There are big, overhanging financial and economic issues that are vital to our futures — the Greek debt crisis, our own long-term debt problem, the lingering mortgage/housing morass, and the inabilty of President Barack Obama and the Congress to enact a budget that will both foster near-term growth and contain long-term deficit spending.
The financial and economic issues facing state and local governments are, by comparison, trivial. But that does not mean they can be ignored. Here are some that bear watching, with a skeptical eye.
- The state budget and "tax expenditures": With less than a month left in the legislative session, our Legislature still has no credible plan to reduce the approximately $1.5 billion state deficit. New York and California remain deeply in the red but Washington is among a handful of other states that are still in deficit coming out of the national recession.
That deficit could be erased immediately if the Legislature chose to pare the long list of "tax expenditures" (i.e., loopholes, subsidies, deductions, and exemptions) that benefit favored sectors and companies in the state. At last tally, they added up at state and local level to three times the size of the state's biennial budget. Every Washington governor in recent years has pledged to review and pare them back. But, once elected, they have done the opposite. Gov. Gary Locke was the champion originator of these giveaways, which included during his tenure billions to The Boeing Co. so it would not move assembly operations to low-wage states (such as South Carolina). Gov. Chris Gregoire promised a thorough review but one of her first actions was to extend new subsidies to the biotech industry.
At the federal level, leaders of both political parties agree that a scrubbing of tax expenditures will be vital to deficit and debt reduction. They have been unable to agree thus far on where to start. These gifts to chosen industries and companies not only shrink the public revenue base; they distort competition and retard economic growth.
The local hero of the hour on this issue is state Rep. Reuven Carlyle, Democrat of Seattle, who has legislation (HB 2762), co-sponsored by state Rep. Glenn Anderson, Republican of Fall City, which would sunset these tax breaks and force their review on a rolling basis. He would exempt breaks relating to food, drugs, employee wages, and those required by the constitution or an existing legal agreement. The underlying concept: to challenge the continuance of these provisions into perpetuity and force their reassesment and, in many cases, expiration.
The proposal is too sensible to be immediately embraced. Rep. Jay Inslee, the Democratic candidate for governor, recently issued his jobs and economic-growth plan. He, too, pledged to review tax expenditures as governor but, in the same document, proposed new ones for job creators and for clean energy, biotech, and computer startups. He proposed to extend breaks currently in place for renewable-energy development and for companies investing in manufacturing and research.
State Sen. Ed Murray. Democrat of Seattle, the state Senate's chief budget voice, recently discussed his own proposals, which would include raising more money from capital-gains and sales taxes but, at the same time, also extend some breaks.
Whether at federal, state, or local level, there always will be proposals to extend special tax treatment to entities and activities deemed virtuous by their sponsors — and the elected officials who get their political and financial support. Any respectable economist will tell you that one cancels out another and that a tax favor or subsidy extended to someone will give it an unfair advantage over others — meanwhile creating huge holes in the public revenue base which must be filled by taxes from other sources. That is where we are in Washington.
Go, Reuven Carlyle.
- The NBA, NHL, and a new sports arena: Mayor Mike McGinn has assured voters that a prospective new SoDo arena, to house new National Basketball Association and National Hockey League teams, would be built without taxpayer subsidies by San Francisco hedge-fund manager Chris Hansen, a Seattle native and sports fan. Well, there might be some taxes attached to ticket and parking fees but, really, those should not really be called subsidies.
Some City Council members are properly skeptical. If rich guy Paul Allen could get subsidies for his football stadium and South Lake Union developments, and the Mariners for Safeco Field, how is it that Hansen and prospective NBA and NHL team owners would be able to do it without them?
For one thing, there are no NBA and NHL franchises about to commit to Seattle. NBA Commissioner David Stern has suggested that the league would look favorably on a transfer to Seattle of the Sacramento Kings, if Sacramento voters do not approve a new arena there by March 1. Stern clearly is using the same tactic to blackmail Sacramento that he used unsuccesfully while trying to force Seattle into big new public subsidies to keep the Sonics here. Current betting, though, is that Sacramento may yield to the tactic and come up with the money to keep the Kings in town (Sacramento's mayor is Kevin Johnson, a longtime NBA point guard).
Even if the Kings were to move here, we would then have to contend with the Kings owners, the Maloof brothers. The Maloofs are Vegas guys and even more crass and demanding than Stern. They would make us wish again for the slightly less grasping Howard Schultz.
The NHL either could move the failing Phoenix Coyotes, or a future expansion franchise, to a new Seattle arena. But, first, there would have to be an arena.
McGinn has his story and apparently is sticking to it. A good policy would be to hope but verify.
- Federal Way light rail: Responding to complaints from Federal Way officlals that Sound Transit light rail was not headed their way, Sound Transit's capital projects committee unanimously has voted to allocate $24 million to a study of a rail corridor between Highline Community College and the Federal Way transit center, as proposed by board member Pete von Reichbauer and state Sen. Tracey Eide, both of Federal Way. The full, unelected Sound Transit board is expected to give a go-ahead later this month.
A 2008 ballot measure promised a station in north Federal Way as part of a light-rail system extension in King, Snohomish, and Pierce counties. But, as with other promised stations, this one fell by the wayside as Sound Transit found itself without enough money to do it. Sound Transit blamed "sales tax shortfalls" for the Federal Way change.
Sound Transit ridership and revenue projections, lists of promised stations, and construction timetables historically have been subject to radical change once voters gave the go-ahead to expansions. The reversal on the promised north Federal Way station thus should not have been a surprise. It led in turn to complaints in Federal Way about overcrowded and inadequate express bus service and, then, the von Reichbauer-Eide call for the $24 million study, which, it is anticipated, will call for even more money to run rails where they were supposed to go in the first place.
State Auditor Brian Sonntag has underway a comprehensive performance audit of Sound Transit, which is expected to be the principal achievement of his last year in office before retirement. The audit originally was proposed to cover only a small segment of Sound Transit activity but now has been expanded to include its financial management, operations, and other activities.
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