Though Washington is ranked by WalletHub as having the best state economy in the nation, often lost in the mix is the growing inequity between the rural and urban development. According to Headwaters Economics, 74 percent of all new jobs have appeared in just five of Washington’s 39 counties since 2001, including King, Snohomish and Pierce. Meanwhile, counties such as Grays Harbor have lost hundreds of jobs in the same timeframe.
To rectify this, state senators have proposed a variety of bills to boost rural economic development, including a job tax credit and rural development and opportunity zone funds. Those proposals were well received during a Jan. 24 public hearing of the Senate Financial Institutions, Economic Development & Trade Committee. However, some testifiers stressed the need for long-term solutions to address the regional inequity.
Aside from helping rural communities, SB 5215 is also intended to send a message to businesses still wary after the Seattle City Council passed, then hastily overturned, a $275 job tax. Sponsored by Sen. Steve O’Ban (R-28), the bill would offer a $275 business and occupation (B&O) tax credit for employers that hire a permanent, full-time employee whose pay is higher than the annual average for that county. The tax credit would only be available in counties with unemployment rates 25 percent higher than the seasonally-adjusted state unemployment rate.
At the public hearing, O’Ban told panel members that “passing a bill like this would send a message from the legislature that we do want jobs. We want to encourage job creation – we especially want to encourage job creation in those parts of our state that have not enjoyed the economic gains that Seattle and King County have.”
Meanwhile, SB 5589 sponsored by Senate Republican Leader Mark Schoesler (R-9) would take a separate approach by outright banning local job tax ordinances. The bill has been referred to the Local Government Committee but has not yet been scheduled for a public hearing.
While any fiscal costs to the state under SB 5215 haven’t been determined, O’Ban argued that “it’s not going to cost the state anything. If an employer in a distressed area of our state creates a job and receives this modest tax credit, it’s going to create a job that has a multiplier effect. We have to be thinking of smart ways to incentive job creation. We create more jobs like this, we’re going to create more revenue.”
A similar outcome is the objective for SB 5423, sponsored by Sen. Guy Palumbo (D-1) and cosponsored by 13 Republicans and Democrats. The bill encourages job growth by creating rural development and opportunity zone funds. Investments into those funds would be eligible for insurance premium tax credits or the B&O tax. As written, 30 out of 39 counties would be considered a qualified area for the tax credit. The bill would also extend a B&O tax rate reduction for timber activities initially passed in 2007 and set to expire in 2024 for another 32 years.
Palumbo told the committee that “in this case I think it’s really, really targeted, and this is the way tax preferences should be written. Theoretically this should not cost anything over the course of this exemption. I think it is really the way we should model all tax exemptions.”
Steve Gano with Advance Capital told panel members that “part of the challenge of economic development in rural areas is access to capital,” something the bill would help rectify.
He added that under the bill’s provisions, businesses they invest in have to generate as much tax revenue as they’ve received in tax credits. If not, “we have to write a check.”
The bill is also supported by Greater Grays Harbor Inc. CEO Dru Garson, who told panel members it would “really help business to expand in underserved areas throughout the state.” He added that while Grays Harbor “has made some great strides” economically, it “still has a long way to go.”
Offering a more nuanced opinion was Patrick Connor, Washington state director for the National Federation of Independent Business (NFIB). Testifying on both SB 5125 and SB 5423, he told the committee “small business are growing more and more weary of having to come back and ask for special treatment in some areas or changes to the tax code, putting more loopholes if you will in a system that is already riddled with far too many holes.”
He added that they should consider “whether the solution being proposed actually resolves the problem or simply a band-aid that helps to mask a deeper flaw in our system. We would argue that far too many public policy decisions affecting the cost of labor as well as the tax burden and the disparities and regressiveness of our system are largely responsible for some of the problems with economic growth in many parts of our state.”
No further action is scheduled for either bill at this time.