State tax incentives give our economy a needed lift

Competition for expanding and relocating business is increasing right along with emphasis on economic development. Candidates for elected office made job growth a hot-button issue during the election season, and that talk will surely continue among politicians and the media as we head full-steam into the legislative session.

Washington state finds itself at a crossroads in this debate. Already lagging behind other states in its offering of business inducements, Washington is in danger of slipping further back in the pack.

The most important economic development issue facing the Legislature surrounds the extension of state tax incentives for business. Five tax credit programs designed to support key industries or rural economies will sunset if the Legislature fails to keep these programs on the books:

  • High Tech Sales/Use Tax Deferral

  • High Tech B&O Tax Credit (R&D Credit)

  • B&O Credit for Help Desk Services

  • Rural County Sales/Use Tax Deferral

  • B&O Credit for Software Development

    Washington’s use of these incentives was hotly debated during the last legislative session. When the budget was finally passed in June it did not include the funds to extend these initiatives. Support was strong but not sturdy enough. Opposition from some who would call these programs "giveaways" and an extremely tough budget situation prevented these tax credits from being continued.

    Not extending these incentives past next year saved the Legislature some money — about a nickel compared to what our state came up with for Boeing. I cannot ultimately second guess our leaders in Olympia. Their job was extremely difficult last year and they did do the right thing for our aerospace industry. I will say, though, that they put off a very important issue that now needs to be resolved.

    Our state revenue projections are starting to grow and already legislators are full of ideas on how the funds should be used. Here’s an idea. Let’s invest them in these programs to support growing businesses first and foremost.

    Incentive program investments have delivered a significant return in Yakima County and boosted the area’s reputation as being a pro-business locale with a host of supportive tools. Business costs are lower, opportunities for tax breaks are greater, cohesion of business leadership is high, and Yakima is better positioned to respond to the individual needs of relocating and expanding businesses.

    The Legislature’s policy discussion in 2004 should not center on whether we need these programs at the state level. It should revolve around how we can make the incentive programs already in place even more effective.

    In this vein, part of the policy discussion surrounding the extension of these tax credits needs to address accountability concerns. State agencies should be able to collect information from companies about their business plans and activities if they use these programs. Gathering this intelligence is a key part of monitoring and evaluating how these incentives work and impact our state economy.

    In Yakima, the evaluation process has identified successes and ways the incentives can be better used to complement the location, workforce and quality of life advantages the area brings to the table.

    Balance is needed, though, because a paperwork mountain is the last thing we need to create. If we erect too many hoops they become a disincentive. We need to gather the right information, but it should be obtained in a short and sweet manner from business applicants.

    Putting a sunset provision on these tax credits is the other sensible accountability measure. It will help ensure that Washington gets to evaluate these programs again. My pitch to our leaders in Olympia: Let’s deal with these accountability issues and focus on what other incentives might be needed to grow our state economy out of its slump.

    As legislators evaluate new tax incentives, they do not necessarily have to give away the farm. Some of our competitors have gone too far and I wonder whether they get any benefits at all from a new business investment. Thorough cost/benefit analysis can help the Legislature determine which proposed incentives will provide the best return on investment.

    The competition for business investment is global, and Washington can ill afford to drop out of this race. The successful chase for Boeing’s new 7E7 facility dramatizes the importance of incentives for us here in Washington. Someday our nation, our sister states or other countries may move past this competition. In the meantime, let’s recognize that Washington puts comparatively little into business incentive programs and work to save and build upon the tax credit programs already on the books.

    David McFadden of Yakima is chair of the Washington Economic Development Association.

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