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Channel: Competitiveness – The Lens

Retailers work to shift sales, marketing tactics

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As retailers prepare for expanded operations after an initial reopening on May 8, many have already shifted their marketing and business strategies in response to the COVID-19 shutdown and to what could be long-term changes to how customers shop.

Retail has been one of the hardest-hit industries in Washington state since the pandemic response began in March. According to the state Employment Security Department (ESD), data for May 3-9 shows that 8,965 retail workers filed unemployment claims – a six percent increase from the previous week and the third highest – just behind educational services (10,165) and health care (13,340). A total of 1.78 million claims have been filed since March 7, with $3 billion in benefits paid to more than 751,000 individuals.

At a May 14 press conference, Governor Jay Inslee announced that his office has finalized the retail standard for Phase 2 of his four-phased reopening plan. The first phase was approved on May 8 which allowed for curbside service. 10 counties have successfully applied to the state Department of Health to enter Phase 2.

During the press conference, Inslee said: “there’s a number of businesses now that have increased their operations and I presume that’s going to help in our employment figures, but we’re a long ways from getting back to normal economic activity.”

While the Washington Retail Association (WRA) has put together a COVID Safety Operations Plan to help stores reopen, the big question for many retail employers is how to recover from the loss of business activity they have experienced over the past two months. During a May 15 webinar for the WRA, retail consultant Bob Phibbs told WRA members: “the reality is you’re going to have to sell your way out of this.”

However, the restrictions imposed by Inslee’s standards offer additional hurdles for businesses that rely on traditional brick-and-mortar operations.

At the press conference, WRA President Renee Sunde said retailers that have been able to continue operating during the outbreak have “mastered the art of curbside and drive-up service. Businesses and retailers of every size are innovators at heart, because that’s what great customer service is all about. It’s not the same as having a customer…in a store, but I do believe retailers are looking at how they can be creative during this next phase.”

Among business owners to operate during the shutdown is Blake Garfield. He owns the Seattle-based furniture store Bedrooms & More, and his business relies primarily on sales from in-store customers.

“There’s always someone willing to represent something (online) better than it really is,” Garfield said. “They buy online and learn their lesson and go to a store to see what they’re getting. We’ve spent a lot of years really differentiating ourselves from most companies where there’s been this kind of race to the bottom in terms of quality.”

With the shutdown keeping the physical store closed, Garfield said the business has tweaked its website by making it “more geared toward someone being confident to make that purchase online,” which in the past made up less than two percent of total sales.

Changes included streamlining the steps necessary to make a purchase and highlighting items in stock. He said the website changes have also increased phones sales “because customers are able to get their final questions answered…without having to touch it (product) physically.

Garfield said his business now also makes personal deliveries free of charge for addresses within 20-30 miles for low-priced products that otherwise would be shipped through UPS. “My hope is when we reopen those things kind of pay off.”

And while people’s approaches to retail shopping will have to change, Garfield still sees physical, in-person purchases as a critical part of his business model. Although online sales have increased, it has “not resulted in massive amount of online sales. It’s better, but it won’t keep us afloat. I think there’s always going to be a need for someone to understand quality. It’s about making sure that people that do have to come in feel comfortable.”

Although federal small business loans are available, they come with stipulations such as rehiring all employees. That, coupled with new standards imposed on the physical stores, could put a lot of retailers in a bind.

“The gamble is we’ll keep everybody and we go bankrupt, or get this company as lean as possible,” Garfield said.

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State faces $4.5 billion budget shortfall

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The latest revenue forecast released by the state Economic and Revenue Forecast Council (ERFC) revealed what most state officials and legislators already expected: a $4.5 billion revenue shortfall for the 2019-21 operating budget due to the state-ordered shutdown due to COVID-19. Still unknown is when the legislature will begin addressing the shortfall and what fiscal approach will be taken.

Although lawmakers on the ERFC support holding a special session soon, Governor Jay Inslee told reporters at a June 17 press conference that he won’t call a special session because there’s not enough votes to “pass meaningful measures. There is not that type of agreement in either chamber to make a session productive. We can call one when it will be productive.”

At ERFC’s June 17 meeting, Senate Ways and Means Committee Ranking Minority Member John Braun (R-20) said that “we should be in special session right now discussing, or at least planning for, a special session.”

Rep. Drew Stokesbary (R-31) made similar comments in a statement, writing that: “instead of crossing our fingers and waiting for Congress to act, or raising taxes in the middle of an economic disaster, it is time for our state’s leaders to get to work. The tough decisions ahead are only going to become more complex and challenging the longer we wait.”

The revenue drop follows massive unemployment that the ERFC forecast describes as “unprecedented in its depth and speed.” The state Employment Security Department (ESD) reports that since the COVID-19 outbreak 1.2 million residents have filed at least one unemployment claim.

State Treasurer Duane Davidson last year estimated that if Washington were to experience a revenue drop comparable to that of the Great Recession, it would have to lose $2.9 billion in 2020, $3.1 billion in 2021, $3.2 billion in 2022, and $3.3 billion in 2023.

The forecasted revenue shortfall for 2021-23 could go up or down depending on how severe the recession is. Some fear it could take years for the state economy to recover, while ERFC Executive Director Steve Lerch said in a statement that “forecasting right now is clouded by uncertainty around federal interventions, global pandemic trends and how quickly the economy responds if COVID-19 wanes.”

In addition to cancelling planned pay increases for state employees and directing state agencies to reduce their budgets by 15 percent, Inslee earlier this year vetoed $450 million in the 2020 supplemental operating budget. However, the supplemental budget still increased the 2019-21 operating spending by $1 billion. Operating budget spending has increased 19 percent since the 2017-19 biennium and 59 percent since the 2013-15 biennium, with much of that increased spending in K-12 education.

It’s for this reason that Sen. Doug Ericksen (R-42) argued in a statement that “we don’t have a budget problem, we have a spending problem,” adding that even with the recession, revenue for the 2019-21 biennium will still be higher than the past two years.

“Tax dollars to the state treasury are going up, not down,” he said. “The budget-crisis narrative is being put forward by those who want big tax increases, a state income tax, and massive increases in state spending.”

Although the budget stabilization account, also known as the rainy-day fund, can provide lawmakers some money to plug spending gaps, using all $3 billion in the account would still leave a $1.4 billion shortfall. Lawmakers will also have to address a $4.3 billion shortfall the ERFC forecast anticipates for the 2021-23 biennium.

Former House Speaker Frank Chopp (D-43) recently released his own proposal that includes a capital gains income tax that would generate an estimated $500 million a year. Although Chopp said in a statement that the tax “will provide critical public purposes and bring much more fairness to our tax system,” other states that rely on capital gains revenue such as California have experienced significant revenue volatility. According to the Sacramento Bee, California’s capital gains revenue dropped from $10.9 billion in 2007 to $2.3 billion in 2009 due to the stock market crash, and the state is facing a similar revenue loss.

Also favoring a “more taxes” approach to the budget shortfall is Sen. Marko Liias (D-21), who is running for lieutenant governor, wrote in a tweet: “to solve this, we must enact new, progressive revenue that doesn’t hit working families even harder. I’ve led the fight to close abusive loopholes and demand large companies pay their fair share. We need a Lt. Governor who understands the Senate to get this done.”

Although critics of Washington’s sales tax-based revenue system say it’s regressive, S&P recently noted that the state’s tax structure has “demonstrated less sensitivity to economic cycles than income tax-reliant states.”

Braun said at the ERFC meeting that the legislature should first start to address the state budget problem by eliminating new spending. “Not cutting services at all, but new spending. It’s not rocket science to realize we’re in a hole…we should stop digging…and that should happen sooner not later.”

ERFC’s next economic meeting is scheduled for Sept. 3.

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“Trojan Horse” cap gains proposal likely in 2021

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Despite Sen. Mark Mullet (D-5) narrowly holding onto his legislative seat this November, proponents of a capital gains income tax say they still intend to file a bill in the upcoming 2021 legislative session. Capitol observers have previously noted that defeating Mullet would have made such a proposal’s passage all but certain.

If passed, the bill is expected to trigger a legal challenge that some tax reform advocates hope results in a State Supreme Court decision addressing the issue of whether income is property – a position that would have important implications for other future progressive revenue proposals.

Rep. Noel Frame (D-36) is a co-chair of the state Tax Structure Work Group, which is set to deliver a report to the legislature at the end of the month on possible changes to the state tax code. The newly appointed chair of the House Finance Committee, Frame has supported legislation in prior sessions to enact a capital gains tax, though she told Lens who introduces the bill this year and in what chamber “is to be determined.”

Advocates of a capital gains income tax argue that the state tax code is too regressive, as it relies heavily on the sales tax for 60 percent of state revenue. They contend that it should be reduced or replaced with more progressive revenues streams – which would then place more of the tax burden on higher-income earners.

According to a Dec. 4 presentation to the work group by the state Department of Revenue, Washington’s overall tax burden is 8.32 percent, ranking it at 29th among the 50 states. In comparison, the overall tax burden in Oregon is 8.34 percent, while in New York it is 12.28 percent. Although there is a federal capital gains income tax of up to 20 percent, Washington is one of several states that does not have its own capital gains income tax.

Frame said any bill introduced this year would likely be limited in scope due to the anticipated lawsuit and would not address existing taxes. “It’s hard to do that before you know what the outcome’s going to be. My personal hope is it will pass the legal challenges.”

And while the outcome of the November election hasn’t resulted in a significant shift in either state chamber, Frame says she is “more optimistic” the bill can clear the legislature. “We’re dealing with a budget gap and a strong desire for there to be economic stimulus and recovery efforts. Those calls are bipartisan. That money’s going to come from somewhere.”

Sen. Lynda Wilson (R-17) is the newly appointed ranking member of the Senate Ways and Means Committee. She told Lens that there’s a good chance the bill could get out of the committee, but she is more skeptical about its chances on the Senate floor. She further noted that Mullet likely “will push back in his own caucus – and maybe a few others (will).”

Work Group Co-Chair Keith Wagoner (R-39) told TVW’s Austin Jenkins during a Dec. 10 interview that while he doesn’t support a capital gains income tax, if the proposal included a large reduction in the state property tax “and…that there wasn’t going to be some changes the next legislative session, that would be a great place to start.”

However, Wilson said “We don’t need any of these taxes, and that will be our argument (during session).”

Also opposing the idea of a tax on both policy and legality grounds is Washington Policy Center (WPC) Government Reform Director Jason Mercier. At a Dec. 8 WPC webinar he said lawmakers “propose taxes no matter the revenue. In their mind, there’s no time not to raise taxes.” He’s also noted the recent decision by Tesla CEO Elon Musk to move from California to Texas because it has no income tax.

From the legal side, Mercier has previously reported that every state with a capital gains tax considers it a part of their income tax, and the Internal Revenue Services (IRS) also considers a capital gains tax to be an income tax. He said at the webinar that outside of Washington state’s tax discussions “with no exception, no controversy: capital gains are income.”

Emails from some state lawmakers obtained by Mercier also reveal that they view a capital gains tax as a step toward enacting a progressive income tax. While a flat-rate income tax is legal, the state high court has repeatedly ruled since the 1930s that income is considered property and is subject to the state constitution’s uniformity clause. That provision requires property to be taxed at the same rate within their respective classes, such as real estate, stocks, and bonds.

“The only reason a capital gains tax is being proposed is to go directly to the Supreme Court,” Mercier said. “This is their trojan horse. They know the minute it’s passed they’re sued. The voters aren’t cooperating. That’s what this is.”

The legislative session begins January 11.

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Bellevue stakeholders: budget process elevates policy, de-escalates politics

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The Seattle City Council this year has voted to slash police department funding in the next biennium by 18 percent and has enacted a new business tax that is now under legal challenge by the local business community. Meanwhile on the other side of  Lake Washington, the Bellevue City Council plans to approve a 2020-21 operating budget that increases law enforcement funding while simultaneously closing a $16 million budget deficit – without imposing any new taxes. With the growing trend toward remote working and with increased concerns over public safety, both councilmembers and business organizations believe the budget protects Bellevue’s business climate.

“No region, no city can take advantage of their workforce or their company base,” Bellevue Chamber of Commerce President & CEO Joe Fain said. “You see the consequences of those cities that do. I see the Eastside, as a whole, setting a different example for how the public sector and the private sector work together. That extends beyond the Bellevue city limits, but it’s definitely something that we see in Bellevue.”

The Bellevue Downtown Association also supports the 2020-21 budget. Director of Public Policy Matt Jack wrote in a Dec. 3 statement that “while this budget doesn’t address some funding gaps needed to support future growth, it addresses the City’s most immediate priority – to bolster Bellevue’s resiliency against recession in order to ensure the City is poised for a swift recovery.”

Bellevue operates under a council-manager government in which the manager implements council policies and proposes budgets to the council. City Manager Brad Miyake, who was appointed in 2014, presented the budget proposal at the council’s Oct. 18 meeting. He said it “balances Bellevue’s history of fiscal responsibility with the needs of residences and businesses during this difficult time. This budget continues to fund the delivery of critical services in areas of public safety, public health…and continues to maintain and build upon the basic capital infrastructure of the city to prepare us to meet the growth challenges coming at the city.”

The proposed 2020-21 budget slightly increases total spending from the 2019-20 budget to $1.7 billion, while decreasing general fund spending by $2 million to $474 million. At the same time, the budget taps into reserves to increase spending for police to $102 million – a $2 million increase.

Funding for the Bellevue Fire Department is increased from $140 million to $163.7 million; the budget reduces planned spending in this area by not fully opening Fire Station 10 until 2023.

Deputy Mayor Jared Nieuwenhuis told Lens that while “we’re facing an ongoing pandemic and economic recession and continued uncertainty…maintaining our core services was of the utmost concern and priority for us.”

He added that another priority was “staying within our means. A lot of the kudos should really go to past city councils that always kept us within budget and never spent beyond our limits. We’ve always had strong reserves, so thanks to that real responsible management and the growth of the city, that has put us in a better position than most.”

Economic development experts have previously emphasized the importance of public safety in fostering a healthy business environment. The robberies of numerous downtown Bellevue businesses in May amid rioting have also further emphasized the role local governments play in preserving public safety.

Fain noted that the city has struck a “positive balance” by preserving police funding while launching a use-of-force investigation and data analysis. “They recognize the need to reform and to continually improve policing, but at the same time it’s not necessary to sacrifice public safety while doing that.”

Although the budget does include a small utility rate increase, Nieuwenhuis said it’s unrelated to the economic downturn and helps preserve or repair aging infrastructure. “What we’ve seen and noticed is that typically those (rate) spikes happen when infrastructure fails, and you have to raise the money in order to fix it.

Fain says the absence of new revenue talk from the city not only helps keep business tax burdens down, but it also makes it easier to gain public support if needed. “The city leaders recognize they’re being viewed as good stewards of the money they’re given by taxpayer. The taxpayers will have greater faith in giving them additional resources when that time comes. When you face a budget crunch like they are now…the desire to maintain credibility and to show they’re being responsible with public money is very clear.”

He added that with Seattle “it’s not the tax that garners the most concern or opposition; it’s a lack of faith in how the money is going to be spent.”

The lack of tax proposals during an economic downturn may also have implications for cities such as Bellevue that have large tech presences at a time when COVID-19 restrictions have dramatically increased the use of remote working.

“You can’t take anything for granted anymore,” Fain said. “The decisions that would have normally taken 15 study groups and 10 years of deep, contemplative financial analysis…are now being made on the back of a napkin after crunching a few numbers. The change of pace has never been faster.”

“I think Bellevue has a strong reputation for being very business friendly, having a very strong infrastructure,” Nieuwenhuis said. “That so many…companies were able to pivot so quickly to a stay-at-home model shows why Bellevue is so favorable in terms of setting up shop for many tech companies.”

Both Nieuwenhuis and Fain also cited the Bellevue City Council’s cohesion despite differing political views, with Nieuwenhuis saying there was “almost unanimous support” for the budget proposal.

“What we’ve seen over and over again is their willingness to work together to come up with compromise that everyone can stand by and de-escalate the politics in situations so they can escalate the policy considerations,” Fain said. “That is worth protecting.”

The council will vote on the proposed budget at its Dec. 14 meeting.

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As Inslee pushes income tax, shift in messaging to attract out of state businesses

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Part of the debate over Governor Jay Inslee’s proposed nine percent capital gains income tax, as with other prior proposals, is whether it is in fact an income tax and therefore subject to state constitutional provisions regarding property.

While state officials and some state lawmakers have sought to portray SB 5096 sponsored by Sen. June Robinson (D-38) as an excise tax on the sale of capital gains, those testifying at a Jan. 14 public hearing in the Senate Ways and Means Committee noted numerous discrepancies between rhetoric and actual policy.

Another challenge for Inslee and other advocates of the tax has been reconciling their support with how state agencies have promoted Washington’s business climate. Until just recently, the state Department of Commerce touted the lack of a personal or corporate income tax on its Choose Washington website. According to emails obtained by Lens, that information in part was removed and edited by Commerce this month and “is consistent with updates we’ve made to other materials over the past several months.” Yet in 2018 a Commerce official said the lack of a capital gains income tax was a “selling point” when trying to attract businesses to the state.

However, Inslee and others are now pivoting to touting the tax as a way to improve the state’s tax structure and provide new revenue to help cover $5 billion in increased spending for his 2021-23 operating budget. The tax is estimated to generate $1.1 billion in the 2021-23 biennium and $2.6 billion in the 2023-25 biennium.

Although Office of Financial Management (OFM) Director David Schumacher told the House Appropriations Committee during a Jan. 14 public hearing that the proposal was an excise tax and would “pass muster” legally, opponents cite numerous examples of how it is indistinguishable from an income tax. Ways and Means Committee staff member Jeff Mitchell told legislators that a capital gains tax is a tax on “the profit realized on the sale of noninventory assets.”

SB 5096’s fiscal note states that the “taxable amount is an individual’s Washington capital gains,” and a Q&A page on OFM’s website states that “the proposal applies (only) to long-term capital gains income,” noting that “earned income from salaries and wages are not capital gains and will not be taxed at all under this proposal.”

“As the bill report and text of the bill makes clear, this is a tax on income,” Washington Policy Center Government Reform Director Jason Mercier told Ways and Means. “This is not a surprise. Income taxes are on income.”

Mercier has previously documented that all state departments of revenue consider their capital gains taxes to be income taxes; there are also no states with a stand-alone capital gains income tax. The Internal Revenue Service has also said a capital gains tax is an income tax.

State Tax Policy Director Jared Walczak with the Tax Foundation also argued during the Jan. 14 public hearing that it’s an income tax because “it is structured not on the transaction itself but on a net measurement. Courts usually look to substance, not form.”

Even some SB 5096 proponents such as Budget and Policy Center Senior Fellow Andy Nicholas indicated that is the case, saying at the public hearing that “taxing profits from their (capital gains) sale” would allow the state to invest new revenue in education, health care, and childcare.

Aside from the semantics debate, Mercier said Commerce “had it right the first time” in highlighting Washington’s lack of income taxes, adding that states such as California have found them to be extremely volatile and unpredictable. It’s an observation also made in past years by the state Department of Revenue. OFM’s Q&A page says: “the state can manage these fluctuations through careful budgeting.”

While advocates like Nicholas argued the tax would make the tax code more progressive and address economic inequities in the state, others insisted the tax would harm Washington’s business climate and even undermine housing efforts.

Former Bellevue city councilmember Kevin Wallace runs Wallace Properties, a Bellevue-based commercial real estate company and serves on the Board of Trustees for the Bellevue Chamber of Commerce. He told Ways and Means that a capital gains income tax would only raise costs for housing projects – at a time when the legislature has already increased the state real estate excise tax (REET) and the ongoing eviction moratorium has deprived landlords of rent revenue.

“This cost increase has to be factored into our financial analysis,” he said. “(It) makes it even more difficult to produce transit-orientated affordable housing, and at the worst possible time.”

Though the tax sets a threshold for single ($25,000) and dual ($50,000) tax returns while creating various exemptions, Washington Retail Association Policy and Government Affairs Senior Vice President Mark Johnson told the committee that it would still affect its members, 90 percent of which are small businesses. He added that the tax would be on top of existing taxes they already pay, including the business and occupation (B&O) tax, unemployment insurance tax, and workers compensation.

“Their business is their retirement plan,” he said, adding that the legislature should “either reject this legislation or significantly alter it.”

Steve Miller owns American Distributing Co., a Marysville-based propane gas business that employs 16 people. He told the committee “I don’t think we should be penalized,” noting that his business recently helped provide propane to stores in parts of Western Washington affected by a power outage.

“Businesses like mine…are the ones (the community) come to when the times are good, also when the times are bad.”

There is no further action scheduled for SB 5096.

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Bellevue makes case for transportation package

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The City of Bellevue has experienced remarkable growth in recent years. With a population of 145,300 in 2019, up from 109,569 in the 2000 census, Bellevue now ranks as the fifth largest city in Washington – behind Seattle, Spokane, Tacoma, and Vancouver. Community leaders say the city is doing its part to address infrastructure needs, and it’s time for a new state transportation package to accommodate continued growth.

While assessing population alone is not enough to express urgent issues facing the city, it provides a valuable metric.  While in 2000 only 2,421 people lived in Bellevue’s downtown area, the Bellevue Downtown Association estimated a 2020 population of 14,200. Moreover, downtown Bellevue is also home to about 55,000 workers as of 2020 – an increase of 22,400 workers since 2000. With Amazon creating 25,000 additional jobs and Facebook adding 5,000, that number will skyrocket by 2025.

“Bellevue is very much committed to building the transportation infrastructure needed for growth,” Bellevue City Councilmember Jennifer Robertson said, noting that community leaders have been working to ensure Bellevue is preparing not only for the thousands of new workers but also for the additional job growth and expected influx of new residents resulting from the accompanying economic boost.

Such rapid expansion has produced the significant challenge of highly congested roads. While COVID-19 work-from-home policies have helped mask the issue, stakeholders point to Bellevue’s visible recovery following COVID-19 shutdowns and predicted future growth, expressing the urgent need to address transportation needs.

“The city is coming back; traffic is coming back,” Bellevue Chamber of Commerce President and CEO Joe Fain said. “The city has planned for growth, but the growth plan needs to be expedited in a way that no one predicted.”

Indeed, Bellevue appears positioned to make a strong comeback; given projections that the city will experience approximately 700,000 downtown trips per day by 2030, it’s no surprise that transportation infrastructure has become a top issue.

“Downtown Bellevue is already experiencing 65-70 percent of pre-COVID traffic volumes,” Robertson also noted.

“Bellevue has been preparing for growth for many years, but the rate of growth is faster than anyone anticipated,” she said, pointing to the fact that the city has secured $100 million in federal loans, matched by $200 million in local investments, and every legislative session, city leaders advocate for transportation funding improvements.

Bellevue residents appear just as committed; in 2016 voters approved a levy raising an additional $8 million per year for various transportation improvements.

The last transportation package passed by the Washington State Legislature dates back to 2015 and does not meet current, pressing needs for Washington state – including the Bellevue area, community leaders say. In a letter addressed to the state House and Senate Transportation Committees and co-signed by businesses including Microsoft, Alaska Airlines, REI, Amazon, and T Mobile, the Bellevue Chamber of Commerce requested lawmakers to fund specific projects aimed at solving impending problems. The letter reads in part:

Bellevue and the Greater Eastside experienced a period of dramatic growth in the years following the Great Recession. Even during the pandemic, our permit applications and growth projections remain unprecedented in scope.

We are already planning ahead for this growth in population, employment, and mixed-use development over the next several years. Specifically, Bellevue is expected to gain 10 million new square feet of office space and more than 25,000 new jobs. We ask you to consider funding the following list of projects that were developed in partnership between the City of Bellevue and Bellevue Chamber and are supported by a diverse array of companies and community organizations.

  • SR 520/124th Ave NE Interchange
  • I-405 Access to Downtown Bellevue
  • I-405/SR 520 Interchange Improvements
  • I-405/I-90 Interchange Improvements
  • Mountains to Sound Greenway Trail
  • Eastrail

Cost estimates for the SR 520/124th Ave NE Interchange, I-405/SR 520 Interchange improvements, I-405/I-90 Interchange improvements, Mountains to Sound Greenway Trail, and Eastrail projects total $369.5 million. The Washington Department of Transportation has yet to determine the cost estimate for the I-405 Access to Downtown Bellevue project.

The projects account for just a portion of the work the city has done already working with Washington State Department of Transportation (WSDOT), King County Metro, and on other improvements.

Notably, the city has covered much of the costs for some of the projects listed, collaborating with the Chamber to complete the initial legwork for the projects, including identifying specific funding and design needs.

While costs to improve infrastructure may seem steep – the consequences of state inaction will undoubtedly cost more, stakeholders say, as failing to secure transportation improvements threatens business and residential well-being for years to come.

“These aren’t necessarily forward-thinking investments; these are ‘needed yesterday’ investments,” explained Fain. “The legislature needs to move forward with a transportation package,” he said.

Wallace Properties President Kevin Wallace, a member of the Chamber, underscored the Amazon presence when highlighting the need for state lawmakers to act: “In 2016, there wasn’t a single Amazon job in Bellevue. Now we’re talking about over 25,000. None of the growth Bellevue has experienced was anticipated when the 2015 transportation package was passed.”

And the entire state has an interest in, and will benefit from, addressing these issues, leaders say. Certainly Bellevue’s growth translates into a boost in revenue for the rest of the state.

Wallace points to the “blessing” Amazon has been to the state economy. While the city collects a fraction of the revenue from the sales tax, business and occupation tax, and property tax (it sent over $1 billion in taxes to the state in 2019) Bellevue’s growth means more tax revenue for the entire state – revenue that could have easily wound up in another state entirely.

Robertson echoes the sentiment: “The success of Bellevue means success for the rest of the state” but that “the success of our region is dependent on having a robust multimodal transportation system.”

Ultimately, whether lawmakers deliver on a new transportation package is a matter of priorities. Legislators are grappling with issues unrelated to transportation – including those brought about by the COVID-19 pandemic, and many say the number of new tax proposals this session further complicates discussions.

While growth challenges can be viewed as pain-points, the community generally remains focused on opportunity. “I don’t know of another area in the country that is experiencing the same level of job growth,” Wallace said. “Bellevue has done its part. The state needs to step up.”

The post Bellevue makes case for transportation package appeared first on The Lens.

Another try for small airport loan bill

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After numerous efforts to make permanent a temporary revolving aviation loan program, state lawmakers are optimistic that this session the proposal will pass muster with both the legislature and Governor Jay Inslee’s office.

HB 1030 would establish the Community Aviation Revitalization Board (CARB) to oversee revolving low-interest loans to small airports. Stakeholders testifying at a Jan. 25 public hearing of the House Transportation Committee argued that the loans financed critical expansion work necessary for economic development.

“It’s done an amazing job and is really popular out there,” HB 1030 sponsor Rep. Tom Dent (R-13) said. “Grant money is really limited to only airport infrastructure. But (with) this they can borrow money for economic development. Our airport is the gateway to our community, so we’d like to keep it as viable as we possibly can.”

The loan program was set up with a $5 million appropriation in the 2019-21 state capital budget and is set to expire at the end of the fiscal year. A bill last year that would have created a permanent board to oversee the program was vetoed by Inslee due to opposition over the board’s structure. Dent said that since then they’ve worked with Inslee’s Office to address that issue.

The state Commercial Aviation Coordinating Commission (CACC) included the program’s extension among its recommendations made last year to the legislature.

The program allows airports with fewer than 75,000 commercial takeoffs to apply for a 20-year loan of up to $750,000 at a two percent interest rate. Washington State Department of Transportation (WSDOT) Aviation Director David Fleckenstein told the committee the loan helps “self-sustainability across our public use airports” by reducing their dependence on state and federal grant money. He added that while grant money is restricted in how it can be spent, “the loan program provides airports with an avenue to pursue those (economic development) kinds of projects.”

Port of Port Angeles Airport Manager Daniel Gase oversees the William R. Fairchild International Airport. He told the committee that the $750,000 they received allowed them to do extensive expansion to water and sanitary sewer lines, which he said was “a vital first step toward any future development we might envision. The CARB program allowed us to move ahead swiftly, years ahead of what might have been possible,” adding it will provide “new jobs, new economic opportunity on the Olympic Peninsula, and economic diversity to help our rural airport.”

Warren Hendrickson is the airport manager for the Bremerton National Airport. He noted that Colorado has had a similar program in place for decades, despite having fewer airports than Washington, and not a single airport has had a delinquent payment in that time.

“Airports are excellent shepherds of the state’s funds,” he said.

No further action is scheduled for HB 1030.

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Legal action possible over insurance commissioner’s three-year ban on credit score use for insurance plans

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In a move that has industry associations calling foul and evaluating possible legal action, Insurance Commissioner Mike Kreidler has issued an “emergency rule”  instituting a ban on the use of credit score reports for personal property insurance rates for the next three years.

Kreidler advocated this legislative session such for a ban on the use of credit reports to set insurance rates, and a measure sponsored by Majority Caucus Vice Chair Mona Das (D-47) proposed to do so via SB 5010 but failed to advance in the legislature this session following a Jan. 14 public hearing.

In a joint statement, the American Property Casualty Insurance Association, National Association of Mutual Insurance Companies, and Northwest Insurance Council said the organizations “will aggressively pursue all legal avenues to redress this abuse of authority.”

Additionally, it is the associations’ position that the directive “circumvent(s) the Washington Legislature by taking an action the Legislature recently rejected. These actions exceed the statutory authority of the Commissioner, violate the separation of powers between the executive and legislative branches of government, and could be in direct conflict with the existing statutes that regulate, but clearly allow, credit information to be considered by insurers.”

In his emergency rule, Kreidler argues that the decision is necessary in response to the recently-enacted federal Coronavirus Aid, Relief, and Economic Security (CARES) Act. “The result of the CARES Act is that all credit bureaus are collecting a credit history that is objectively inaccurate for some consumers and therefore results in an unreliable credit score being assigned to them. Consequently, this untrustworthy credit score degrades any predicative value that may be found in a consumer’s credit-based insurance score.”

“When the CARES Act fully expires, a large volume of negative credit corrections will flood consumer credit histories. This flood of negative credit history has not been accounted for in the current credit scoring models,” he wrote further.

The decision was praised by Consumer Reports Advocacy Programs Director Chuck Bell, who said in a statement that “your credit score has nothing to do with whether you are a responsible driver, renter or homeowner and shouldn’t impact how much you pay to insure your property.”

However, insurers have noted that credit scores aren’t actually used, but the data found within the reports. A 2007 study by the Federal Trade Commission found that “credit-based insurance scores are effective predictors of risk under automobile policies,” whereas driving records aren’t as predictive because of how wealthier drivers can hire lawyers to avoid tickets.

The joint statement by industry, however, says that “In the end, it is Washington consumers who will suffer, at the very worst time for the state’s economy and family budgets.”

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Legislature on verge of approving local infrastructure financing tool

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Washington is one of only two states in the country that generally prohibits a financing tool that’s popular among local governments to encourage economic development in areas lacking public infrastructure. Now however, the state legislature appears on the verge of passing ESHB 1189, a measure which would allow local governments to use tax incremental financing (TIF) while avoiding the constitutional issues plaguing similar past efforts.

The bill first cleared the House on March 3 by a 64-33 vote and was recently approved by the Senate on April 5 by 45-2.

“As Washington competes for new, 21st century jobs, this financing tool will provide the necessary capital for public benefit infrastructure costs and will make a meaningful difference in the feasibility of many projects,” Commercial Real Estate Development Association NAIOP Washington Chapter President Marty Goodman said in a statement.

As local governments look to incentivize business growth in their communities, one of the potential challenges is the lack of public resources or other investments necessary for a project to occur. These investments can at times be outside the financial means of cities, counties, and ports. One such example is that of Lakepointe, a proposed mixed-use development in the city of Kenmore that has been proposed since the 1980s, but soil conditions at the site need improvement.

TIF takes the appreciated value of a site accumulated after the project is completed and uses the increased property tax revenue to cover the costs of the infrastructure or service improvements within that area. The state first enacted the 1982 Community Development Refinancing Act. However, it was struck down by the State Supreme Court in 1995 in Spokane v. Leonard

Association of Washington Cities Government Relations Director Candice Bock told Lens that “there’s been an effort ever since, off and on, to come up with something constitutional. What’s appealing for folks is it’s a way for a development to pay for itself, particularly when the development needs extraordinary infrastructure investment to make it possible. It’s really hard to come up with money for infrastructure overall. It’s an area our state struggles with, and local governments struggle with.”

Under ESHB 1189, cities, counties, and ports can use TIF for an area worth no more than $200 million by adopting an ordinance specifying the area’s boundaries. However, unlike prior proposals, the bill would only apply to the local property tax to avoid constitutional violations.

Local government must conduct an analysis of the proposed area, in part to determine mitigation impacts to local fire district services demand and two public hearings must be held. If approved by the local governing entity, only two TIFs can be active at the same time with a combined worth of less than $200 million, a TIF cannot take up the entire jurisdiction, and the TIF area must be retired within 25 years.

Bock said TIF can be used for a variety of projects ranging from downtown redevelopment to an office park. She added that by not allowing TIFs, Washington cities have been put at a competitive disadvantage compared with neighboring states such as Oregon and Idaho the mechanism has been used in metro areas like Portland.

ESHB 1189 will now require concurrence from the House due to revisions made by the Senate.

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Stakeholders say collaboration key to Cherry Point regulatory changes

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The Whatcom County Council has unanimously approved regulatory changes to the Cherry Point industrial area following an extensive six-year process working with labor, industry, and environment representatives. Individuals representing those groups praised the code amendments prior to the July 27 vote as representing successful stakeholder collaboration.

“No one got everything they wanted, but we managed to reach a compromise, which is huge,” UBC Local 70 Vice President Zach McCown told the county council.

The Cherry Point industrial zone is one of the most regulated and environmentally clean in the world. For laborers like McCown, it provides approximately 3,320 jobs that pay a median wage of $110,000.

“I’ve been able to provide for my family and offer resources to my community with this working wage,” he said.

The new changes mean additional prohibited uses while also allowing certain new construction and expansion. Those changes were based on recommendations from the county Planning Commission submitted a year ago and were based on numerous work sessions with stakeholders. The lengthy discussions over those changes reflected their potential to bolster – or undermine – a regional economy already reeling from the curtailment of work at Alcoa Intalco’s smelting plant. Existing regulations were also blamed for the loss of a planned 250-million-gallon-per-year renewable diesel facility within Phillip 66’s refinery, which was instead built in Louisiana.

Western States Petroleum Association Northwest External Affairs Senior Coordinator Holli Johnson said that the project developers “pulled the plug because of permitting uncertainty. That’s an issue that all of the industries are facing at this time.”

She added that were the amended regulations too restrictive, “it really creates an area that economically is not viable for the jobs that it creates.”

The new regulations prohibit new fossil fuel refineries and transshipment facilities, in addition to coal power plants and new piers or docks. Renewable fuel refineries or transshipment facilities also cannot be converted for fossil fuel. At the same time, certain types of upgrades or changes including safety and environmental improvements, maintenance, and storage would be allowed as permitted uses.

“We were interested in the facilities able to operate as they have been, and be safe, and be able to modernize as needed,” Johnson said. “The new regulations that were passed out of the council do that. They allow for some expansion but also make sure that the facilities operate safely and provide safe and affordable fuel.”

A major concern for industry and labor throughout the process was what projects would be classified as conditional use permits (CUPs). Though allowed in theory, CUP projects must undergo a much more extensive process, and the process gives the county greater discretion to approve or reject a permit application.

The regulations ultimately approved by the council classify the following as requiring CUPs:

  • Refinery expansion that increases its daily max capacity to process and ship oil by more than 10,000 barrels a day.
  • Any increase in train oil loading and unloading frequency that goes beyond any limits set by the county, state, or federal government.

These CUP projects must document direct and indirect environmental impacts if a project is anticipated to emit more than 10,000 metric tons of greenhouse gases annually. Potential mitigation opportunities must also be identified.   

BP West Coast Senior Government Affairs Manager Tom Wolfe told the county council at its July 27 meeting that regulatory changes “show a skeptical public that Whatcom County is a place where the three Cs – compromise, concession, and civility – can coexist. I know how hard compromise and progress are to achieve. I’ve seen many failed attempts at moving the needle.” Wolfe said he appreciates that work done to “find that sweet spot: the area where no one gets exactly what they want, but everybody gets what they need. These skills are lacking in so many policy discourses right now.”

“For years were talking at each other,” Johnson said. “It gave us the opportunity to sit down and talk with each other. It really showed that we really weren’t that far apart.”

County Councilmember Barry Buchanan told colleagues that the regulatory package is “a lesson to other jurisdictions all across this country that you can work together, you can do things that are great for your community. It’s just win-win-win-win.”

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