SUNDAY, JUNE 26, 2011

Chris Cargill: Finally, some breaks for small businesses

For years, many of our state’s 217,000 small-business owners dreaded the day their lawmakers report for duty in Olympia. Once the yearly legislative session concluded, they’d discover Olympia often did more to them than for them. Fortunately, the 2011 session gave small-business owners in our state a long-awaited breather.

Lawmakers were finally forced to deal with a severe budget shortfall, an ever-expanding regulatory burden, a broken workers’ compensation system and the growing cost of unemployment insurance. For some Spokane-area small-business owners, who can easily take their business across state lines and still enjoy our local quality of life, what happens in Olympia can determine whether they stay or go.

When Olympia warned it faced a major budget “deficit,” small-business owners understandably became worried. Legislators have not been shy about passing on the cost of expanding government programs to the business community. In Washington, more than 51 percent of state and local taxes are paid by businesses. The national average is 44 percent.

Working under the discipline of a two-thirds supermajority requirement to raise taxes, lawmakers got serious. Even though the 2011-’13 state budget will spend more money than any in state history, it doesn’t spend as much as some government officials in Olympia really wanted. In government, that’s often referred to as a cut. The enacted budget actually spends less than what the state will bring in – a novel concept for a Legislature that hasn’t done that since the 1990s. The state budget for the next two years will spend in excess of $32 billion, and the state’s chief economist predicts tax revenues will increase by 12 percent. But that jump will not be due to an increase in tax rates.

When it came to unemployment insurance, there was wide agreement: A 40 percent projected increase in premium cost for the second year in a row wasn’t going to fly. Labor groups had pushed for an expansion in unemployment benefits during the session. Already, more than one-quarter of laid-off workers collecting unemployment receive the maximum benefit. A further expansion of benefits was not only unnecessary, it was unsustainable. Legislators were wise and enacted premium relief instead. The plan will save small businesses in our state about $300 million over the next two years.

Small-business owners are not getting as much relief when it comes to workers’ compensation. Managers of the state monopoly have forced an increase in workers’ comp rates of more than 50 percent over the past decade, even though the number of claims has gone down. Business leaders, the governor and a bipartisan majority of state senators supported a bill that would have allowed for voluntary settlements in the form of a lump-sum payment. These settlements would have allowed an injured worker who qualifies for a pension to take about 80 percent of the value in an upfront payment. That system would have saved the state $1.2 billion over the next two years and about $500 million each biennium after that.

But facing opposition from labor groups, the governor and Legislature decided to adopt a watered-down compromise known as structured settlements. Now, only workers 55 and older will be allowed to take a settlement that will be paid out over time. The final agreement not only does not save as much as voluntary settlements, it also leaves open the probability that small-business owners will still see large workers’ comp tax increases over the next few years.

Perhaps the most daunting task for small businesses is to make sure they are complying with state rules and regulations. Fortunately, the Legislature followed the Washington Policy Center’s recommendations and adopted some common-sense reforms this session. Small-business owners are relieved to know they now have seven days to comply when they are found in violation of a minor state rule. State agencies are now also required to consult with small businesses when creating or expanding rules that impact the business climate.

Washington state has a high business churn rate – the third highest in the nation. That means we have a high number of business starts and closures. In light of this, policymakers must not view their work as complete. They still have a long way to go. But the 2011 session was a good start.

Chris Cargill is the Eastern Washington director for the Washington Policy Center (www.washingtonpolicy.org), a nonprofit research organization with offices in Spokane, Tri-Cities, Seattle and Olympia.

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