In the last days of this year’s legislative session, state lawmakers – without any prior discussion – introduced and passed a new tax on financial institutions via HB 2167, a measure that is expected to generate $1 billion over the next decade. The Washington Bankers Association (WBA) has now filed a lawsuit against the state, arguing that the law violates not only the Commerce Clause under the U.S. Constitution, but also the state constitution as well.
WBA President and CEO Glen Simecek told Lens that the issues at stake should concern more than those just affected by the new tax. “At what point do you raise objections to the lawmakers who exempt themselves to the rules in a process for stakeholder input? Today it’s banks, but who’s it going to be next?”
The lawsuit represents the first legal challenge to the use of “title-only” bills by lawmakers to circumvent Article 2 Section 36 of the Washington Constitution, which prohibits new legislation from being introduced within 10 days of session adjournment without a supermajority vote of the legislature. The intent is to prevent last-minute legislation and ensure that stakeholders have time to provide feedback and criticism. Also known as “ghost bills,” “title-only” bills are introduced prior to the cutoff date, allowing lawmakers to add bill language later.
When first introduced on April 10, HB 2167’s text read only “The legislature intends to enact legislation concerning tax revenue.” That language remained until April 26, when a substitute bill version was adopted and then passed by lawmakers April 28. The fiscal note was also not available until after the bill had been passed.
The use of “title-only” bills isn’t new. Nearly a decade ago, Washington Policy Center Government Reform Director Jason Mercier documented their use during the 2010 legislative session when state lawmakers raised $800 million in new taxes to help cover a $2.8 billion budget shortfall.
“Decisions of this magnitude should have been made in the light of day and with full public involvement,” he wrote in a policy brief. “Instead the 2010 Legislative Session was plagued with numerous transparency transgressions which hindered citizens’ ability to participate.”
However, Mercier told Lens that HB 2167 is the worst case he’s seen so far. “This bank tax was nowhere in any part of session, at any part of time, until it showed up in the committee as they were voting on it. In the past, they pulled from bills or things that had existed in session beforehand. This is the first time they did it on a total brand-new concept with 48 hours left in session. What I have been sounding the alarm about for the past decade – this is what’s at risk.”
Simecek agrees. “A bill that’s going to raise $1 billion over 10 years from one industry makes the point that others have before. This is, in my mind, the hypothetical example that’s been discussed in the past.”
The Nov. 5 lawsuit argues that “By nearly doubling the B&O (business and occupation) tax on specified financial institutions—all of which are non-Washington financial institutions—employing and serving a significant portion of the public throughout the state, the Act will have an imminent effect on broad segments of the economy and population. The resolution of Plaintiffs’ claims will also have a substantial effect on the state Legislature’s abuse of “title-only bills” to evade constitutional requirements for legislation.”
Mercier believes the constitutional provision’s clarity will make it hard to justify “title-only” bills. “I’m fascinated to see how the attorney general defends it.”