Editor’s Note: On Thursday, January 18th, the Washington State Senate Ways & Means Committee heard testimony on an important bill that would implement one of NPI’s 2018 legislative priorities… a tax expenditure budget. NPI Advisory Council Member Steve Zemke (also a founding member of NPI’s Board), spoke in favor during the public hearing, explaining why this legislation is sorely needed. The following are Steve’s edited remarks from that public hearing.
Madam Chair, Members of the Committee:
Thank you for this opportunity to testify on this legislation.
This is the fifth year this bill has been before you, and each year it picks up additional support. SB 5513 has fourteen sponsors and its companion bill in the HB 1500 has thirty-three sponsors. This is almost one third of our state legislators.
Legislation to create a tax expenditure budget is supported by a growing list of groups in our state, including:
- Washington State Budget and Policy Center
- All in for Washington
- Washington State Labor Council
- League of Women Voters of Washington
- Washington’s Paramount Duty
- Washington State Democratic Party
- Washington Education Association
- SEIU 775NW
- Northwest Progressive Institute
- Washington Federation of State Employees
- Washington State Council of Firefighters,
- Faith Action Network
- Puget Sound Advocates for Retirement Action
… and others.
Why are these groups supporting this legislation? Because they believe that a system of tax expenditures that gives away more in revenue from the tax base than it collects is a broken system. They believe that tax exemptions need transparency and accountability and fairness. That does not exist now.
Tax exemptions, preferences, deductions, credits, and deferrals are off-budget expenditures. They lack the transparency and accountability that exists for other expenditures the state makes as part of the biennial budget process.
According to the Department of Revenue’s projection in their 2016 Tax Exemption Report for the 2015 to 2017 biennium, the state is anticipated collect some $7.4 billion in business and occupation taxes but exempt from the same tax base some $11.4 billion. This gap has widened since the last biennium.
Including the rest of the tax exemptions in their report, the Department of Revenue projected that off budget tax expenditures would total almost $40 billion while only collecting revenue totaling some $32.6 billion.
Of the six hundred and ninety-four tax exemptions in that report, about four hundred and fifty are discretionary. The Department of Revenue projected that in the 2017 to 2019 biennium that of the $54 billion in projected tax expenditures, some $30 billion would fall into “potential revenue gains”.
This legislation does not mandate wholesale repeal of tax expenditures. It asks for accountability and transparency and biennial review, and helps the Legislature end exemptions if they do not meet the priorities of government — as with expenditures in the regular biennial operating budget or supplemental budget.
Concern about the current system includes a quickly dated tax exemption report by the Department of Revenue that is only updated once every four years.
Most other states in the country update their report every two years or less. California updates their Tax Expenditure Report every year.
Companies like Microsoft, Starbucks, Expedia, Adobe and Boeing all must report to their stockholders every year and issue quarterly profit and loss statements. Their financial statements are scrutinized by their stockholders.
It does not make sense that Washington State only updates its Tax Exemption Report every four years. It will next be updated in 2020. It should at a minimum be updated every two years, just as the state biennial budget is..
Only seventy-three of the six hundred and ninety-four listed exemptions in the 2016 Tax Exemption Report have sunset provisions.
This means 89% of the tax expenditures have no sunset provision, and never require the Legislature to ever vote on them again. Meanwhile, all expenditures in the regular operating appropriations budget are scrutinized and voted on every two years with adjustment made in the second year of the biennium.
Also, in the tax exemption report, fifty-four exemptions are listed as “unable to disclose” the amount of revenue involved. Businesses and other entities are benefiting from state tax law in getting exemptions and lower or no taxes.
The public has a right to know the value of these exemptions. The public has a right to know that these exemptions are creating jobs or providing valuable services to Washington State citizens just as they expect expenditures in the regular budget appropriations bill to produce.
We require that accountability in the regular budget appropriations process – we don’t say we’re spending state revenue, but the public doesn’t have the right to know because the recipient doesn’t want us to know what they are getting.
With the current lack of accountability and transparency and sound fiscal review and evaluation as to whether current tax expenditures meet the state priorities of government and have clear measurable objectives as to their effectiveness in meeting state needs, taxpayers and citizens in this state increasingly believe state government and the legislature are not doing their job.
Please step up and vote to fix this broken tax expenditure system that severely lacks needed transparency, accountability and sound fiscal management of our total state budget.