Washington ranks No. 8 in latest Forbes “best states for business” rankings

In Forbes magazine’s 2014 Best States for Business, Washington finishes in 8th place. Not bad in the 50 state field. Win, place and show go to Utah, North Dakota and North Carolina, respectively.

As is common in the Forbes rankings, Washington fares best on measures of economic vitality and falls down on business costs and quality of life metrics. I’ve clipped in below the table showing the various factors rolled into the index.

Best States for Business List   Forbes

Washingtonians who celebrate the quality of life here may raise their eyebrows at the #29 ranking. Forbes has its own definition of quality of life (full methodology).

Quality of life takes into account poverty rates per the Bureau of Economic Analysis and crime rates from the FBI. Other factors include cost of living from Moody’s, school test performance via the Department of Education and the health of the people in the state per the United Health Foundation. We considered the culture and recreation opportunities in the state based on an index created by Bert Sperling, as part of our annual Best Places for Business. We factored in the mean temperature in the state as a proxy for the weather. Lastly, we included the number of top-ranked four-year colleges in the state from Forbes’ annual college rankings.

As we’ve written before, these things tend to be subjective. They provide some useful information and spark some good conversation. But they’re far from the last word on what makes a state the “best state for business.”

Clarifying the 2015 budget picture

Kriss posted yesterday on the improved revenue picture. As Brad Shannon reports, the higher revenue collections are accompanied by higher caseload and enrollment numbers.

State budget director David Schumacher told the Caseload Forecast Council meeting in Olympia that an expected increase in K-12 school enrollments alone may add $380 million to the state’s costs through June 2017, which is the end of the next two-year budget cycle.

The next official revenue forecast will be released next week. Next month, the governor proposes his budget, which now must be stretched to accommodate passage of Initiative 1351. As Shannon writes, the state budget director says it’s going to be tough.

OFM is predicting a shortfall could be as much as $3 billion, despite a potential $2.8 billion increase in revenue in the next biennium above what was forecast for the current biennium that ends in June 2015.

The shortfall includes rising costs for pensions, health care programs and debt service as well as compensation adjustments for K-12 teachers, higher education staffers and state-agency employees.

Schumacher said voter approval of Initiative 1351’s class-size reductions in K-12 schools could add another $2 billion to the budget challenge.

Rep. Ross Hunter, who will chair the House Ways and Means Committee, has  released his overview of the budget challenge (printer-friendly).

…we face one of the most difficult budget cycles of my time in the Legislature, and perhaps worse than we’ve seen in many decades.

It’s a thoughtful piece, one that sheds light on the way the House’s top budget writer will approach the problem.

Supporting biotech and more with growth-oriented tax policy

H. Stewart Parker, a pioneer in Washington’s life sciences industry, writes in today’s Seattle Times that our state risks falling behind in the competition for biotech investment.

Washington has a lot going for it business-wise, but we must not underestimate the competition for the life-sciences industry. The Washington state Legislature did not renew our industry tax incentives. Forty other states offer tax credits and other competitive incentives. To help ensure the next discoveries are “Made in Washington,” our representatives should create a tax policy that promotes growth.

A few years ago we published an economic profile of the life sciences sector, which has had an outsize impact on the state’s economy. Our research was used in a more comprehensive analysis by the University of Washington and Washington State University, Innovation and Impactfrom which the following graph is taken.

Life sciences graph

Parker’s observation of the importance of R&D incentives to the industry echoes other tech industry experts.  We reviewed the literature last February in our policy brief, Supporting Research and Development with Responsible Tax Policy, and found that the state’s R&D credit and sales tax deferral programs should be renewed. The legislature, as Parker notes, chose to allow them to expire. Lawmakers will have an opportunity to change course next year. They should, as their counterparts in Texas did.

Our 2012 analysis, Washington Prosperity Depends on a Vibrant Tech Sector, takes a longer look at the state’s innovation cluster. Our conclusion:

Washington’s vibrant tech cluster has had a strong, positive effect on the state economy. The sector accounts for nearly two-thirds of Washington’s job growth since 1990 and more than half of the growth in employee compensation. Major tax revenues generated by the sector grew 318 percent, to $2.9 billion in 2011.

The tech industry mitigated the effects of the national recession here, showing relatively stable income and employment patterns, even during the sharpest economic downturn in more than half a century.

Other states and regions witness the success of states with strong innovation clusters and strive to replicate it. They offer incentives, make education and infrastructure investments that the sector finds essential, and provide start-up assistance in the form of incubators and accelerators.

While Washington’s cluster may appear secure, policymakers should not be complacent. The state has advanced several key initiatives important to the innovation economy, including tax incentives, STEM investment, and the Washington Opportunity Scholarship. These strategies, however, do not differentiate Washington from other states.

While Washington’s incentive programs are generally consistent with good tax policy, “good tax policy” does not always guide the actions of our competition. States focusing on long-term cluster strategies are often willing to forego tax revenues far in excess of expected short-term returns. And businesses will respond. Location decisions are driven by many factors, but profit-and-loss calculations are always important.

Washington has been fortunate. The state’s tech cluster has generated significant economic growth, created thousands of jobs, cushioned the recession, and spurred investment in critical infrastructure and higher education. The growth here not only has been consistent with good public policy, including tax policy, but it has also provided the intellectual and economic foundation to support an enhanced quality of life.

Parker’s timely op-ed is a good reminder of what’s at stake.

States should preempt the ability of cities to set their own minimum wage

Blue metros – like Seattle, San Francisco, and NYC – are the new darlings of the progressive left. That’s the theme of my column today.

The wave has been building for more than a decade. But elections of liberal mayors like Ed Murray in Seattle and Bill De Blasio in New York City give it new momentum. Coalitions committed to raising the minimum wage and boosting union membership handed the freshly elected a first-year agenda. In Seattle, things moved swiftly and the $15 minimum wage is being phased in. New York City and Portland, however, face the salutary hurdle of state laws prohibiting cities from setting their own minimum wage.

Such preemption makes sense.

Legislators introduced a preemption measure last year in the state Senate. It failed. There’s evidence that the public supports such a measure.

The Elway Poll reports that Washington voters support a uniform statewide minimum wage by a 49-43 margin.

I suspect we’ll see another attempt at preemption in 2015.


Seattle adopts a $15 minimum wage. Now what?

As expected, the Seattle City Council yesterday unanimously adopted a $15 minimum wage, hewing close to Mayor Ed Murray’s proposal. They did this, as the Seattle Times reports, without knowing what the consequences will be.

“No city or state has gone this far. We go into uncharted territory,” said Seattle City Council member Sally Clark before the council agreed to give workers a 61 percent wage increase over what is already the country’s highest state minimum wage.

One immediate consequence is a lawsuit filed by the International Franchise Association. Perversely, the Seattle ordinance treats franchisees as big businesses, rather than the small business they are. We wrote about that here.

Matthew Haller, IFA vice president, says he and others plan to file the lawsuit soon, but “it’s not about the wage.” No other city council or state legislature has ever characterized franchisees as employees of the franchisors, he said, and Seattle’s decision to do so will set a dangerous precedent for other cities considering increasing the minimum wage.

At a recent hearing, City Councilmember Kshama Sawant said franchise owners can afford to pay workers more. “In order to be a franchisee, you need to be very, very wealthy,” she said.

Sawant’s statement underscore how much of the debate continues to be on targeting the wealthy. And she makes clear that this is just the beginning.

“Today’s message is clear: if we organize as workers with a socialist strategy, we can tackle the chasm of income inequality and social injustice,” she also said. “Fifteen in Seattle is just the beginning. We have an entire world to win.”

You can watch the video of the council meeting here.

Most councilmembers apparently believe they were taking a step that was both bold and measured: First in the nation, highest in the nation, unchartered waters and yet responsive to business concerns, incremental, and including a training wage and credits for tips and health care. Publicola notes the audience response to the “moderation.”

[The] meeting was an object lesson in the split personality of the $15 movement, whose supporters alternately booed, hissed, and screamed at council members who voted in favor of “pro-corporate” (as Sawant put it) compromises (like the subminimum “training wage” and the “tip credit” provision, which allows employers to pay less than minimum if their customers make up the difference in tips), and cheered raucously when the full council unanimously adopted the legislation…

Publicola also has an interview with Murray, who says he never believed the deal would fall apart.

The claims of moderation and business-friendly compromises are overstated. The Washington Restaurant Association offers a different take. (Follow the link for an excellent video featuring Seattle restaurateurs.) The Seattle Restaurant Association (SRA) was repeatedly rebuffed in its efforts to modify the proposal.

…The requests were:

  • Ensure that all local Seattle restaurants are treated fairly;
  • Permanently recognize all real income, including tips, that restaurant employees receive in the compensation calculations;
  • Put in place a six month training wage so we can continue to hire youth, the disadvantaged and others in our community that simply need a second chance;
  • Have the implementation date for the ordinance on July 1, 2015, which was the date agreed to by the IIAC.

Unfortunately our requests were denied.

There will be consequences. Howard Husock, writing in Forbes about the president’s call for an increase in the federal minimum wage, offers a stark illustration.

Among those with whom the President might want to check in are the small business owners of a nation he has long admired:  South Africa.  There, as I’ve written for City Journal,  small employers are required to pay high minimum  wages set by national bargaining councils, where government and labor unions negotiate—without considering the small businessman or entrepreneur.  The result has been staggering  unemployment —38 percent overall, and 49.8 percent among youth—significantly higher than the 13 percent rate when apartheid ended.  Similar damage has been wreaked by the unrealistic labor laws of France, Spain and Greece.  It’s a path the U.S. ought not to choose.

We’ll see.


Seattle’s minimum wage law should recognize franchises are small businesses

The Seattle Times offers some good editorial counsel to the Seattle City Council. Noting that the $15 minimum wage ordinance treats franchises as big business, the Time points out that the decision makes little no sense.

[There are] 1,700-some independent franchisees operating in the City of Seattle. In addition to fast-food franchises, these are businesses offering in-home care to elders and people with disabilities, pet groomers, barbers and the like.

And contrary to the rhetoric from the $15 wage movement, these businesses are not arms of corporations. Franchises have their own tax ID numbers and payroll — they are independent business units separate from the franchiser.

The Puget Sound Business Journal offers the story of one franchise owner.

[Matthew]Hollek put up equity on his home to open his first Subway store in Everett. The former aerospace mechanic wanted a franchise because he thought he would have some direction from the chain. “But direction doesn’t guarantee a living,” he said.

And it didn’t. As his business grew, so did his debt.

Read the whole thing. It’s a compelling story of the struggles of an entrepreneur who would be collateral damage in the progressive war on big corporations. This KIRO story features an interview with the owner of a home health care franchise, who would also be subject to the law though she has only 22 employees.

There more in the PBSJ interview with a representative of the International Franchise Association.


Speaker Frank Chopp in Publicola: “My goal is to pass an increased statewide minimum wage.”

Publicola asked House Speaker Frank Chopp if he regretted not moving Rep. Jessyn Farrell’s proposed $12 statewide minimum wage last session. They publish his response here. This is the crux, but you’d benefit from reading it in context.

My goal is to pass an increased statewide minimum wage for Washington workers and families. I am actively working with my colleagues in the Legislature, labor leaders in the state, community members and other stakeholders to ensure the passage of a statewide minimum wage bill.

So with all the minimum wage sure to be top of mind for lawmakers, it’s worth debunking (again) the myth that Henry Ford paid his workers a then-whopping $5 a day so they could buy his cars. Tim Worstall does just that in Forbes.

Ford didn’t raise wages so that his workers could afford his cars. What actually happened is that he hired and then lost some 52,000 workers a year in order to have a stable workforce of 14,000. This obviously had vast costs in trying to hire and then train all of these workers: as well as the costs when they walked off the assembly line disrupting production. The doubling of wages to $5 a day reduced those costs by more than the extra pay cost him. Which is why he did it.

So does that mean the minimum wage should be increased to reduce turnover? No. Employers can do the math. Training costs vary. Turnover among low skill workers may be an acceptable cost, particularly as many of those jobs are not designed to be careers.

Worstall also takes a look at the argument that the minimum wage should rise with productivity.

There is no link at all between what the minimum wage should or should not be and average labour productivity. Even conceptually the link can only be between low skill labour productivity and that minimum wage. It’s entirely true to say that average labour productivity has risen in the US in recent decades. That’s as a result of the increased mechanisation of the way that we produce many things. But there’s no evidence at all that low skilled labour productivity has risen over that same period. And thus no argument that the minimum wage should have risen in lockstep with average productivity.

I make much the same argument here.


Seattle’s $15 minimum wage: Buyer’s remorse before the sale

Even as it was being announced and celebrated by some members of his income inequality committee, the political leaders acknowledged the Seattle mayor’s $15 minimum wage proposal would undergo tweaking before it was adopted by the city council. Remember Councilmember Nick Licata’s comments about legislators liking to get their “fingerprints” on such things.

There’s been a lot of talk the last few days about how the mayor’s plan, a work in progress, may be coming apart. Crosscut offers one perspective.

Councilmember Sally Clark, who chairs the Committee on Minimum Wage and Income Inequality, sought to play down suggestions that the mayor’s compromise is unraveling. Council’s questions and exploration of changes to his suggested legislation are a normal part of the process. “This is what we get paid to do,” Clark said. But, as Publicola reports, labor leaders are already troubled by the possibility of a two-tiered payment system where businesses get to pay lower wages to teenagers and some trainees. If that’s going to happen, labor leaders want the council to compensate by introducing alternative, worker-friendly changes to the mayor’s plan. 

Labor’s pains are also examined by the AP. Union reps on the mayor’s committee, responding to a document prepared by city staff that appeared too friendly to business, sent a letter to the city council.

But now, business groups are pushing for a training wage, a longer phase-in for nonprofits of any size, and no minimum-wage increase for employers with less than 10 employees. Their proposals were expressed in a letter prepared by City Council staff.

Even sympathetic business owners are rethinking their positions, as KUOW reports. (The story is well worth a listen.)

Jody Hall owns Cupcake Royale, a collection of seven neighborhood coffee shops that sell artisan cupcakes and ice cream. She employs about 100 people…

…after publicly endorsing [the mayor’s] efforts, she is having serious second thoughts. “I really have a hard time,” Hall said. “Even though I signed support for a seven-year phase in with the mayor, this is keeping me up at night like nothing ever has.”

Well, as Forbes reports, people support raising the minimum wage until told the costs.

The polls show most people support raising the minimum wage when it is presented as a free lunch, with no downside. Once people make the link between the benefit (higher pay for some) and the cost (fewer jobs, higher prices) the level of support shrinks to a clear minority. 

Don’t believe the polls? How about this anecdote from SeaTac, which just bumped the minimum to $15? Assunta Ng, publisher of Northwest Asian Weekly, recounts a couple of conversation she had with SeaTac restaurant workers. It’s a brief story, please read it. Here’s a snippet.

“Are you happy with the $15 wage?” I asked the full-time cleaning lady.

“It sounds good, but it’s not good,” the woman said.

“Why?” I asked.

“I lost my 401k, health insurance, paid holiday, and vacation,” she responded. “No more free food,” she added.

The hotel used to feed her. Now, she has to bring her own food. Also, no overtime, she said. She used to work extra hours and received overtime pay.

The consequences don’t take long to show up. No wonder some supporters of the $15 minimum wage are showing signs of buyer’s remorse. Better now than after the deal is sealed.

Seattle Times editorial board favors data-center tax incentives. Here’s why they’re right.

The Times editorial gets right to the point.

When lawmakers return for business in January, they should reauthorize Washington’s server-farm tax break, and pronto.

Our September 2013 report, Economic Impact of Data Centers on Central Washington (clever title, that), helps explain why.

World class industries have located in Central Washington, providing stable, diversified em- ployment and expanded tax bases for local governments. The data center industry is among the notable additions to Central Washington’s resurgent economy. Data centers have benefitted Central Washington in several ways. They stabilize and expand the region’s tax base, generate millions of dollars in construction spending, and provide family wage jobs. Increased tax revenues are evident not only in smaller cities like Quincy, but countywide in Grant and Douglas counties. Data centers also give communities in Central Washington a key advantage in the quest for technology-based economic development. Men and women trained to work in data centers provide a talent base that other industries will find attractive. With industrial diversification taking root in the region, data centers add to the base of industries that will complement the region’s still-strong agricultural and food processing sectors.

Allowing the incentives to expire was, at best, short-sighted. At worst, it jeopardizes an important anchor of the state’s economy. From the Times editorial:

Microsoft’s DeLee Shoemaker warns the state’s attitude toward tech incentives “is making Washington uncompetitive for future siting decisions by Microsoft and other technology-based employers.”

Lawmakers need to take a pragmatic view. In a fluid business like tech, tax breaks are seldom a matter of giving money away — they are the price of attracting the business in the first place.

And it’s a very, very low price. Without the incentives, it’s quite possible that the investment wouldn’t happen at all. You can’t spend tax dollars you never collect.

Washington ranks No. 33 in Chief Executive magazine’s 2014 “Best & Worst States for Business” report

The springtime business climate reports are beginning to appear. Chief Executive magazine is out with its annual “best and worst states for business” rankings. Washington comes in at No. 33 (No. 1 is best and goes to Texas). The Evergreen State moved up three places from last year’s No. 36, but is still well entrenched in the bottom half of the rankings. The magazine’s rankings reflect CEO perceptions.

In the 10th annual survey of CEOs concerning their views of the best and worst states for business, over 500 CEOs across the U.S. responded. Business leaders were asked to grade states with which they were familiar on a variety of measures that CEOs themselves have said are critical. These include the tax and regulatory regime, the quality of the workforce and the quality of the living environment. For example, a state’s attitude toward business is viewed as a critical component of its tax and regulatory regime, while employees’ attitude toward management is considered a crucial factor in the perceived quality of a region’s workforce. Public education and health are also important factors in the living environment, as are such things as cost of living and affordable housing.

The magazine’s editor-in-chief, J.P. Donlon, offers his insights here.

Bill McMeekin, writing at the Business Climate Blog, has more here.