Turning Up the Heat for New Taxes

The AIAWA is paying close attention to the State Budget; there is concern that the deficit will cause legislators to target architects with a new taxes. The latest news is not encouraging. Other groups have also been watching the budget and during the recent gubernatorial campaign the state’s financial situation was a hot topic. At the time of the election, forecasters predicted there would be a $3.2 billion gap between expected revenue and planned spending. They underestimated.

Yesterday, the State Revenue Forecast Council, as reported by the Seattle Times and other news outlets, stated that the state’s budget deficit now is a whopping $5.1 billion. And, there will be one more forecast before the budget is finalized – meaning the budget hole may grow even more. The Seattle Times also pointed out that, “State spending has increased by $8 billion since Gregoire was elected governor in 2004.”

AIAWA previously warned about the impact of a big budget deficit on the profession. Even before the latest forecast, legislative leaders were predicting the need for new taxes.

Senator Lisa Brown, the Senate Majority Leader, said that the definition of tax increase is important and “closing loopholes” isn’t equivalent to raising taxes. Representative Hans Dunshee, the probable next chair of the budget-writing House Appropriations Committee, said “… it’s likely any tax proposal would go to a vote of the people.” Under the state Constitution, the legislature can by-pass the governor and put a bill directly on the ballot without her signature. Such a move would push every business group in the state, including the AIA, to raise money and have a voice on a ballot measure next year.

Longtime budget analyst Richard Davis (former head of the Washington Research Council and now with the Association of Washington Business) wrote in yesterday’s Everett Herald, “Some lawmakers will want to extend the sales tax to business and professional services.” He further writes, “Others will press to repeal existing tax exemptions. A repealed exemption is a tax hike.”

As previously reported, four years ago when the budget hole was much smaller (more than half of what it is projected at now), there was a host of new taxes introduced. In the end, they did enact a huge new tax on estates and raised taxes on selected industries and products; that set the precedent of going after targeted industries. In addition, the legislature may choose to eliminate tax incentives passed in recent years for renewable energy, energy efficiency, affordable housing or other important environmental and economic benefit programs.

The AIAWA will continue to closely review the budget and tax bills for direct or indirect impacts on the profession and your businesses. Please look for more updates from us.

Housing Liability Workgroup Issues Recommendations

The 2008 Home Construction Workgroup, a task force of Washington State Legislators, met today and issued its draft recommendations for dealing with problems in residential construction.

The legislature has been struggling with problems in residential construction for several years. After multiple attempts to expand liability for architects and contractors, the legislature created a workgroup to investigate the issue in more depth.

The workgroup has issued three recommendations:

1. Establishing a certification requirement for the five areas of greatest potential home damage (roofing, siding, framing, foundation and doors/windows), along with enhanced contractor registration.
2. Creating an ombudsman’s office within the Attorney General’s Office to receive consumer complaints, provide consumer education, and in the future to provide an alternative dispute resolution mechanism for lower cost consumer/ contractor disputes.
3. Requiring some residential construction warranties for homeowners with a narrow statute of limitation.

At the same time, the Department of Licensing has been conducting a sunrise review report (PDF) of how to best regulate residential construction contractors. The DOL’s report is complementary in some areas and conflicts in others with the Workgroup report. You can read the DOL’s full report on its website.

AIAWA has been actively monitoring the process and is providing comments to the workgroup.

If you have thoughts on the details please contact Stan Bowman, Executive Director, of the AIA Washington Council at bowman@aiawa.org.

Recommendations May Amend the Growth Management Act

Last session, the legislature created an advisory committee (AC) to examine the impact of land use decisions on climate change. The committee concluded its final meeting, is in the process of creating its final recommendations, and has issued draft recommendations for policy and funding changes. There were some significant decisions.

The AC voted to recommend amendments to the Growth Management Act (GMA). The amendments would include reductions in greenhouse gas emissions and foreign oil dependence; and create a new goal for these categories. There are also changes recommended to the State Environmental Policy Act, transportation planning, developer incentives, infrastructure funding and transfer of development rights.

Notably, the AC rejected a proposal that there be a five year moratorium on lawsuits related to the new GMA goals. The rejected proposal would have amended certain goals with the language, “Nothing in this goal authorizes the Growth Management Hearings Board or superior court to hear petitions alleging noncompliance with this new section of this act for a period of five years.” This is a significant policy decision.

The AIA|WA and other groups pointed out that the GMA is already very litigious due to its vague requirements. Adding a new requirement that can be litigated will lead to expensive and lengthy lawsuits at a time when the state and local governments should be putting their resources into policy development and the actual planning decisions.

If you would like more information about the advisory committee’s policy and funding draft recommendations, or have comments, please contact us at info@aiawa.org or 360.943.6012.

Alaskan Way Viaduct Project Update

The Department of Transportation has publicly released the details about all eight proposals being considered for replacement of the Alaskan Way Viaduct. One proposal, scenario E, received some media attention when it became clear that the Speaker of the House, Frank Chopp, was a strong advocate for it. Scenario E has since been dubbed the “Choppway” or the “Megaduct” by local newspapers.

AIA Seattle, based on membership feedback, has long been a proponent of non-elevated solutions and the removal of the viaduct. However, the AIA has been actively evaluating the options.

Tayloe Washburn, president-elect of the Greater Seattle Chamber of Commerce, and the AIA had a lively discussion about the options, political influences, the likely affects on traffic congestion, and the best interest of the public. The meeting ended positively and the AIA is also setting up a meeting with Speaker Chopp to discuss his proposal.

The AIA will continue to work on the progression of the viaduct by meeting with legislators and partners, publicizing our position with our members, speaking with transportation experts and attending upcoming Nov/Dec Viaduct Advisory Board Meetings.

Democrat Leader: Targeted Tax Increases on the Table for 2009

Yesterday, the Seattle Times reported Senate Majority Leader Lisa Brown (D-3, Spokane) is planning for tax and fee increases in the 2009 legislative session. The article states:

Senate Majority Leader Lisa Brown, D-Spokane, didn't rule out the prospect of tax or fee increases.

Brown also said lawmakers could look at targeted taxes or fees, or consider ending certain tax exemptions.

"If you look at a tax exemption and you decide you need to close it or limit it somehow, is that raising a tax? Some of it comes down to definitions," she said.

As previously reported, in 2005 the legislature and Gregoire passed tax increases on targeted industries. Based on these comments, that is likely to again be the Democrat’s strategy in 2009.

The Department of Revenue (DOR) tracks exemptions from current state taxes. Its 2008 report finds that eliminating the sales tax exemption for personal and professional services, of which architecture is a part, would generate about $4 billion a biennium for the state and $1.2 billion for local governments. That one move alone would wipe out the state budget deficit. More likely, is they will pick selected industries, such as architecture, for the tax hit.

The DOR report states:

If the sales tax is considered as a broad-based tax upon consumption, then purchases of personal and professional services consumed by individuals and businesses could logically be subject to tax.

The Seattle Times also notes that the legislature might protect Gregoire from breaking her no-tax increase pledge by putting tax increases before the voters for approval:

Paul Berendt, a former chairman of the state Democratic Party, said he thinks Gregoire and lawmakers could put together a tax package that would help balance the budget and support new programs — and send it to voters.

That would allow Gregoire to propose additional spending without signing a tax increase.

Under the Washington Constitution a referendum from the legislature to the people bypasses the governor and goes straight to the ballot.

The idea of eliminating the exemption for architecture services is not new. AIA Florida has led a multi-year battle against an effort there. Most recently they were successful in preventing a ballot measure from going before voters to implement a sales tax on professional services.

The state budget deficit for the next biennium is currently projected to be $3.2 billion and is expected to grow to $4-$4.5 billion by the time the budget is drafted.

The AIAWA will be closely monitoring the budget development very closely.