Hot Off the Grill: First week of 2011 legislative session

The 2011 session of the Legislature convened on Monday for its 105-day, biennial budget writing session. Gov. Gregoire set the tone on Tuesday in her State of the State speech when she underscored the challenges facing lawmakers in fashioning a budget in this difficult fiscal environment. The governor warned lawmakers that they now will confront the same difficult choices that she addressed in her proposed spending plan.

To make the current economic situation even more real, Senate and House budget writers will have the rare experience of having to pass a supplemental budget within a full budget year. They must do this because the 2009-2011 budget will not balance without the legislature coming up with $400 million in cost savings. This is a result of lower than anticipated tax collection for the past two years. They must adopt this supplemental budget by mid-February then turn their attention to the main reason they are here–the 2011-2013 biennial budget. That challenge now appears to be substantial, as budget drafters anticipate a $4.8 billion deficit in a $32 billion context.

Unemployment Insurance debate emerges right out of the gate
Every session seems to include a standoff between business and labor on the complex issues related to funding the unemployment insurance system, and the eligibility and level of benefits that unemployed workers can receive. Although 2011 may include a protracted debate over UI, Gov. Gregoire may have changed the nature of that debate significantly. Early in the week, the governor introduced two proposals that would have significant impact on the UI system, and, consequently on the current and future taxes that WRA member companies must pay into the system. Here is what she proposes:

  • HB 1090 (A companion bill will be introduced in the Senate)–A reduction in the “social tax” for calendar year 2011. Businesses in Washington pay into the UI system in two ways. The first is “experienced rated” taxes based on individual employers history of layoffs which result in demand for benefits from the UI trust fund. The second is the “social tax” which all business pays to cover the costs of UI benefit costs that are not covered by  experience taxes. Because of the extraordinarily high rate of unemployment and business failures over the last two years, the social tax increased 35-55% in 2010 and will increase by another 30-45% in 2011, unless the Legislature intervenes. The governor has proposed a readjustment to the social tax structure that, for 2011, would  provide a significant reduction in the social tax paid by business with little or no history of layoffs. Additionally, the governor’s proposal would prevent any increase in the social tax on employers who have experienced layoffs in their businesses during 2011.
  • HB 1091 (A companion bill will be introduced in the Senate)–The governor’s second proposal would make the tax changes proposed for 2011 permanent and add a new benefit for training for unemployed workers. Adding the new benefit for training would allow the state to qualify for $98 million of federal funding that could assist the state in administering the UI program. In recent years, the WRA has opposed any changes to the UI system that could add permanent costs in future years; however, training benefits, if monitored and administered well, could ease demand for UI benefits in the future.

Accordingly, the WRA testified on Friday before the House Labor Committee in general support of the governor’s package, provided that two levels of accountability be added to the training benefit aspects of the program. The first is annual monitoring and tracking of expenses and program outcomes; the second is that if costs for the program exceed agency estimates, the Legislature must then convene a review process to examine the program in its entirety.

Unfortunately, organized labor is demanding that new benefits for unemployed workers include additional cash payments for each of their dependents. The cost of a dependent benefit would likely result in increased taxes on businesses in the near future.

The governor’s proposals will be heard in the Senate Labor and Commerce Committee on Monday. In order for the tax schedule to be revised for 2011, a bill needs to pass the Legislature by February 8.

Alcohol issues shift committees
This year, alcohol issues in the House have moved to a different committee. State Government and Tribal Affairs, chaired by Rep. Sam Hunt (D, Olympia), will now take up alcohol legislation, and the WRA government affairs team spent the first week of session meeting with committee members and familiarizing them with industry related information. Rep. Cary Condotta (R-Wenatchee) will sit on the committee as well and has extensive knowledge on the industry as a restaurateur himself, and as a long time member on the Labor and Commerce Committee, which previously took up all alcohol issues.

Growlers to-go on the horizon?
By member request, the WRA has prepared legislation that would give authorization for spirits, beer and wine restaurant licensees to sell growlers for off premise consumption under the kegs-to-go license endorsement. Currently, the bill is in draft form with the code reviser’s office and should be ready for introduction next week.

Employee meal tax exemption proposal gains attention
This summer, the WRA began work with the Department of Revenue to investigate the fiscal impact of exempting meals that are provided free to restaurant employees. We discovered the impact to the state revenue was estimated just at $1 million. Given the state’s budget situation, the government affairs team was not very hopeful it would garner support from legislators who will have to find a way to balance an expected $4-5 billion deficit, without the ability to raise taxes with a simple majority.

In December, we began discussing the issue with lawmakers to see what type of reception the legislation would receive. Somewhat to our surprise, lawmakers have been fairly open the idea of an exemption on free meals, regardless of the fiscal impact. That may change when the reality of significant cuts begins to sink in with lawmakers, but the initial reaction is encouraging. To date, the government affairs team has met with approximately 50 lawmakers on the topic, including key members in leadership and budget writers.

Prime sponsors of the bill have been identified, and a bill  may be introduced within in the next two weeks.