Washington: The Economic Effect of Technology on Jobs and Communities

The Tech Alliance wanted to better understand how tech-driven innovation was affecting the state’s workforce, companies, and communities. In partnership with Seattle-based economic impact firm, Community Attributes, the Tech Alliance dug into the data and stories that underlie Washington’s tech-driven economy, and this report is the result. What you’ll see is a diversified economy dependent on the development of new technologies, the adaptation and application of those technologies, and the required shifts in the workforce that keep the state’s industries moving forward. 

Seattle Times: Washington’s Running Start program a national standout, study says

A new study says Washington’s Running Start program is a national leader when it comes to helping pave the way for high-school students to eventually finish college.

In this state, the study found, high-school students in Running Start ended up finishing a college degree or certificate, well above the U.S. average. A majority of those students received a bachelor’s degree.

New Geography (Renn): Local Empowerment Should Be About Local Matters

I’ve generally been someone who wants to see local governments have more power and flexibility to meet local needs. My rationale is simple. States are full of diverse communities that are a bad fit for one size fits all policies…

Today though we are seeing cities abuse their local authority. Rather than using them for bona fide local matters, they are deploying them to politically grandstand and/or affect federal or state policy.

Northwest Public Radio: Study Ways Washington and Oregon Are Great for Business

Washington’s economic climate is the fourth best in the nation. That’s according to a new report by produced by Washington’s Economic and Revenue Forecast Council.

The annual Washington State Economic Climate Study looks at a bunch of indicators and compares Washington to other states. This year the Evergreen state bumped up a notch from fifth best to fourth best.

New Geography: Case Studies in Autonomous Vehicles, Part I

A recent report by the consulting firm McKinsey & Company notes that although ridesharing services are growing, they still represent only about one percent of the vehicles miles traveled in the United States each year. The development of autonomous vehicles by itself is unlikely to radically change this statistic. Why not? Viewed from the perspective of the consumer-passenger, the fact that autonomous vehicles can pick up passengers all day without a driver does not in itself present a compelling reason for a person to switch from ownership to sharing. Rather, a number of other considerations, including convenience, safety, speed, and overall cost, likely will shape consumer decisions about whether to own or share. So while autonomous vehicles may be a necessary condition for widespread ride sharing, they are not sufficient. In other words, automation alone will not be enough.

Seattle Times: Seattle business tax proposed to house the homeless

Two Seattle City Council members have proposed taxing the city’s highest-grossing businesses to increase funding for the region’s growing homelessness crisis, a measure that, if approved, could generate up to $24 million ayear for long and short-term housing options.

The proposal was met with sharp opposition from business associations but was embraced, at least in part, by mayoral candidates Jenny Durkan and Cary Moon, who will face off in a Nov. 7 election.

Washington may or may not be in the running for Amazon HQ2. Reports vary. Regardless, it’s good to compete.

This week saw brief consternation about the various regional efforts to convince Amazon to put its second headquarters in Washington. We wrote about some of those bids here.

First, comments made by Amazon Worldwide Consumer CEO Jeff Wilke at the GeekWire Summit were interpreted to mean that the company would not consider the Pacific Northwest for HQ2. 

The company’s CEO of Worldwide Consumer Jeff Wilke said at the 2017 GeekWire Summit that Amazon now has 50,000 people in Seattle — the same amount it could eventually hire at HQ2. Another 6,000 jobs are coming, and Amazon is gearing up to occupy 2 million more square feet of office space in its hometown.

But anyone who lives here, or is looking for office space, knows Seattle is filling up. The move to HQ2 is about finding some more room to breath — Amazon said it could occupy as much as 8 million square feet in whichever city it chooses — and luring the best talent.

“Not everybody wants to live in the Northwest,” said Wilke, who grew up in Pittsburgh. “It’s been terrific for me and my family, but I think we may find another location allows us to recruit a different collection of employees.”

It’s over, Amazon says Seattle area won’t win HQ2, headlined a KUOW story.

But Amazon’s Worldwide Consumer CEO, Jeff Wilke, says our region has no chance: Amazon is looking for something else.

“We want another place where we can also grow,” Wilke told the Geekwire Summit.

Then, Amazon clarified.

On Wednesday, a company spokesperson insisted Wilke’s comments did not signal that the Northwest wouldn’t land the second headquarters location.

“We will give serious consideration to every HQ2 proposal we receive from across North America, including from communities across the Pacific Northwest,” Amazon said in a statement emailed to KING 5.

When asked why there was a need to issue a clarification, the spokesperson added: “some reporters have inferred that cities in the PNW will not be considered, and this is not correct.”

Most of the cities in the region recognize landing the second headquarters close to the current headquarters is a long shot, as we wrote Monday. And the brief confusion midweek doesn’t really change anything, other than give local political and business leaders an opportunity to reinforce their desire to compete. 

And that’s a good thing.

The News Tribune reports on local response in Tacoma.

Does this change anything for Tacoma’s pitch? Mayor Marilyn Strickland said the City of Destiny still has a chance.

“There’s a reason the Puget Sound is the fastest-growing region in the nation,” she said Wednesday. “People want to live here. The quality of life is unparallelled. We have a really nice lifestyle here.”

Many officials say that even if the area doesn’t snag Amazon, forming a proposal won’t hurt. U.S. Rep. Derek Kilmer, D-Gig Harbor, said last week that building a case for Tacoma helps future efforts.

“I think this helps our community to build the muscles and develop the playbook we need to keep jobs and grow more jobs down the road,” Kilmer said.

The Puget Sound Business Journal interviews Seattle venture capitalist Matt McIlwain, a Madrona Venture Group managing director, who explains the importance of being a competitor. Here’s the Q&A:

Q. Many Washington cities are participating in the RFP. Is that a waste of time?

A. It’s absolutely a great use of the time for the city of Seattle itself and different cities in Washington state to make the case for why having Amazon invest more in their cities is worthwhile. I’m not entirely sure the outcome will be an HQ2, but from every one of those cities I keep hearing business community, public policy leaders and even civic and community leaders coming together in a way they haven’t in a long time. It’s an opportunity to create a better dialogue with Amazon and be strategic about how to successfully grow as communities.

As we wrote earlier, the speculation about the next HQ2 is interesting, but it’s the regional introspection – addressing the region’s competitive challenges, including public policy – that’s important. 

Business leaders express growing concerns about renegotiating NAFTA treaty, a key issue for trade-dependent Washington

Almost from the beginning, national and state leaders have expressed concern over the NAFTA treaty renegotiations. In recent days, they have been vocal about the potential harm to the economy. 

The Associated Press reports doubts that the agreement will make it through next year

Round 4 of NAFTA talks began Wednesday in Arlington, Virginia. In a sign of how contentious things could get, the countries extended the negotiations for two extra days, through Tuesday.

“What is the administration going to do? Are they going to be patient and work through these things?” asks Phil Levy, senior fellow at the Chicago Council on Global Affairs. “Or are they going to take this as a pretext and say, ‘We tried negotiations; they failed. Now we need to blow this up?’”

The economic repercussions could be widespread and deep.

Levy pegs the chance of NAFTA’s survival at less than 50 percent.

The end of NAFTA would send economic tremors across the continent. American farmers depend on Mexico’s market. Manufacturers have built complicated supply chains that cross NAFTA borders. Consumers have benefited from lower costs.

The AP story provides good context and is worth your time if, like many Washingtonians, your concerned about global trade.

The U.S. Chamber of Commerce has been particularly outspoken. On its website, the group has a “NAFTA works for America” page. The page outlines the benefits to American businesses and endorses a “modernization” of the agreement.

Trade with Canada and Mexico is a significant driver of U.S. economic growth, and with a two-decade record to examine, it’s plain to see that the North American Free Trade Agreement (NAFTA) has generated substantial new opportunities for U.S. workers, farmers, consumers, and businesses.

More than 125,000 small and medium-size businesses export to our two North American neighbors, and they are our largest export markets by far. Most important, trade with Canada and Mexico supports 14 million American jobs.

The business community welcomes the opportunity to update the agreement, and as NAFTA negotiations are underway, the U.S. Chamber understands that now is the time to modernize NAFTA.

Recent statements by U.S. Chamber president Tom Donahue, though, state clear concerns that the negotiations are headed in the wrong direction. Reuters reports,

Speaking in Mexico City, Thomas Donohue, the U.S. Chamber of Commerce’s president and chief executive, listed several U.S. proposals that he said would undermine $1 trillion in annual trilateral trade, including a “sunset clause” to force regular negotiations.

His comments marked the second broadside the chamber has launched against the Trump administration’s stance on NAFTA in less than a week. It has argued repeatedly that the trade pact is critical to U.S. industries such as agriculture and manufacturing.

The Wall Street Journal reported last Friday,

A war of words broke out Friday between the White House and U.S. Chamber of Commerce over the Trump administration’s proposals for rewriting the North American Free Trade Agreement, after the business group called the president’s agenda “highly dangerous” and vowed a corporate lobbying blitz to try to force him to drop proposals to significantly change the 23-year-old pact.

Last June, the Washington Council on International Trade wrote the U.S. Trade Representative outlining its “objectives for [NAFTA] modernization.” The letter began by describing Washington’s role in global trade,

Washington state is the most trade dependent state in the United States, with 40% of our jobs tied to international trade. From apples and aircraft to software, our state thrives on international trade. Last year, Washington state exported $14.4 billion in agricultural exports around the world. Around 50% of our potatoes and nearly 30% of our apples are exported. We export around $26 billion in services a year1, and over $70 billion in manufactured goods.

And described NAFTA benefits, including,

Since NAFTA was implemented, Washington’s goods exports to Mexico have grown 700 percent, while our exports to Canada have grown 200 percent, and the two countries are the top export destinations for many of our businesses. An estimated 330,000 jobs in Washington state rely on trade with our NAFTA partners.

Last month, WCIT president Lori Otto Punke wrote a Puget Sound Business Journal op-ed outlining the importance of both maintaining and modernizing NAFTA.

Because Washington state’s economy is so dependent on international trade, it’s critical that we preserve NAFTA’s benefits that support industries from manufacturing and technology to agriculture, retail and maritime. At the same time, we must update the trade deal to meet today’s challenges and those we will face in the coming years…

While we have seen benefits from NAFTA, trade has changed dramatically since the U.S., Canada, and Mexico first negotiated it. Ecommerce is a crucial element of international trade, yet there are few rules on digital trade in NAFTA, an area of major importance to Washington state’s large and small businesses, innovators and retailers. NAFTA rules must be updated to govern and support the growth of digital trade.

NAFTA modernization also provides an opportunity to streamline customs procedures, especially in Mexico, where there is a lack of transparency and where exporters often face delays and inconsistent regulations.

The year began with the scuttling of the Trans-Pacific Partnership. At the time, business leaders here called it a setback, but expressed optimism about the future of other trade agreements, including the then-upcoming NAFTA negotiations. Now, that optimism appears to be waning. That’s a concern for our trade dependent state.