Inslee Seeks Tax Hike For Environment Fund

Model Toxics Control Act Also Funds Stormwater, Recycling, Forestry, Hatcheries And Other Programs

The Lower Duwamish Waterway in Seattle is one of the sites where environmental restoration work has been funded through Washington's Model Toxics Control Act (MTCA). But in recent years lawmakers have diverted MTCA revenues to patch budget holes in other environmental programs that had been served by the General Fund. MTCA intake peaked when oil prices spiked, and now as revenues settle back toward average levels, Gov. Jay Inslee is seeking a surcharge to MTCA's tax source. Photo: Washington State Department of Ecology.

Governor Jay Inslee in his 2017-19 capital budget is proposing to raise Washington’s Hazardous Substances Tax (HST), to bring revenue for the Model Toxics Control Act (MTCA) program back toward a 2011-2014 peak caused by higher oil prices. Draft legislation has been readied. Opponents say MTCA has become a cracked-open piggybank for projects across numerous state agencies that had been – and still should be – mainly financed through the General Fund, not something intended to be a limited-purpose special tax.

MTCA stems from voter-approved Initiative 97, which became law in 1989. The Department of Revenue estimates the tax surcharges would yield another $79 million over the next three state biennial budgets. The 2015-17 MTCA capital budget is $463.7 million, spread across 5 state agencies. Its biennial operating budget is $200.4 million, parceled out to more than twice that number of departments.

The biggest chunks go to the state Department of Ecology, where MTCA funds 37 percent of the operating budget, and 27 percent of the capital budget. Within the program’s current base budget allocated to Ecology, only 40 percent of total spending goes toward toxics cleanup and hazardous waste and toxics reduction.

The HST is paid mainly by oil companies operating refineries in Washington. It is applied to the wholesale value of first possession of hazardous substances. On top of the base HST rate of .7 percent, Inslee wants a surcharge of .14 percent for the upcoming biennium and another in each two-year period thereafter, of .03 percent, unless annual revenues exceed $160 million.

At a hearing of the House Environment Committee January 16, Ecology’s Chief Financial Officer Eric Fairchild told legislators, “There’s always been a healthy debate about the appropriate uses of MTCA, and certainly the first 20 years, 15 years, the focus was clearly, and where the dollars were appropriated, was on toxic site cleanup, prevention and management, and solid waste…In recent years MTCA has been expanded to some other uses.”

Stormwater A Priority

Foremost among those is control of stormwater, which can convey hazardous substances from developed surfaces into soil, and water bodies such as Puget Sound, worsening pollution. All involved agree stormwater control deserves continued support from the state, but that a different funding source is needed.

House Environment Committee Chair Joe Fitzgibbon (D-34) told Lens, “I think the surcharge is warranted. I don’t think that it would fare that well in the Senate. The legislature needs to consider a brand new source of funding for stormwater, and core needs at Ecology” as well as the Department of Natural Resources, and the Department of Fish and Wildlife.

Fitzgibbon added, ”there is no question a lot of activities that don’t traditionally meet the intent” of the MTCA program have been funded through it in recent years. Stormwater management and pollution control is “critical,” but the needs exceed funding available through the MTCA accounts, Fitzgibbon said.

‘Slush Fund’ Concerns

Rep. Shelley Short (R-7), Assistant Ranking Minority Member on House Environment, said, “There’s been a lot of volatility in the program. I haven’t been a fan of the sweeps.” The surcharge proposal “may be sounding an alarm that’s not needed. This Governor has a propensity to seek increases just to seek increases, and grow government.” She added, “we want to ensure a clean environment, and get those legacy sites cleaned up, but we have to also ensure MTCA doesn’t become an agency slush fund.”

In addition to stormwater projects, MTCA has been used for air quality, shorelands, waste-to-resources, and spill prevention programs, plus Ecology administrative costs. Other uses have included forestry regulation, water control at state fish hatcheries, wood stove removal, Christmas tree recycling, trail construction, pamphlet production, and compost bins.

‘Heavy Reliance’ On MTCA For Program ‘Backfill’

Darcy Nonemacher, Legislative Director for the Washington Environmental Council told lawmakers on the House Environment panel, that “MTCA was used to permanently keep the lights on and backfill” Ecology programs which lost state General Fund support.

“The heavy reliance on MTCA is essential to keeping critical programs afloat” and “doing a lot of the capital investment work,” she said.

Expectations Raised

Representing the Western States Petroleum Association (WSPA), lobbyist Greg Hanon told the committee oil price spikes from 2011 to 2014 raised MTCA revenues and expectations.

“The proposed MTCA surcharge would set a baseline expectation…at $160 million per year, yet in the entire 26 years of the account, there have been only four years” that have exceeded that take. In constant 2015 dollars, Hanon testified state data show per-capita collections were $14.53 in 1990, $15.50 in 2016 and are projected to be $19.99 in 2021, without the surcharges. “We have no less available now, we have simply found more ways to spend the money,” he said.

In a handout for the lawmakers, WSPA states, “An increase in the MTCA tax rate will make Washington’s five refineries less competitive. These refineries already pay four times the taxes paid by similar refineries in California…Washington state policies should support an industry that generates 26,000 jobs, $1.8 billion in economic impact, and $269 million in tax revenue to state and local governments. It’s time to stop using MTCA funds to backfill the general fund and use it as intended – to focus on environmental priorities.”

Other Revenue Sources Sought

If the surcharge effort fails this year, Fitzgibbon said, “I’ll want to see what else” lawmakers are willing to support to make whole the environmental programs that have relied on fund sweeps from the MTCA accounts.

Fitzgibbon added that an example of such a source, could be a carbon tax. Fitzgibbon said he will be introducing legislation for a carbon tax the week of January 23. Carbon reduction programs, not toxics to stormwater, would likely have first claim on related revenues, but as state budget politics show, malleability is a byword.

Inslee has also proposed a carbon tax, in his biennial budget. Like the HST surcharges, that will encounter stiff resistance in the Senate. Major carbon emitters have filed suit to block Inslee’s Clean Air Rule, which they see as a carbon cap mandated without the benefit of legislative deliberation. It was enacted administratively through Ecology last year, and takes effect this year.

Fitzgibbon this week underscored to Lens a point he has emphasized before; that a carbon tax is a free-market mechanism, and if legislators and stakeholders can work out a deal, a key component could be to override the current Clean Air Rule.

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