Tacoma B&O

It appears stars are moving to alignment if not aligned. From different directions come attention to the Business & Occupation (B&O) Tax unique to Washington state and self-selected municipalities.

Most recently, the Washington Policy Center's Part I: Characteristics of a Responsible Business Tax System, has become available. This is their opening shot (Part I of III promised), that begins realistically enough as an introduction to the Washington B&O tax set in a context of what a tax is and is supposed to do.

This opening paper by the Washington Policy Center was eerily similar to an integral part of the final report by Tacoma's Service Tax Task Force report about reforming Tacoma's revenue system. Your Chamber had a representative participate in this review of Tacoma's tax system. A significant recommendation to the City Council was that Tacoma's (portion) of the B&O tax be nixed as it is an impediment to economic development of the City.

Recently, the City Council's Government Performance and Finance Committee surfaced the issue of the Tacoma B&O tax, partly in the context of the Russell Investment retention effort, but also from a desire to grow the economy (and tax base) of the City.

As abhorrent as many businesses find the B&O tax, it is easy to understand the dilemma the City finds itself: desiring to be more business-friendly engendering development and jobs vs. retaining funding necessary for city services. As an example, the City's 07/08 budget anticipates $81,551,200 in revenues from the business tax, which is 20% of their revenue source. That's a budget cut that is not easy to absorb.

Tacoma's history with the B&O has been that of the good intentioned and the greedy. Tacoma was grandfathered into its higher-than-state-allowed rates. But, it has never increased rates even more as the grandfather clause allows, according to Mayor Baarsma. The City had been on a ramp-down process for the B&O from 1999 to 2002, when its continued reduction was halted. But, it raised the B&O floor to $70,000 in 2001. (If the floor had been indexed to inflation, it would now be $83,247.)

Complicating B&O reductions beyond the international services tax initiative is the state's mandate of the apportionment of taxes back to jurisdictions (a sharing of sales tax to jurisdictions where goods or services are delivered).

Committee Chair Mike Lonergan and Councilmember Julie Anderson were outspoken in their desires to improve the economic climate of the community by addressing the burdens of the B&O tax system, although positive attitudes on the issue were heard from other councilmembers.

Ryan Petty, Director of the Tacoma Economic Development Department, Alan Harvey, a member of the former STTF and Gary Brackett, your blogger and also a member of the STTF, were asked to share viewpoints about the B&O and its reduction. Petty recommended the Council look to industrial targets consistent with the City's strategic development plan, and to tailor incentives consistently. Alan Harvey spoke only briefly about the compliance issues associated with the B&O tax in recognition of the unfairness of this taxing methodology. Brackett supported Petty's comments on focusing on strategic goals with its taxing policies. Specifically, Brackett noted that reductions in a B&O tax could be accomplished by:

1. focusing on strategic objectives
2. raising the floor overall
3. setting a maximum payment
4. relating to employment sizes
5. overall reductions among all payers

As with the City's initiative with the international financial services elimination, getting rid of the B&O can be done over time, rather than aggravate budgetary challenges with significant revenue reductions.

All this discussion comes as the objective of the City Council is to provide sufficient revenue for the needs and desires of the City's citizens is best accomplished by growing the tax pie or keeping a significant portion of what exists now. For a discussion of what tax burden Washington's businesses carry, with implications for their economic competitiveness, see the new 6th annual report by the Washington Alliance for a Competitive Economy.

ROW vs. Wading

It seems like our potholes and rough street repairs form pools sufficient for wading or even rowing. And that lack of quality has the City Council's attention.

The Tacoma City Council Environment and Public Works Committee yesterday (5-28-08) afternoon discussed a new, state-of-the-art policy aimed at preserving Tacoma's investment in roads.

As part of the City's overall direction to improve streets, the Council committee is too considering how utility cuts for access for maintenance, repairs and installation of new services impacts these roads. Cuts and trenches are made for Internet and TV cable, telephone lines, electric power lines, natural gas pipelines, potable water, storm and sanitary sewer collection.

City Public Works/Streets provided some estimates for how much the proposed changes would impact customers. The most common denominator is a mid-block (as opposed to corner lot) residential property needing to replace a 6" diameter sanitary sewer lateral. The homeowner is responsible for all costs from his/her home, including the riser, to the sewer lateral. The assumption is that the street is 30' wide and existing asphalt is 4" deep. Following are the costs for street repair, not repairs to plumbing!

The standard practice is for 1' cutback. That requires an estimated $780 to repair.

The proposed rule is a 3' cutback & half street that must be repaved if disturbed. Since the cutback includes both halves of the street as this example has the sanitary sewer on the opposite lane, both sides are disturbed. Estimated cost of street repairs: $2,310.

Net difference between existing rule and proposed rule: $1,530, a 196% increase.

Although Tacoma Public Works (other than the streets department) and Tacoma Public Utilities are impacted by these requirements, none attended AND participated in the discussion of the impact of this proposal on customers. Only Comcast and Puget Sound Energy commented. All these public and private utilities might be expected to be disinterested in the imposition of such rules. They could be expected to pass those costs to all the ratepayers in the utility area, or have the costs accrue to the homeowners and not pass through the utility at all.

However, such is not the case with Puget Sound Energy. Reported earlier in this advocacy blog are reports on the expected declaration of the Tacoma metro area as a non-attainment area for PM2.5. The chief culprit for the region's poor air quality is conceded to be wood smoke from residential fireplaces or older, inefficient wood stoves. There are two likely fixes for the air quality problem. One is to subsidize the replacement of old stoves for homeowners.

The other is to assist in the conversion of homes to the most efficient fuel - natural gas or electricity. (There are strategic ramifications ((conservation and fish)) for increased demand of electricity as a fuel.) However, this street replacement rule will place substantial costs on homeowners desiring natural gas. For instance, Seattle adopted a similar street replacement rule about 18+ months ago. Since then, PSE has an 80% reduction in new customers (forcing even more of the market to electricity.) Thus, the unintended consequences of the proposed right-of-way (ROW) restoration is to block natural gas as an economical alternative to remedy the poor air quality of the region.

The Chamber spoke to the Council's committee members, about this particular unintended consequence. Additional points that were made were:

1. The ROW replacement should be relevant to the disruption, not to a larger than necessary area;


2. The ROW replacement should not be a defacto street renovation/maintenance program;
   
3. The ROW replacement program should not seek to place costs on the utility ratepayer for costs that are the responsibility of general government to maintain streets;


4. Public and private enterprises should be treated the same (a level playing field) in all requirements as to the program including fees and permitting.

It is the sense of this blogger that the Council's Environment and Public Works Committee wishes to recommend an aggressive ROW restoration program. The fairness of that program and the impacts on individual home and business owners and each utility's ratebase of customers remains to be seen.

Advocating Local Procurement for Local Business

The Chamber has an active program to share with its membership business opportunities with all levels of government. An aspect of this advocacy is encouraging local governments to have an open and inclusive program for our local businesses.

Enclosed is an acknowledgement of the Pierce County procurement program. For FY 2007, Pierce County procured $200,686,316 in supplies-services-land-capital equipment-etc. More than 50% of those payments went to local providers.

Do You Mean IT or IT?

Most people don't connect international trade (IT) and information technology (IT).Yet today's "Exporting in a Free Trade World," a forum devoted to free trade agreements (FTA) and opening markets demonstrated that connection.

While the brief forum was necessarily limited to just two countries -- Canada and Colombia -- a broader discussion included some neighboring countries. Speakers, included Margaret Hanson-Muse, Counselor for Commercial Affairs, U.S. Embassy (Bogota) Colombia. She had participated in the US-Peru Trade Promotion Agreement negotiations (telecom and customs chapters), for which she was recognized by the Department of State with her second Superior Honor Award. In December 2006, Pfizer S.A. recognized Ms. Hanson-Muse with its first annual leadership award "for her exemplary support ... in defense of Intellectual Property rights."

Both Ms. Hanson-Muse and Matt Gaisford, Ecuador/Panama Desk, U.S. Department of Commerce attested that the proposed FTA for Colombia and Peru, as well as the existing Trade Promotion Agreement (TPA) with Panama, included those countries acceptance of the Information Technology Agreement, basically allowing IT in duty-free.

For Panama, Washington's 2007 exports of computers and electronic products totaled $1.5 million. Washington's exporters of computers and other information technology equipment will benefit from the U.S.-Panama TPA tariff reductions. Certain U.S. exports of information technology equipment will receive duty-free treatment immediately upon entry into force of the Agreement, including DVDs, telephone and fax equipment, semiconductors and medical and lab instruments.

Washington's manufactured-export category for computers and electronic products was $3.3 billion in 2007. The U.S.-Colombia TPA improves market access for Washington's information technology goods and service providers. Nearly 100% of U.S.exports of products covered by the Information Technology Agreement, including important exports of computer equipment and communications equipment, will receive duty-free treatment immediately upon entry into force of the agreement. With the immediate removal of most tariffs, U.S. exports will become much more competitive and affordable to Colombians.

Now, the benefit is mostly one-way with Colombia enjoying access to the U.S. market duty-free. The top U.S. exports in this sector include computers, computer parts and radio and TV broadcasting equipment. Adoption of the U.S.-Colombia FTA has been put on hold through action of the administration to hurriedly place the issue before Congress, and Congressional leadership's action to void time commitments to delay the issue past elections.

Our thanks to the FTA forum sponsors: U.S. Commercial Service, Tacoma-Pierce County Chamber, World Trade Center Tacoma and the Port of Tacoma for bringing this discussion of the facts on this public policy issue to the community.

US-Korea FTA Coalition Forges Ahead

As part of its 23rd annual Washington-to-Washington, D.C. advocacy trip, the Tacoma-Pierce County Chamber attended the U.S.-Korea FTA Business Coalition meeting May 12.

Held in the offices of the U.S. Chamber of Commerce, the full Coalition's meeting featured remarks by Korean Minister Choi Seok-young. During those remarks, Minister Choi confirmed his country's commitment to full implementation of the FTA protocols despite the demonstrations at home of those opposed to the beef agreement reached with the U.S. agricultural interests.

It was noted during the meeting that both the Presidential Campaign and the Congressional calendar are working against the U.S.-Korea FTA's adoption. Even though political and administrative matters are working against ratification, the Congress did plan a hearing on the FTA Tuesday.

Washington, which is represented by several pro-trade Democrats (logically), is one of 13 key states. Others are: CA, NY, OR, CO, IA, WY, PA, MN, WV, OH and NJ.

What Will EPA Decide by When

Now that it's clear the State of Washington has made its recommendation to include the bulk of the metro area into a Wapato Hills-Puyallup Valley Non-attainment Area for PM2.5, the questions are what will EPA decide to do and by when?

EPA is required (Section 107(d)(1)) of the Clean Air Act to notify states no later than 120 days prior to the signature date for designations if it will modify the states recommendations. Signature on final designations is due by December 18, 2008. Therefore if the Agency (Administrator) modifies designation recommendations, it will send letters to those states where it intends to modify in July of 2008.

States will then have an opportunity to explain why they think EPA's modification is not appropriate (has been by letter, informally in the past). EPA is saying it will not be publishing a proposed notice and soliciting comments. The administrator's signature will be on its final action.

EPA will publish a final rule soon after the Administrator's signature (expect in January 2009 or late December 2008 depending on when the designations are signed). That rule will be effective 90 days later, likely in March 2009.

Capping the CAPO

The City of Tacoma has received a 60-day extension from the Growth Management Hearings Board for the purpose of conducting a second public hearing before the Tacoma Planning Commission. Below is an updated schedule for completion of the CAPO update.

The Planning Commission has set a public hearing on April 16, 2008 at 5:00 p.m.

April 2
Planning Commission - Authorize Public Distribution of Revised CAPO Regulations; Set Public Hearing date

April 16
Planning Commission Public Hearing

April 25
Planning Commission Public Comment Period Ends

May 7
Planning Commission discussion of testimony

May 21
Planning Commission Recommendation to City Council

June 3
City Council Study Session on draft CAPO regulations and Commission’s Recommendations

June 10
City Council Public Hearing on draft CAPO regulations

June 17
1st Reading of Ordinance

June 24
2nd Reading of Ordinance/Adoption

July 1
Deadline for City Council action

This process has been moving very quickly. The Chamber and numerous businesses had recommended an extension of the CAPO development period so that unintended consequences,, conflicts and duplicative regulations would not be imposed.

The community has made a lot of progress in crafting the revised CAPO, click on "Critical Areas Preservation Ordinance." However, there are still some outstanding issues and concerns and this extension will allow the City to hold an additional public comment period in which the City can listen and respond constructively to additional input.

Please feel free to contact staff Molly Harris at 253-591-5383 or Stephen Atkinson at 253-591-5531 if you have any questions or concerns.