Hello readers,

As you may know, the Washington state legislature has been in a 30 day “special session” since May 13.  The purpose of the session was for the House and Senate to come to agreement on the next two year state budget.

However, the House and Senate are very far apart on the budget and the tax revenue to support a budget.  There are fundamental philosophical differences, particularly around taxes and tax incentives (“loopholes” to some, economic development to others).

Both versions of the budget spend over $1 billion in additional funds for K-12 in response to the McCleary decision that said that the state was not funding K-12 consistent with its Constitutional obligation.

The Senate is governed by a majority caucus comprised of 23 Republicans, one of whom is getting a bone marrow transplant for a serious illness, and two moderate to conservative Democrats.  There are 24 Democrats who make up the “minority” even though there are more Democrats in the Senate than Republicans.  While some partisans have been extremely unhappy about this, it has been a boon for the state’s business community.  This is because under this structure, pro-business Senators have been committee chairs and been able to stop bad legislation.

The House is clearly in Democratic control, with 55 Democrats to 43 Republicans. That chamber leans much more left politically, which can be problematic for business interests.  Several legislative proposals this past session would have been disastrous for tech companies.  One example is HB 1440, http://apps.leg.wa.gov/billinfo/summary.aspx?bill=1440&year=2013, which would have made hiring a contract programmer impossible without making them an employee. 

On the flip side, though, some of the newly elected Democrats have been great supporters of the tech industry.  Rep. Drew Hansen, http://www.leg.wa.gov/house/representatives/Pages/hansen.aspx, was the prime sponsor of HB 1472, which makes AP Computer Science a high school math or science credit. This bill was recently signed into law by Gov. Inslee at a ceremony held at Rainier Beach High School.

Another rising star is Rep. Cyrus Habib from Bellevue, http://www.leg.wa.gov/house/representatives/Pages/habib.aspx.  He is the prime sponsor of HB 1692, http://apps.leg.wa.gov/billinfo/summary.aspx?bill=1692, a proposal that would give a substantial B&O credit to certain types of startup businesses.  This bill has not yet passed the legislature but it has some traction.

WTIA lauds both of these legislators for their efforts to support STEM education and the tech business climate.

Unfortunately, the House passed a bill, HB 2038, http://apps.leg.wa.gov/billinfo/summary.aspx?bill=2038&year=2013, that essentially repeals the tax incentives for Research and Development (R&D).  The Senate has no intention to take this bill up so it is stalled for the moment.

The problem the tech industry is facing has multiple facets.  First off, there is a clear need for the state to fund higher education at a much higher level.  Higher education has taken the bulk of the budget cuts over the past couple years, partially made up for by higher tuition and fees.  It is plainly obvious that the market is demanding those with computer science degrees, not political science degrees.  We need those with an engineering education, not sociology.  Yet the legislature has not been as exacting to the universities about funding more true STEM degrees.  When the legislature has given specific direction to the universities in this regard, they step up.  We need to see more of this.

Yet, a kind of tit-for-tat situation has arisen where many legislators, primarily in the House Democratic caucus, believe, mistakenly, that it is the tech industry’s job to fund higher education.  Higher education is a part of the state operating budget that is funded from the taxes paid by everyone, not by one industry.

The second problem is that the R&D tax incentives are a juicy target for those seeking tax revenue.  By allowing them to expire in 2015 or by repealing them early, the legislature sees a way to add to higher education at the expense of “rich” companies that “don’t pay enough taxes”.  This way legislators can claim they are “closing loopholes” without raising general tax rates.

The reality is of course more complicated.  if the cost of doing R&D in Washington increases, something will happen.  Either jobs will be lost outright or they will move to other locales where there is incentive to do so.  Many other states and Canadian provinces are very aggressive about attracting jobs and companies to their regions and are spending hundreds of millions to do it–some quite successfully.

If you are concerned about the possible loss of tax incentives for R&D, please contact your legislator today, http://www.leg.wa.gov/pages/home.aspx.  You can take WTIA’s call to action, which we have setup to make it easy for you to communicate a message to your state representatives.  http://www.capwiz.com/techvoice/wa/home/

It is quite likely that the state budget will not get done until late June, close to the end of the fiscal biennium on June 30.  WTIA will continue to monitor legislative developments and report on them as needed.  Please contact Lew McMurran at WTIA if you want more information, lmcmurran@washingtontechnology.org