OPINION EDITORIAL

April 16, 2004

Washington’s business climate is still a problem

Bob Williams | President | Evergreen Freedom Foundation
Despite all the signs that Washington’s business climate is in need of serious reform, it took a $715,000 taxpayer-funded contract with a consulting firm to spell it out for Governor Locke, and it would seem Washington’s state officials still haven’t gotten the point.

In the quest to win Boeing’s 7E7 final assembly project, the state contracted with Boeing’s own consultant, Deloitte & Touche, to study how Washington compared with other states. While the state’s contract with Deloitte raises many conflict-of-interest issues, the study’s findings demonstrate what any business owner in the state could have told us for free.

Deloitte’s report gave Washington a "disadvantage" rating in seven key areas: labor costs, unemployment insurance, workers' compensation, construction costs, state and local tax rates, environmental permitting, and overall business climate.

That’s 0-7. Let’s be glad the Mariners got off to a better start than that.

To address these concerns, the state turned to massive subsidies and a few modest reforms. Unfortunately, with the exception of small changes in unemployment insurance, most of the legitimate reforms and all of the subsidies went only to Boeing.

And even these were not enough. As Benjamin Romano reported in the Yakima Herald-Republic: "Boeing is still concerned about the business climate in Washington. And despite billions of dollars in state incentives to land assembly of Boeing’s next generation 7E7 commercial airplane, Washington is, in many respects, business unfriendly . . ."

According to Romano’s article, Boeing still has the following concerns:

• The state has some of the highest business-tax burdens in the country, mostly because of the business and occupation tax.
  
  
• While unemployment insurance costs will rise less because of last year’s reforms, Washington’s program is still very expensive relative to other states.
  
  
• Workers’ compensation premiums are "rapidly" increasing. "Unless we get reform," [Boeing] said, "our system will get more and more expensive."

Boeing’s concerns about Washington’s business climate are not new. In 1999, Boeing CFO Debby Hopkins told a Chamber of Commerce co-sponsored event: "Compared to everywhere else we do business, Washington is below average. To remain a global leader for aerospace—and a global leader for other industries—Washington has to rank a whole lot higher than that."

Several states have proven that the tough changes needed to improve the business climate can be made:

New York implemented several key reforms, which had a dramatic impact on the state’s business climate (now ranked 11th). The state made historic reductions in taxes; pushed through needed regulatory reforms; repealed an energy tax on businesses; deregulated energy markets; reformed its unemployment insurance system; and reformed its workers' compensation system, which reduced costs for employers.

Pennsylvania, ranked 16th, has a similar story. After a series of reforms in the late 1990s, the Lincoln Institute reported that when economists were asked to rank which reforms most improved the state's business climate, 34 percent said workers' compensation reform and 28 percent said the cut in the corporate income tax rate—the top two responses.

At the time, Lowman S. Henry, Chairman of the Lincoln Institute made a prediction: "Clearly the business climate reforms undertaken in Pennsylvania during the past four years are beginning to have some impact... What the economists are telling us in this survey is we've got to pick up the pace of reform if we want to make progress relative to other states."

Mr. Henry was correct. Aggressive reforms slowed, and state job creation is now lagging. Pennsylvania Governor Ed Rendell is now proposing a new plan to borrow over a billion dollars and spend it on economic development. According to the April 2004 Keystone Business Climate Survey, 72 percent of the business owners responding said they disagree with Rendell’s plan—39 percent of those disagree strongly.

According to Mr. Henry, "the business owners said they would prefer the state lower taxes and cut regulations. Ninety-two percent favored that approach over the Rendell borrow-and-spend plan...."

Unlike Pennsylvania, North Carolina has not rested on its laurels. According to Site Selection Magazine, which makes the annual ranking of business climates, North Carolina has had the number one business climate for the last three years and continues to make all the right moves, including freezing its unemployment tax rate last year.

By contrast, it has been nearly a decade since Washington was counted among the top 25 business climates.

Unfortunately, measures addressing minimum wage reform, regulatory reform and workers’ compensation reforms all passed Washington’s state Senate this year, but died in the House.

Some legislators still insist on trying to solve problems by using tax revenue to prop up businesses the state deems worthy; but only long-term improvements to the fundamental costs of doing business in the state will improve the overall business climate. Legitimate statewide reforms must be the priority of all state officials.

Washington can be transformed from a state with a "disadvantageous" business climate to one that fosters economic expansion, but bold leadership and a sustained effort like that in North Carolina is needed. Otherwise, Washington will continue to suffer job losses, budget shortfalls and economic uncertainty.

Bob Williams is president of the Evergreen Freedom Foundation, an Olympia-based policy research organization dedicated to individual liberty, free enterprise and limited government.

Contact: Booker Stallworth | Communications Director | 360-956-3482

Evergreen Freedom Foundation P.O. Box 552, Olympia, WA 98507 Phone: (360) 956-3482, Fax: (360) 352-1874 Email: effwa@effwa.org