Getting closer to 2nd special session; budget stalemate continues

In the Everett Herald, Jerry Cornfield sums up the state budget, er, discussions.

You can call them budget talks or you can call them budget briefings.

Just don’t call them negotiations.

Because no one is negotiating. According to Cornfield, legislators are talking, trying to understand each other’s position, and so on. But not “making decisions,” in House Majority Leader Pat Sullivan’s words.

Once they get around to deal-making, things can move quickly. The revenue forecast next week may help. But, as Cornfield reports,

Given the impasse, there is mounting skepticism lawmakers can reach a deal by May 28, when this extra session will end.

The House budget depends on about $1.5 billion in new taxes. The Senate doesn’t raise taxes, but does rely on fund transfers and other assumptions to balance. The House has yet to pass the required tax bills; the Senate says the House needs to pass the tax measures before there can be serious discussions. Then there are the nontrivial differences in spending to consider

The House tax plans have changed some, at least in theory, since the end of the regular session. The Washington Research Council notes yesterday’s introduction of a revised cap-and-trade bill in the House Appropriations Committee.

A new capital gains tax remains among the options considered by House Democrats, though that, too, has been revised since it was originally introduced. The Tax Foundation recently offered its critique of the tax.

So go the non-negotiations on Day 16 of the first special session.

Taxing carbon: Making an improbable comeback in state budget discussions?

Plenty of recent press coverage suggests that some form of carbon taxation may find its way into an eventual state budget resolution. While it likely still faces heavy sledding in the Senate, House Democrats say they may have the votes

Rep. Joe Fitzgibbon, D-Des Moines and the point man on the carbon legislation, said providing 50 Democratic votes for the new plan will depend on how it eventually fits in with the final budget package that the Democratic-controlled House and Republican-dominated Senate will eventually reach. Right now, the two sides are far apart in the talks on the main state budget.

This isn’t the proposal originally proposed by the governor. But the Washington Research Council’s report on carbon taxation still provides good context for understanding the general issues.

The House Appropriations Committee will hold a hearing on the new bill, SHB 1314, Thursday at 1:00 p.m. The Seattle Times reports on parallel activity in the Senate.

We’re trying to turn this into an economic winner in rural areas, as well as something that is going to deal with our climate-change problem,” said state Sen. Jim Hargrove, D-Hoquiam, chief sponsor of the revised proposal in the Senate.

The Times summarizes key changes in the proposal.

The basic framework of the cap-and-trade system — essentially a new tax on carbon emissions — would remain the same under the revised proposal.

The state would set a cap on carbon emissions and require the biggest emitters, such as refineries and fuel distributors, to buy tradable pollution permits. Over time, the emissions cap would be reduced, forcing industries to cut their emissions or buy increasingly expensive permits.

The Democrats’ new proposal would alter how the estimated $1.2 billion raised annually from carbon fees is divvied up, according to summaries of the bill revisions provided Monday.

 

There’s plenty more in the article…and House Democrats provide this 3-page summary…but those who were skeptical of the original proposal remain skeptics.

“This is still a tax on energy,” said state Sen. Doug Ericksen, R-Ferndale, adding that the effort seems to be more about Democrats’ desire to raise taxes than climate policy…

And Brandon Housekeeper, a lobbyist on environmental issues for the Association of Washington Business, said the various subsidies and rebates in the legislation only prove the cap-and-trade plan will add costs for businesses.

See also Jerry Cornfield’s account in the Everett Herald. 

It’s unclear whether there’s much momentum behind the alternative proposal. That it’s surfacing at this time suggests how divided the Legislature remains on Day 14 of the 30-day special session.

House Transportation Committee takes up revenue, spending bills tonight

This evening’s House Transportation Committee meeting is expected to set the stage for successful negotiations to resolve the differences between the two chambers approaches to a comprehensive transportation package. There’s a lot of anticipatory media coverage, most of it focusing on what has to happen to close the gap.

Joseph O’Sullivan writes in the Seattle Times that the two sides are pretty close to agreement.

The Democratic plan, which would spend $15.1 billion over 16 years, contains most of the same projects as the GOP proposal and would be financed with a similar, phased-in 11.7-cent boost in the gas tax and higher fees on truck weights and license plates.

Key areas of disagreement: use of sales tax revenues for transportation projects, language to block the governor from implementing low carbon fuel standards, and the size of a Sound Transit ballot measure to fund expanded rail.

As we wrote yesterday, these differences should not be deal killers. O’Sullivan quotes a statement by AWB president Kris Johnson:

…Johnson said, “this represents an important step forward in the effort to pass the state’s first major, statewide transportation package in a decade.”

House Transportation chair Judy Clibborn sounds optimistic in the Times story.

Although the legislative session is scheduled to end April 26, Clibborn said she doesn’t think that deadline will necessarily stop a package from getting approved.

“I think we would go into (an) extra session,” said Clibborn, adding later: “It doesn’t take months to negotiate if you really, really want to do the negotiations.”

Additional coverage from the Puget Sound Regional Council and the Spokane Spokesman-Review

The House package does not rely on revenues from the cap-and-trade proposal boosted by the governor. The News Tribune editorial board says any such plan needs serious vetting.

It’s no surprise that Inslee’s bill didn’t go anywhere this year: The idea of cap-and-trade is a still new to the public. In theory, it is beautiful. It seems bound to produce losers as well as winners, though. Washington needs the details and a realistic accounting of its downsides as well as its virtues.

The Legislature is poised to act on the first major new investment in transportation infrastructure in a decade. There’s no need to complicate that task with consideration of an untested revenue proposal.

House Democrats unveil budget: 13% spending increase, capital gains tax, increase B&O surtax, more

The House Democrats have released their 2015-17 budget proposal, with more revenue specifics than many had anticipated. Melissa Santos and Jordan Schrader have the story. 

House leaders said their $38.8 billion spending plan, a nearly 13 percent increase over the last two-year budget, would meet key requirements of the state Supreme Court’s McCleary decision that ordered the Legislature to fully fund basic education in Washington by 2018.

Paying for it?

The House budget proposes enacting a 5 percent tax on capital gains, lower than the similar 7 percent tax on sales of stocks, bonds and investment properties proposed by Inslee. The tax – which would exempt most sales of primary residences and retirement funds – would raise about $570 million a year.

…Another major source of revenue in the House budget comes from increasing the business and occupation tax on services businesses such as doctors, lawyers and architects. An increase of 0.3 percentage points in the tax rates for those businesses would generate $532 million in new revenue in the next two years.

But Democrats insisted some small businesses would actually pay less under their proposal, which enlarges a tax credit to eliminate B&O taxes for an extra 15,000 businesses.

House Democrats also set their sights on ending seven tax breaks. Their budget would repeal a sales tax exemption on bottled water, limit sales tax breaks for Oregon residents who purchase small items in Washington, and get rid of tax breaks for travel agents, tour operators and resellers of prescription drugs, among others. Together, those tax adjustments would raise $384 million.

Details on the overall proposal are here. Here’s the budget bill. The capital gains tax, branded as “fair share tax,” is described here. The B&O changes are here. And the list of seven exemptions targeted for repeal, most of which have been seen before, is here. Although there’s not a carbon or cap-and-trade tax proposal included in this proposal, Rep. Reuven Carlyle, House Finance chair, says he wants that to be part of the coming discussion.

The public debate has officially begun. The public hearing on the budget plan is scheduled for Monday afternoon.

WRC publishes new paper on cap-and-trade, carbon tax

UPDATE: After we posted this we found this post from the National Association of Manufacturers’ Shopfloor blog that discussed federal carbon tax proposals. It links to a NAM economic analysis.

*****

With the House budget scheduled for an Appropriations Committee hearing Friday, this new Special Report on carbon taxation from the Washington Research Council is timely.  The Council’s analysis compares and contrasts Gov. Inslee’s proposed cap-and-trade legislation, HB 1314, with Carbon Washington’s proposed carbon tax initiative.

  • SHB 1314, based on a proposal by Gov. Jay Inslee, would establish a cap and trade system to limit greenhouse gas emissions.

  • Total state carbon emissions would be capped. Emission allowances would be bought and sold.

  • Fuel suppliers, electricity importers, and large industrial plants would be among those required to pay for allowances to continue to operate.

  • Cap and trade would act as a tax increase on these industries, with additional revenues going to transportation, education, tax credits for the working poor,among other programs.

  • A second proposal comes from a group called Carbon Washington, who is planning an initiative campaign to impose a tax on carbon emissions.

  • This carbon tax, unlike the cap and trade proposal, is intended to be revenue neutral.

  • The new tax would be offset by an eventual 1 percent sales tax reduction and a reduced B&O tax on manufactured goods to be exported from the state.

The governor made his cap-and-trade system central to his proposed budget. It’s has been both controversial and only partially understood. The WRC report does good job of clarifying how the policy might work, contrasting it with the more straightforward, though also controversial, carbon tax proposal. The Council concludes:

SHB 1314 is unlikely to pass the Legislature this session. However, a very similar cap and trade system may well come before voters as an initiative in November 2016. And it could be joined on the ballot by Carbon Washington’s carbon tax initiative…

Putting a large price on carbon will raise the costs of living and doing business in this state. If we go it alone, much of the reduction we achieve here will be offsetby increases elsewhere. Pollution will be moved, but not reduced. Jobs will follow the pollution.

As these policies will likely be the focus of intense debate in coming months, the WRC report provides important information to inform that debate. RTWT

 

Washington Climate Collaborative Issues Cap-andTrade Economic Impact Analysis

The Washington Climate Collaborative today released an analysis of the Economic and Environmental Impacts of the Carbon Pollution Accountability Act (CPAA) in Washington State.  Or, more simply, they released a study of the costs and effects of Gov. Jay Inslee’s proposed carbon cap-and-trade plan. The research was conducted by Energy Strategies LLC and researchers from two universities in the Northwest.

Here’s the press release and one-page fact sheet. The key  employment and tax conclusions:

Over the next 20 years, implementation of CPAA will result in an average annual loss of approximately 56,000 jobs with nearly 6,000 of those annual lost jobs coming from manufacturing.

Total aggregate worker and proprietor’s income will be reduced by an annual average of $3.1 billion per year. If divided by total Washington households this is equivalent to an annual average $1,200 reduction per household. 

Washington will see an average annual net tax revenue loss of $658M from lower sales, property, and excise taxes resulting from reduced future economic growth. The average annual net revenue raised from the program will be just under 60% of the Governor’s projections.

And the impact on families:

The average Washington family is expected to see a $56 per month direct increase in their monthly gasoline, heat and electricity bill. This does not include the indirect cost increases in other goods like food. 

The price of a gallon of gas is expected to immediately increase by $0.11 per gallon and $0.39 per gallon by 2035 under CPAA.

The CPAA is a key part of the governor’s 2015 policy agenda. Analysis from the governor’s office concludes:

1. The net statewide economic effects are extremely small in relation to the state economy. Employment, output, income and inflation-adjusted income are essentially unchanged under the carbon charge policy. Most of these measures show slight improvement over 20 years. A very small decline in inflation-adjusted income is extremely sensitive to inflation assumptions over the study period…

2. Inflation-adjusted fuel and energy prices could increase due to a carbon charge, compared to a “business as usual” baseline, as follows:

Gov. CPAA impact table

As the Spokesman-Review editorializes this morning, at this stage of critical transportation negotiations, the governor’s plan adds complexity. And, according to the WCC, has significant unintended consequences. 

There’s doubtless time to debate the conflicting analysis. There’s not, however, time to delay making the necessary transportation investments now. Again, echoing the S-R, it’s time to raise the gas tax.

 

Governor’s climate change proposals draw a crowd, not a consensus.

The centerpiece of Gov. Inslee’s 2015 legislative agenda, climate change regulation, received its first major hearing yesterday. It was SRO.

Gov. Jay Inslee’s sweeping climate-change bill drew hundreds to a packed public hearing Tuesday, putting the divided world view of supporters and opponents on full display throughout the Capitol.

An air of urgency filled environmentalists who sang songs and waved signs at passing lawmakers, and erected a display of a burning planet.

But Republicans and top business groups shrugged off the need for swift action, arguing Washington already is a clean state that doesn’t need to impose costly new rules.

The AP story has a nice Q&A on what it does, who likes it, who doesn’t and why.  As the Seattle Times points out, the issue has divided along partisan lines.

While Inslee’s supporters have argued climate change should not be a partisan issue, it has proved to be one in the Legislature. HB 1314 is sponsored by 37 Democrats. A companion Senate bill has drawn 20 Democratic sponsors. Not a single Republican had signed on in support of either bill as of Tuesday.

In the Times story, Opportunity Washington received a brief mention.

A new business coalition called Opportunity Washington announced its launch at a morning news conference. The group, which includes the Association of Washington Business (AWB) and the Washington Roundtable, didn’t mention climate change as a priority at all, listing its focus as on education and transportation funding.

When asked about Inslee’s plan, Kris Johnson, president of the AWB, said he didn’t see it as a viable undertaking. “We have substantial concerns with a cap-and-trade proposal system … built off of a California-like cap-and-trade system,” Johnson said.

Our priorities are Achieve (education), Connect (transportation infrastructure), and Employ (encourage innovation, entrepreneurship and job creation). In the Employ section of our online report, we do offer some commentary on regulatory policy:

Policies to address climate change and water quality are frequently cited by employers as areas of uncertainty that can affect long-range planning. Additionally, as noted earlier, many employment policies enacted by state and local governments, including the minimum wage and paid leave requirements, represent workplace regulations that exceed federal standards and add to employers’ competitiveness concerns.

While regulations ultimately reflect Washingtonians’ policy preferences, they should be regularly reviewed to see if, for example, the benefits justify the added costs of compliance.

Lawmakers should apply that standard to consideration of all regulation, including proposed climate change policies.