Latest Tax Hike Proposal Hits Architects Harder

The new “Go Home” tax proposal in Olympia will hit architects squarely on the chin. It proposes a 20% Business & Occupations Tax hike on service businesses on architects. This tax hike would cost architecture and engineering firms over $23 million the first year and roughly $70 million over its three year term.

WA Lost 2,400 A&E Jobs This Year

Washington lost 2,400 A&E jobs in just January and February this year.  Since July 2008, Washington has lost 7,000 A&E jobs. Here is a graph from the Federal Bureau of Labor Statistics on the jobs situation for our industry.

Architects Cannot Afford a 20% Tax Hike

Architects already pay the highest B&O tax rate of 1.5% of gross receipts. The latest compromise increases the rate to 1.8% for over three years.

We agree with Governor Gregoire when she says that higher costs on the construction industry will prolong the recession. This tax increase will hamper architecture, and thus construction, from helping Washington State out of the current economic recession.

The state is relying upon construction. Construction relies upon architects. Put simply, if a project is not designed it cannot be constructed.

Every dollar spent on design supports $10 to $15 in construction. Every $10 million dollars spent on building construction typically requires 160,000 labor hours and creates 285 full-time, family wage jobs.

Don’t Raise Taxes on Businesses that are Barely Surviving

A&E firms in our state are coping with the current recession by closing offices, cutting staff, lowering benefits and reducing wages.

The direct impact of the current recession cannot be told just by the employment figures for. Many laid off architects are working from home trying to get design projects or performing consulting work. And, firms are reducing hours and using furloughs to keep staff employed but at reduced salaries. Their income is just a fraction of their previous job, but they are not technically “unemployed.” So, they don’t show up in the government reports

Since the B&O tax is levied on gross receipts, any additional tax burden will come directly out of staff, salaries and benefits. This tax is also being levied on contracts that have already been signed, but for which the work is ongoing.

The Double Whammy of Budgets and Taxes

This tax increase is a double-whammy on architects who are being hurt by other state decisions. In the proposed budget, the state is transferring almost $1 billion out of the capital budget to the operating budget. As a result, state funding for design projects has been cut dramatically.

At a time when the private sector cannot get credit for major construction, the state had curtailed its spending because of these budget transfers.

Thus, the state has cost architects their jobs through both its spending and taxing decisions.

No Design = No Construction, AIA|WA Testifies on the Capitol Budget

AIAWA testified in the House Capitol Budget committee yesterday regarding the broad based policy impacts of the 2010 Supplemental Capital Budget.

In this budget architects and design professionals took a disproportionally large loss, with some estimates saying that up to half of the construction/design budget was cut with the remaining dollars going toward “shovel ready” projects. The AIAWA testified to the mis-placement of design dollars noting that if buildings are not designed years in advance they can’t be built – so ultimately, if there are no design jobs there will be no construction jobs.

The AIAWA further noted our concern that the Governor is planning to transfer more money from the construction budget to put towards programs. Another cut would undeniably impact jobs in the construction/design sector. For every 10 million we spend on construction projects there are about 285 full-time jobs, with benefits, provided. New cuts could put hundreds of people out of work.

You can see the full hearing by clicking here. You can see testimony from AIAWA Director, Stan Bowman, below.

AIA|WA Testifies in Support of Design Funding in Capital Budget

The House Capital Budget Committee held its first hearing of 2010 on the Governor’s supplemental Capital Budget.

The news was not encouraging for architects, engineers and contractors who do public work. Because of lowered revenue the capital budget about $500 in the hole for the current biennium. More concerning is that the Governor is proposing to take another $157 million out of construction and put it into the state’s general fund programs.
Every $10 million dollars spent on building construction typically requires 160,000 labor hours and creates 285 full-time, family wage jobs. With private sector construction at a standstill, we need the state to protect its public construction dollars and invest them in design and construction jobs.

Also concerning is that the Governor is not proposing to rectify the inequities in the budget toward design projects. Design projects were disproportionately cut in the 2009-2011 Capital Budget. Depending on the numbers used, design was cut between 50% and 75% from the previous budget.
AIA|WA testified at the hearing to encourage lawmakers to consider the impacts of such low design funding. If design is not funded now, then construction projects will not be ready when the economy improves and there is money to be spent. Starting from scratch it takes three to four years to move a project through design to construction.
The design professions employ more than 37,000 workers with an average annual wage of $71,491 (in 2008). Total wages were $2.65 billion from 2,956 firms. However, 2008 was the height of design employment. Since August 2008, employment had dropped by more than 4,200 design workers.
This is just the direct employment of design professionals. Also affected are office support staff, consultants, interior designers, computer aided drawing (CAD) technicians, drafters, construction cost estimators and many more. Adding in these workers would multiply by many times the impact of the current recession on the industry.
AIA|WA will continue to advocate for restoration of design projects not funded in the current budget.

You can view the hearing at www.tvw.org.

Governor Gregoire Announces Boards/Commissions Cuts/Changes

Governor Gregoire recently issued recommendations for changes to the many boards and commissions in Washington state. (Follow the link for the Governor's press release and lists of affected agencies.)

She eliminated 17 boards via executive order and has proposed another 78 be eliminated by legislative action. She is also proposing the consolidation, movement and merger of some boards and sub-cabinet agencies.

For the most part there is very little impact on the architectural profession by these proposals. The licensing board, for instance, would be unaffected. And, many of those being eliminated likley will not be missed by the profession or the people of Washington. However, there are a few proposals that merit a closer look by the AIA|WA.

Architects serve on the following boards being proposed for elimination:

• The Capital Projects Advisory Review Board (CPARB)
• The Capitol Campus Design Advisory Committee

In addition the AIA has had an interest in the following board being proposed to be eliminated:

• Home Inspector Advisory Licensing Board

CPARB is a board that the AIA|WA helped to create and has protected against elimination in the past. It serves a vital regulatory and oversight function regarding the use of alternative public works procurement processes by state and local government agencies. Norm Strong, FAIA, is the AIA’s current representative on CPARB. It is not clear if the Project Review Committee, which reports to CPARB, would also be eliminated.

The Capitol Campus Design Advisory Committee, “Advises the State Capitol Committee and the director of General Administration to review programs, planning, design, and landscaping of state capitol facilities and grounds and to make recommendations that will contribute to the attainment of architectural, aesthetic, functional, and environmental excellence in design and maintenance of capitol facilities on campus and located in neighboring communities.” The law requires that the appointees be: two architects; one landscape architect; and an urban planner. The AIA members serving on the committee are Paul Blanton, FAIA, of Spokane and Alex Rolluda, AIA, of Seattle and Dennis Haskell, FAIA, of Seattle.

The Home Inspector board was created only recently to oversee the development and implementation of the home inspector licensing program. AIA|WA supported the creation of the licensing program.

The Governor is also proposing to create an environmental and land use hearings office by reducing and combining the Growth Management Hearings Boards and the Environmental Hearings Office

Finally, Gregoire proposes to reorganize the Department of Commerce (formerly CTED). Currently, the State Building Code Council is housed at Commerce. Gregoire is proposing to move it to the Department of Labor & Industries. John Cochran, AIA, of Seattle, serves as AIA's main representative on the board and we have several members serving on the Council and on technical advisory groups (too many to succinctly list).

There is some logic to this move. Related programs, such as elevator and electrical inspection, are housed at L&I. But, L&I is an agency that has a very political culture and has been problematic in a number of other areas. For instance, we’ve received complaints about the lack of responsiveness of the elevator inspectors.

What are your thoughts on the elimination proposals? Are they needed reforms. Or, are there problems with the proposals. Comment below.

Revenue Forecast Predicts Another Decrease

A press release published yesterday, June 18, by the State of Washington Economic and Revenue Forecast Council (ERFC), states that it “appears that we are finally approaching the end of this Great Recession.” This prediction regarding the end of the financial is based on “claims for unemployment insurance” peaking and “monthly job losses are diminishing.”

However, the release states that the bottom is still lower than predicted in March. The forecast goes on to state that “job losses will likely continue through the end of this year.” And, according to the EFRC, when the economy does rebound the improvement is likely to be gradual.

The predication also stated that the General Fund forecast for the biennium is “$27.2 billion” which is $185 million less than projected. Many newspapers have noted that Governor Gregoire intends to make even deeper budget cuts, payroll cuts, and to cap hiring because of the decrease.

Summary of New Tax Legislation Available Now

The Department of Revenue issued a summary today detailing new tax legislation enacted during the 2009 legislative session.

The Department generates the tax summaries annually to help make businesses aware of changes to the state tax system. The 2009 summary covers 43 bills and their projected fiscal impact over the next four years. You can read it here.

Additional information on specific legislation that replaces resale certificates with sellers’ permits, clarifies the taxation of digital products, and requires monthly taxpayers to file and pay their taxes electronically, is available at http://dor.wa.gov/.

3 Days Left Until the Legislature Adjourns

The major tax increase bills are having a tough time getting the votes to pass. Senate Majority Leader Lisa Brown said today that the income tax bill is dead for this year. The News Tribune is reporting that there are not enough votes in the House to pass any tax referendum this year. Since they are referenda, they only need a simple majority to get through the legislature. But, there are not enough Democrats supporting them to send the taxes to the voters.

That leaves SB 6173, to change the way contractors collect and remit sales tax. The fiscal note was revised yesterday from $40 million the first two years to $100 million, $450 million over the next 6 years. The AIA|WA, contractors and retailers worked today with the House to significantly improves the bill. All direct impacts on architecture firms were removed. The process was improved for contractors and retailers. Much work will need to be done on the rulemaking. But, it is a dramatically better bill. The House passed it with bipartisan support.

On the budget, the House and Senate Democrats reached an agreement last night on the operating budget. The House Democrats announced today that the operating budget will be voted on Friday and the Capital Budget on Saturday. No word on the timing of the final vote on the transportation budget; likely it will be Saturday or Sunday. They have not released any public documents on any of the three major budgets – possibly late tonight. So, we don’t know what’s in and out of them. We are especially interested to know if the design projects are back in the capital budget. House Chair Hans Dunshee has been fighting for more design projects. The question is whether the Senate Chair Margarita Prentice or the lead on the capital side, Senator Karen Fraser, will agree to restore the design projects.

The House late last night passed the bill to fund the deep bore replacement tunnel for Alaskan Way in Seattle. Since the bill was amended it will go back to the Senate for final passage, which is expected to concur. There were some anti-Seattle amendments attached, namely requiring Seattle taxpayers to fund any cost overruns on the project (even the state-funded portions). But, that was the only way it could get out of the House. Interestingly, Chopp was the lead proponent of that little amendment. After it passed, he voted against the bill, anyway.

Rep. Mike Armstrong (R-Wenatchee) was hospitalized last night after suffering a mild heart attack. He had surgery today to put in a stint. The word is that he is doing well. Please keep him in your prayers.