NPI's Cascadia Advocate

Offering commentary and analysis from Washington, Oregon, and Idaho, The Cascadia Advocate is the Northwest Progressive Institute's unconventional perspective on world, national, and local politics.

Monday, January 29th, 2018

Transparency matters: States like Washington need to adopt a tax expenditure budget

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.

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