A special legislative committee studied 23 Washington tax breaks last year to see if they should be renewed. But not enough information existed to make decisions for or against 12 of those breaks, with those matters being punted to House and Senate committees.
And that illustrated a basic flaw in figuring out whether tax breaks should be renewed, allowed to expire or even created in the first place. Many existing tax exemptions and tax credits don't have specific goals to reach. In addition, many bills setting up exemptions and credit bills simply don't establish ways to measure whether they are effective in boosting the state's economy.
"The state is making an investment, and is the state getting a return on that investment?" said Rep. Steve Tharinger, D-Dungeness.
On Monday, the House Finance Committee was briefed by the staff of the Joint Legislative Audit and Review Committee — or JLARC — on the 23 tax breaks, seeking future guidance on what the Legislature's intentions are with 12.
Since 2007, JLARC has recommended terminating seven tax exemptions, allowing 12 more to expire and having 99 continue. And it has sought clarification from the Legislature about the goals for 40. The 2012 numbers broke down to recommending terminating one minor business and occupation tax break because no one uses it, continuing 10, and seeking clarification on 12. The state has more than 600 tax breaks and has ended only a handful in recent years.
The clarifications were needed because the legislation creating those tax breaks did not specifically say why they were established. Also, many tax break bills did not set measurable goals for those breaks. On Monday, JLARC staff members frequently had to read in between the lines of the tax exemption laws to figure out what the Legislature's intentions were in passing them years ago.
This highlighted a 2013 crusade by House Finance Committee chairman Rep. Reuven Carlyle, D- Seattle, to install specific and measurable goals in tax break bills — essentially to find out if they are working or to set out what they are supposed to accomplish.
"The days of rubberstamping (such bills) are over," Carlyle said.
The Olympian newspaper reported Sunday that Carlyle's committee has recommended approval of only two tax breaks this year — one for ground-up bark and sawdust from logging to be used for heat and energy, and one for honeybee pollination services. The bark-and-sawdust bill includes requiring logging operations and sawmills to repay the tax break if they decide to leave the state, the Olympian reported. Both bills easily passed the House. Meanwhile, the Senate has not yet passed any specific tax credit or exemption bills. But it did pass a bill by Majority Coalition Leader Rodney Tom, D-Medina, to require such bills after 2013 to have specific goals and expiration dates, the Olympian reported.
Finance Committee member Rep. Gerald Pollet, D- Seattle, noted the JLARC staff's struggles to figure out the intentions behind tax exemption bills now facing expiration. He wondered if JLARC could map out the potential goals and effects of new tax break bills. Roughly 30 tax exemption and tax credit bills have been introduced in the House and Senate so far this session.
JLARC auditor Keenan Konopaski said: "It's difficult to speculate in advance what potential (tax exemption or credit) benefits would be."
Republicans and Democrats, plus Gov. Jay Inslee, have frequently cited closing tax exemptions as one measure to deal with an expected $2.2 billion to $3.2 billion budget shortfall for 2013-2015 — with roughly half or more going to education fix-it work. Most cited revenue figures from closing tax exemptions have been in the $200 million to $300 million range. Inslee is expected to unveil his tax exemption closure recommendations sometime after Wednesday, which is when the latest state revenue forecast figures will be released.
But most individual exemptions and tax credits account for a few million dollars each — each one frequently less than 1 percent or even less than 0.1 percent of the predicted overall budget shortfall.
The tax breaks discussed Monday were mostly sales tax exemptions or B&O tax credits for high-tech manufacturing, bio-tech sales, solar energy manufacturing, stevedoring, the international freight business, travel agents, some insurance brokers, precious metals sales, a commuting program and food fish sales.
JLARC had specific cost-benefits figures on only one tax break — high-tech research and development tax credits, which were linked to creating 454 jobs. But the cost-benefit figures showed that companies received $45,000 in such tax credits for each job created, while pumping $25,000 directly into the economy per each of these jobs. JLARC sought future clarification from the finance committee on whether this tax credit is accomplishing its goals.
A major plank of Inslee's jobs creation plan is introducing tax credits for new high-tech businesses.
For exclusive coverage of the state Legislature, check out Crosscut's Olympia 2013 page.