Don’t Forget Small Business


UPDATE 3/5/15: HB 2150 referenced below was just scheduled for a public hearing on 3/13/15 8 AM in Olympia. You can also submit email comments in support of this pro-small business legislation here: email comments

The state legislature is dealing with some very serious and complicated policy decisions in the 2015 legislative session.  I am concerned that with all of the heavy issues on the legislature’s plate, another session is going to come and go without anybody focusing on policies that will actually support small businesses in this state. Small businesses are once again taking a back seat to other priorities.

The state is under court order to provide funding for mental health so we stop warehousing the mentally ill in emergency rooms. It is under another court order to fully fund basic education under the McCleary case. There is a new $15 billion transportation revenue package in the works, the first significant investment in our infrastructure since 2005. These multi-billion dollar policy issues are in addition to the normal work to pass an operating budget and a capital budget. Then throw in around 200 other policy bills that are making their way through the legislature. There are also a number of bills that are designed to address the problem of income inequality. The House just passed a new $12 minimum wage bill which is now headed to the Senate. The House also passed a paid sick leave bill.

Putting aside the merits of any one of these policies, the fact is that many of them are going to raise costs for small businesses disproportionately.  A large multinational shipping company can absorb the costs of a gas tax increase more easily than a small business that relies on sending trucks to clients’ homes, or a contractor who has to drive to job sites. A company that makes $24.7 billion in profits per year like Walmart can afford a $12 min wage more easily than a mom-and-pop dog kennel can.  A company like Microsoft that made $22 billion in net profits last year can afford 2 weeks of paid sick leave for employees more easily than the nail salon down the street.

One easy way to help true small businesses would be to reform our arcane Business and Occupancy (B&O) tax. Unfortunately, that is not on the docket again this year. First a little background on this tax.

The B&O tax is a tax on the gross sales of businesses in the state. It does not tax businesses based on their net profits which makes infinitely more sense. Washington is one of only eight states in the country that have a version of a gross sales tax. This gross B&O tax accounts for 20% of state revenues each year.


Another reality of our B&O tax is that we have over 650 special tax exemptions in our tax code. Much like the federal IRS tax code, the B&O tax is starting to resemble Swiss cheese. Businesses and industries that are profitable enough to afford expensive lobbyists and campaign donations get special treatment. The mom-and-pop businesses that make up the fabric of our communities get no such special treatment. The following quotes from Rep. Reuven Carlyle’s blog  explain the problem more eloquently than I can:

“I maintain my personal philosophical conviction that the best state tax structure is low rates, broadly and fairly applied to everyone with few special breaks. We have the diametric opposite with high rates, narrowly and unfairly applied with hundreds of special tax breaks. It’s unfair to those without lobbyists and campaign cash.”

“When a tax break (i.e. tax preference, tax exemption or tax incentive) is adopted by the Legislature for a given company or industry, it is essentially a “tax shift” more than an actual reduction and in most cases the real philosophical losers are at least small businesses–the vast majority of our state’s 345,961 total registered businesses that earn $250,000 per year or less in revenues that don’t receive the preferential treatment.”

Most small businesses lose money in the first three years. During that time, they are still creating economic development in their communities. They are paying retail sales tax on equipment and hiring subcontractor labor. Some are lucky enough to be creating new jobs. They are paying for advertising and a whole host of other goods and services which feed the 47.2% of state revenues that come from retail sale tax. For businesses like mine that require large physical properties, we are paying into the 12% of revenues that come from property tax. It is during these critical start-up years that mom-and-pops need all the support they can get to be successful. Instead, we tax them on gross sales while handing out tax exemptions to highly profitable corporations and industries. It’s just wrong.

The obvious solution to this fairness gap is to tax businesses on net profits, not gross. For a number of reasons, most of which are bad, the idea of a net tax is a third rail of politics down in Olympia. Obviously any business or industry which currently enjoys special tax breaks will fight the idea. Any lobbyist who makes a living by procuring tax exemptions for clients will fight the idea. I hope one day we can get there but it’s not even part of the political discussion at this point. It will take courageous leadership to make it part of the discussion. If we have to stick with the unfair gross B&O tax, there are other ways we can make it fairer for small businesses.

The state has a small exemption up to $25k in gross sales for business that choose to take it. In 2014, Governor Inslee requested HB 2678 that would have raised the threshold up to $50k. I took the time to go testify for it because it’s a great idea. Despite having the backing of Republicans and a Democratic Governor, the bill didn’t pass. You can see how many businesses that would have impacted on the following chart provided by the Department of Revenue for fiscal year 2014:


Another fix for the B&O was sponsored this year by Rep. MacEwen, HB 2150. It’s a well thought out model that addresses the issue of fairness for small businesses. It’s a complicated policy that is best explained here:

Unfortunately, this bill didn’t even get a hearing this session.  It does have some bipartisan support (co-sponsored by Rep. Reykdal) so perhaps it will get more attention in the 2016 session.

In summary, we need to start supporting small businesses in this state. One meaningful way to do that is to fix the B&O tax. We need leaders who are going to speak out on this topic regardless of the political ramifications. And we all need to remember that true small business owners are a forgotten part of the middle class. A business that grosses less than $500k, and makes far less on a net basis, should not be equated with multinational corporations that make billions in profits.


Infrastructure Is Required For Growth


The Snohomish County Council has begun their work on adopting a new Comprehensive Plan.  This plan is updated every ten years and it sets the direction for population and job growth in the county over a twenty year time frame.  The decisions made by the county then trickle down to the cities and inform their planning decisions as well.

The biggest decision to be made in the plan has to do with population growth targets.  In 2008, after almost four years of planning and extensive public input, the Puget Sound Regional Council created what is known as Vision 2040. That document includes a plan known as the Regional Growth Strategy which directs counties and cities in the Puget Sound to plan for population growth in dense cities, urban growth areas, around transit corridors and near job centers. This plan is consistent with the goals of the state’s Growth Management Act.

The Snohomish County Comprehensive Plan provides two main growth target alternatives for the council to consider, Alternative 1 and Alternative 3. The main difference is that Alternative 1 directs approximately 20,000 additional residents into Everett and Lynnwood while Alternative 3 directs that population growth into the unincorporated areas, mainly the Southwest Urban Growth Area (SWUGA). Alternative 3 also includes additional zoning changes to provide for infill in the SWUGA.

Recent guest commentaries in the Herald have illustrated the disagreements between the two competing interests in the county with regard to land use. The environmental community prefers Alternative 1 and the development community prefers Alternative 3. Shannon Affholter and Kristin Kelly both make valid points in their commentary.

Whichever alternative the Council chooses, I hope there is a robust regional effort to provide the infrastructure needed to fuel past and future growth. The Transportation Element of the Comprehensive Plan identifies a $101 – 137 million shortfall in funding for county roads. That plan only maintains the same level of service on our roads that we have had for the past 20 years, during which time the population has grown considerably. The funding options listed to close this gap seem unrealistic. This funding gap is on top of the need for state investments for state roads such as SR 9, SR 527 and SR 522.

As was pointed out, the North Creek area is the number one new home sales market in the state for a variety of reasons and shows no signs of slowing down. Residents outside of Bothell and Mill Creek and east to Maltby are already feeling the effects of the past 10 years of county growth. The Transportation Element identifies rural roads that already have an urban level of traffic on them, several which support growth in this area. These neighborhoods on the eastern edge of the SWUGA and west of RT9 are also the most likely to be included in any future Urban Growth Area (UGA) expansions. If that happens, it will put additional pressure on our infrastructure.  It is very clear that we need an investment in South County.

If the legislature does pass a transportation revenue package, it is critical that Snohomish County receives an investment that reflects our value to the state economy. If Snohomish misses the boat in 2015, it might be a very long time before we get another chance to provide citizens with the transportation system necessary to support growth.


P.S. You can provide input to the Council on the Comprehensive Plan right now using the following link:

2014 Election Results


Here are the 2014 general election results for the 1st legislative district.

  • Despite the lack of a coordinated ‘No on I-1351′ campaign, the district passed I-1351 by only 50.2%. The state as a whole passed the measure with 50.9%. For comparison purposes, the last education related initiative on the ballot was the charter school bill (I-1240) in 2012 which passed by 52.7% in district. The 1st continues to be a very divided district on education issues.
  • The district rejected I-591 by 60.2% compared to 55.3% at the state level.
  • The district approved I-594 by 64.5% compared to 59.3% at the state level.
  • District voters chose to “maintain” both of the taxes imposed by the legislature at a higher rate than the state as a whole. In 2012 the district supported I-1185  by 63.7%. I-1185 required a 2/3rds vote of the legislature to raise taxes.  It’s unknown whether district voters’ attitudes have changed regarding taxes this election, if they didn’t understand the advisory votes or if they simply supported these specific taxes.


Require Specificity on McCleary

As we head into the general election and the 2015 legislative session, the biggest issue on the table is the McCleary decision. We need problem solvers in the legislature to address this generational challenge. Voters deserve to hear concrete answers from our elected officials, and candidates, about their solutions for funding education. To that end, we need some new rules when it comes to discussing McCleary.

When asked how you would fund education, if you say the words “tax loophole,” you must list the specific loopholes you will close. Here’s a link to the Joint Legislative Audit & Review Committee:

If your answer includes the phrase “fund education within existing revenues,” please list the current programs you will cut to achieve the minimum of $3.5 billion we need. Here’s the budget link:

If you say fund education first and talk about new revenue later, see the prior paragraph. In addition, please list the new revenue you would be in favor of and what budget items you would buy back with the new revenue.

And if you say “fund it through new revenue,” please list the new taxes that you are going to pass. Be realistic in your proposal. Remember that 64% of voters across the state, and 67% of Snohomish voters, turned down an income tax in 2010.

This is not a year for consultant crafted sound bites. Our kids deserve better.


Make Your Voice Heard On County’s Future

Snohomish County is currently updating its Comprehensive Plan which will be finalized by June 2015. The plan maps out how the county will accommodate population and employment growth through the year 2035. It touches on policy areas such as residential and commercial construction, parks, schools, utility facilities, transit, roads, employment and zoning.

The county has prepared an excellent website to explain the plan and provide opportunities for public input. You can find it at the following URL:

As a county resident, this plan impacts your day to day life. You can take a simple, concrete step to help shape the plan.

Simply navigate to the Alternatives page on the website and click on the Alternative Maps Portal link on the left hand side of the page. Then choose the 2015 Future Land Use Map Changes link. Zoom in to view your property and your neighborhood and see what changes are proposed. Then contact the county and provide your feedback. If your schedule permits, show up to the Planning Commission meetings in October and testify in person before the plan is sent on to the County Council for final consideration.

You can have a direct impact on the future growth of our county.

Thoughts On McCleary

What troubles me most right now regarding McCleary is the huge disconnect between the two sides, and I don’t see how it gets remedied. It’s a little like “Men Are From Mars, Women Are From Venus.” The two parties in Olympia really seem to be living on two different planets.

The Supreme Court ruled the state has not amply funded basic education, to the tune of $3.5+ billion per biennium. It directed the legislature to provide ample funding for education, including HB 2261 which is the current definition of basic education. The 2013 session produced about $1 billion of funding to meet the demands of McCleary. The court just weighed in on the legislative progress and said it is not enough. The court wants the legislature to produce a funding plan by this April to meet McCleary by 2018. That request hasn’t exactly received a warm welcome in Olympia. Because 2014 is an election year and we don’t have a deficit to deal with in a supplemental budget, we are not going to see any significant progress on McCleary until the 2015 budget.

On Mars we have the Democrats and the WEA. They correctly believe the court’s decision strengthens their arguments for funding education. The Supreme Court just affirmed what the Democrats have been saying for years. Why should they cave into any demands on education that do not fall under the court’s decision? There are three branches of government (Governor, House, Supreme Court) and the Superintendent of Public Education who all agree funding existing education laws is our paramount duty.

On top of the policy merits, they might believe the politics are also on their side. If the Majority Coalition Caucus (MCC) in the senate holds a hard line on new revenue for education, the Democrats can let the court put the hammer down while blaming the MCC at the same time.

But here is where the planets diverge from one another. Democrats believe pressure from the court will ultimately force the MCC to act on revenues. If you pay attention to what folks are saying, it seems clear that many members of the House GOP, the MCC and even some Democrats all believe the court overstepped its constitutional powers.

If the Democratic negotiating position is based on the assumption the MCC will eventually cave on revenues to avoid a constitutional crisis, we may be in for a big gridlock problem.

Over on Venus we have the MCC and the education reform community. They are adamant about not putting more money into a failing system. They want reforms made to the system, especially for low income and minority children. If the House isn’t going to help them rewrite the definition of basic education to change where McCleary dollars are spent, then they are not voting for new revenue.

They also might feel that McCleary gives them the political leverage to extract concessions in other parts of the budget, specifically Health and Human Services. They see the court’s decision as a hammer to make education a priority within existing revenues. Again, we have another celestial divergence.

If the MCC’s negotiating position is based on the assumption that the House Democrats and the Governor will have to cave on cutting DHHS to avoid a constitutional crisis, we may be in for a big gridlock problem.

I hope I am dead wrong. I hope there are already deals being made behind the scenes. I hope both sides get serious, like the court asked, and start agreeing to compromises to advance toward our goal of providing a quality education to every single child in this state.

Perhaps the two sides could meet half way on Earth?


Taxis vs “Rideshare”

Imagine for minute that you owned a small business that sells Widgets.

To operate your business legally you have to pay for a city Widget license, you have to have your Widget factory inspected by the city to verify it meets safety requirements, you have to pay for hundreds of thousands of dollars of commercial liability insurance and prove to the city that you have it, you have to undergo drug tests, FBI background checks and a number of other service related requirements.

Now imagine that a new competitor opened up down the block from you. The city then allows that competitor to operate for over a year without meeting ANY of the requirements you had to meet, none of them. You would be pretty angry wouldn’t you? That would be fundamentally unfair wouldn’t it? That would be a case of our government picking winners and losers and messing with the free market, right?

That is exactly what has been going on in Seattle with taxis and the so called “rideshare” companies.

If you check the headlines in the last week you might be under the impression that the Seattle City Council is trying to “shut down” these companies and is out to stifle innovation at the behest of the “taxi monopoly.”

Pure hogwash.

The prosecuting attorney’s office ruled earlier in the year that the “rideshare” companies do not meet the RCW definition for rideshare vehicles. They are, in fact, illegal for-hire vehicles. The mayor and the council were within their rights to issue a cease and desist order for the past year and they decided not to. If the council really wanted to shut down these companies, they could have. Instead they let them operate illegally, with a huge competitive advantage, to the detriment of the legal for-hire vehicle owners and drivers.

Can you name one other industry in the city where one group of businesses is allowed to operate free of regulations and costs while another group of businesses, in the same industry, has to adhere to crushing regulations?

The council has spent a year deliberating, cajoling and listening to everybody in the industry in an effort to craft legislation that would be fair to everybody. You might not like what they came up with, I sure don’t, but spare us all the indignation. We can debate the merits of specific regulations but having a customer facing app doesn’t exclude your business from regulatory oversight.

Now, what should be the appropriate level of regulation in the for-hire vehicle market?

Friends of the free market have asked for complete deregulation. They say the government shouldn’t be able to tell somebody they can or can’t use their car as a for-hire vehicle. It’s a fine argument. The problem is that Seattle tried that before and the results were troubling.  There is no way Seattle is going to completely deregulate. It’s not a realistic option.

I would argue that there is a minimum level of public safety measures that need to be in place. When a tourist steps out of the Sheraton and gets into a for-hire vehicle, the tourist has an expectation of safety. At minimum, they expect that the driver is not a criminal, that the vehicle is not a death trap and that there is adequate insurance to cover any accidents.  As it stands today, Seattle taxi drivers and owners have all of these regulations and “rideshare” has none of them.  I don’t think it is too much to ask for everybody to compete on the same playing field.

The new ordinance by the council takes care of these safety measures.  In fact, it allows for lower restrictions for “rideshare” cars if they are not working as full time taxis but rather as part time “rideshare” vehicles.

Another practical reason for these safety regulations is that the city could be subject to a lawsuit if there is an accident on the public right of way and they didn’t require safety regulations. The last thing we need in these challenging budget times is a huge legal liability for the city budget.

The rest of the regulations on taxis, and those proposed for “rideshare,” are fair game for debate in my opinion. However all regulations need to be uniformly applied across taxis and “rideshares.”

Finally, I’d like to say a word on the very negative feelings people have towards traditional taxis. It’s true that taxis have customer service challenges as was shown in the city’s demand study. Many people have had experiences such as drivers refusing to take short fares, declining credit cards for payment, rude drivers or dirty cars. Those are all legitimate reasons to switch to another service and nobody should defend the bad actors. There are definitely a few bad apples among the more than 3,000 licensed drivers in Seattle.

But not everybody in our society can switch to a new service that easily. Not everybody can afford a smart phone. Not everybody can afford UBER prices. Some people only pay with cash due to religious reasons. Taxis perform a public service that UBER doesn’t. Taxis serve a different socioeconomic segment of our population than “rideshare.” The elderly, the poor and the developmentally disabled populations depend on taxis. Those taxis you no longer choose to use are still an integral part of our transportation network.

P.S. Can we please eliminate deadheading Seattle?


Be Informed – Northshore School Board Edition

Ballots for the August 6th primary election go in the mail this Friday. There is one Northshore School Board position being contested in the primary. A race like this has a direct impact on our children and our community.

Continuing the theme from my post during the 2012 legislative races, it’s important for voters to do their homework before voting. Local races like school board have even less transparency than legislative races. In the NSD race, there hasn’t been one single debate or community forum where the candidates could express their views on education policy.

It is up to us, the voters, to obtain the information we need to make informed decisions.

The most detailed answers we will get before voting in the primary are listed here on the Northshore Education Association website:

The candidate statements can be found here on page 13:

Please take the time to review the candidates’ views on education before you vote. Our children are counting on you.



Planning Commission Wants To Hear From You

According to the Snohomish County Charter:

“The Snohomish County Planning Commission is comprised of eleven volunteers who review proposed comprehensive plans and land use regulations on behalf of the citizens of Snohomish County.  Their role is to represent the perspective of local citizens as a counter-balance to the technical perspective of a professional planning and engineering staff in a policy advisory capacity to the County Council.”

The commission votes on issues such as; whether a multifamily development can be built in your area, the types of new businesses a farmer can start on their land, how many off-street parking spaces your neighbor is required to have and the county’s capital budget, among many other issues.

Unfortunately, we don’t hear a lot of testimony from the public. There are a few interest groups and lobbyists who regularly testify but citizens are rarely engaged in the process.

The commission recently created a 6 month pilot program which provides an “open comment” period for the public to testify on issues that are not on our agenda. We hoped this would increase public involvement but after three months, not a single citizen has testified.

I recognize that we all lead busy lives and most citizens don’t have time to drive to Everett and testify. However, the commission is here for you, to be your voice.

Please take part in shaping the future of our county.

You can sign up for commission updates here:


Final Election Results

Here are the final 2012 election results from the 1st legislative district. Some observations:

- The 1st legislative district closely mimics the state as a whole.

- Senator Maria Cantwell and the 2/3rds rule for raising taxes (I-1185) are by far the most popular things in the 1st leg.

- We like Governor Jay Inslee and Charter Schools (I-1240) the same amount.

- We bucked the state a bit by going with Kathleen Drew for Secretary of State rather than Kim Wyman.