Washington state's tax-break brawlers can take the fight outside

After the legislature's grueling session of damaging budget cuts, the courts may be the place to continue the fight to end tax giveaways to businesses.

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Speaker Frank Chopp leads House Democrats.

After the legislature's grueling session of damaging budget cuts, the courts may be the place to continue the fight to end tax giveaways to businesses.

Legislators have ended another grueling and painful budget-cutting exercise. Even as state population and demand for education and social safety-net services are on the increase, the lawmakers slashed another $4 billion from the state’s operating budget.  

And, as they raced to complete work on budget-related bills before the end of the special session, the legislators shelved most efforts to curtail tax breaks that drain revenues needed to fund essential services. 

A major disappointment to proponents of tax-break reform was the failure of a bill sponsored by Senate Ways and Means Committee Chair Ed Murray (D-Seattle) that would have placed a referendum before the voters asking that they decide whether tax breaks should be terminated or modified under the supermajority rule of Tim Eyman's Initiative 1053. Polls had indicated that the public supports a simple majority. The bill was heard in committee but not brought up for a vote.

The sheer magnitude of the budget revisions and other fiscal issues was a contributing factor. Arriving at a compromise budget demanded long negotiations between House and Senate, and the resulting spending agreement required numerous bills to implement program cuts. And those measures had to be carefully crafted to reduce the likelihood of lawsuits. Other major spending issues — workers' comp, capital budgeting, debt limit reduction — also absorbed much available time.  

However, the early position taken by Gov. Chris Gregoire and Democrat budget writers that no additional revenue would be assumed in crafting a budget was also a major factor, as were the very late efforts to introduce potentially winning measures on tax-break reform. 

Although numerous bills were introduced in the House that addressed special tax preferences, exemptions, and loopholes, including measures that earmarked revenue gains to fund specific programs, none were enacted into law. Only one bill made it to the House floor, where it failed to receive a two-thirds majority on final passage. But its failure may evidence a longer-term strategy to return to a simple majority requirement for reform of tax breaks. 

Some background is needed: In 2008, Senate Majority Leader Lisa Brown (D-Spokane), petitioned the Washington State Supreme Court to rule a bill that applied a surcharge on the sale of certain types of liquor (to fund DUI patrols and chemical dependency treatment)  should not be subject to the supermajority voting requirement of Initiative 960. That earlier Eyman initiative, adopted by the voters in 2007, required a two-thirds vote of both houses of the legislature for any tax increase.  

The 2008 bill in question received a bare 25 vote majority in the Senate, and the Senate's presiding officer, Lt. Governor Brad Owen, ruled before the vote that a two-thirds majority was required for passage. He also deferred to the court as the arbiter of matters involving issues that require constitutionality determinations. In this case, the issue was which majority vote applied, the constitutional majority (simple) or statutory majority (two-thirds). 

But the court in a unanimous decision ruled that the issue was of “nonjusticiable” political nature, and that “intervention of this court into an intrahouse dispute over a parliamentary ruling to compel the president of the senate to perform a discretionary duty would be a grave violation of separation of powers.” 

A new legal challenge may have been programmed by House Speaker Frank Chopp (D-Seattle), who was presiding when a House measure, HB 2078, was brought to a vote. The bill proposed to fund K-3 class size reductions by eliminating the business and occupation tax deduction on first residential mortgages.  

The measure, sponsored by Rep. Laurie Jinkins (D-Tacoma) and cosponsored by 47 other Democratic House members, sought to tax the mortgage interest earnings of financial institutions that operate in more than 10 states — "Wall Street banks" — producing $143 million in the 2011-13 biennium.

The Speaker responded to three very carefully worded points of order from fellow Democrats with technical and obviously rehearsed comments that delineated the constitutional bases of legislative voting and the court's role in establishing the ground rules. After a long debate (you can watch it here on TVW), and after getting a 52-42 favorable vote, Chopp ruled that the bill failed since it had not received a two-thirds majority.  

One can speculate that the bill was put to a vote to make a political statement — that House Democrats support education, which took a serious hit in the budget that was shaped to a large extent by the Senate's bipartisan budget approach. Or, more likely, it is, in fact, the opening move in a legal challenge to the supermajority requirement. Or it could be both. 

The issue, if brought to the court, may be limited to whether a tax-break reduction is equivalent to a tax increase. Or the case might ask the larger question whether a statutory supermajority is constitutional. Either way, the court will need to revisit its ruling in Brown v. Owen that it "will not interfere in the internal proceedings of a legislative house to overturn a ruling on a point of order."

If a legal challenge is successful, the Jinkins bill would, of course, need to be reintroduced and pass both the House and Senate in a future session. Given the close partisan and philosophical split in the Senate, even a simple majority vote on a bill that gets into the issue of housing costs is not certain there. But changes to other tax breaks might fare better. 

If there is an upside to this rather dismal picture, it's the failure of several bills that had proposed expanded and extended tax breaks. These included a bill that would have increased a tax credit for motion picture producers at a cost of $7 million.

State film subsidies have been described by one national study as a "wasteful, ineffective, and unfair instrument of economic development." Another bill that would have removed the sunset date for a high tech tax credit stalled, thus allowing this problematic tax break, which largely benefits firms with abundant cash reserves, to be reviewed next year as scheduled.  

Although there were some individual heroes, the 62nd legislature will not be remembered for the courage of legislators collectively to step up to the need for revenue and the opportunity they had to find some of it through the elimination of unnecessary and expensive tax breaks.


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About the Authors & Contributors

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Dick Nelson

Dick Nelson is a former Washington State legislator. He currently contributes to the public debate on state and local fiscal issues through research and commentary. As when he was in the legislature, he prefers the Democratic Party.