A Senate bill making its way through the Washington State Legislature aims to attract more manufacturing companies to move to the state and incentivize those and any existing businesses to remain and build their projects within Washington. SB 5642, which would offer tax deferrals for eligible manufacturing projects to be reinvested into job training programs, was voted out of committee this week and sent to Rules.
Proponents of the bill argue the money would be well-spent. According to the National Association of Manufacturers’ website, manufacturing has the highest multiplier effect of any sector, at a $1.81 economic return per dollar invested nationally.
Although few signed in to testify in both committees it passed, stakeholder comment highlighted the importance for attracting manufacturing companies to the state, and incentivizing jobs in those fields.
Prime sponsor is Senate Majority Deputy Leader Sharon Brown (R-8), and cosponsors include State Sens. Curtis King (R-14), Mark Miloscia (R-30), and President Pro Tempore Tim Sheldon (D-35).
Brown: Creating ‘A Level Playing Field’
At a March 30 public hearing in the Senate Ways and Means Committee, Brown told members, “What I love about this bill is it gets the state out of the business of picking winners and losers, it allows all of the manufacturers to compete for these projects on a level playing field.”
“The pilot was so successful last year that it closed within a couple months and we had projects, three of them on this side of the state, two on the eastern side of the state and we were asked to bring the project back because of its success,” she added.
The legislature in 2015 established the Invest in Washington pilot program, which offered a sales and use tax deferral for construction costs for five manufacturing facilities in Spokane, Benton, Pierce, and Snohomish Counties, which had two.
According to the bill report, the program was “established to evaluate the effectiveness of providing a tax incentive for businesses that invest in manufacturing facilities and equipment and reinvest those tax savings in employee training programs.”
After the completion of the project, deferral recipients had five years to begin repaying the taxes, finishing before the ten-year mark. Those taxes were then deposited in the Invest in Washington Account, managed by the State Board for Community and Technical Colleges.
According to the report, the collected funds were required to support state-approved apprenticeship programs in manufacturing or production, and advance job skills and customized job training programs, and workforce professional development.
SB 5642 would make the deferral program permanent. Under the substitute version, two projects per year would be eligible, one in eastern Washington and one in western Washington, and the program would begin on January 1, 2018.
During February 16 executive session in the Senate Agriculture, Water, Trade and Economic Development Committee, State Sen. Maralyn Chase (D-32) argued against the bill’s passage. “I want to build manufacturer operations all across the state and I want to make sure that when we do so, we know what we are doing, and that if we do a pilot program, we get a report back saying that this worked or didn’t work,” she said. “Because we have not had a report back on these pilot programs, I am asking for a no vote on this.”
Encouraging Manufacturers To Remain
During the bill’s first public hearing in that committee Brown said, “The genesis for this bill came because I was getting exasperated of listening to a lot of requests for B&O tax exemptions” and she “absolutely loved” the idea of a pilot program for the entire state.
“We had manufacturers across the entire state that were able to avail themselves of this program…we had manufacturers that were getting ready to leave this state that wrote to me that ‘you know what, because of this program we are now going to stay here, we’re going to build our manufacturing facility here,” she added.
“These are manufacturing jobs you guys are incentivizing,” Eric Lohnes told the committee. He is Government Affairs Director for the Association of Washington Business.
In 2015, “those programs were picked up quickly and this just allows other companies and other economic development regions to take advantage of this,” he added. “Those deferred amounts are then reinvested back into employee training.”
Removing Cost Barriers
Chris Green, Assistant director Department of Commerce, offered his unique perspective on the decision-making process manufacturing companies go through when determining whether or not to move to Washington, factoring in property and equipment costs.
He said, “Often times, one of the barriers to enter the market is the upfront cost of construction, so that sales tax cost that they would pay here and incur is one that they do not pay nearby in Oregon where there are similar demographics and similar attributes that companies like.”
Green added, “We are working with a variety of companies every year that frequently let us know and advise us that the delta between their cost to enter Washington versus Oregon is wide largely because of that sales tax they incur on the construction.”
Another important factor for companies is the ten-year operating cost forecast, according to Green.
“Those are the two things we evaluate but the point is just to communicate that we hear that frequently that that’s a cause of concern and that is a reason why we are sometimes not competitive when we are competing with neighboring states,” he added.
However, Chase argued that Washington has other qualities that attract business. “It seems to me that when you point out that businesses are reluctant to come here because of B&O tax and they could go to Oregon, I think it would be helpful to point out that Oregon has an income tax,” she said.
On Monday, April 3, the bill passed the Ways and Means Committee and was sent to Rules.