"If you don’t have a job in this economy, nothing else really matters. The worry and stress of being out of work becomes all-consuming." - Rob McKenna

Washington's unemployment rate is stuck at chronically high levels. We all have friends, family members or neighbors who have lost their jobs or had their hours cut back and incomes reduced.

The national recession officially ended in June 2009, but unemployment in our state remains above nine percent – based on the number of unemployed collecting benefits – and is above 18 percent when "discouraged workers" and part-time employees who still need full-time work are factored in, as they should be.

Our economy has bright spots, including relatively healthy aerospace and software sectors, but private sector job growth is sluggish and appears to be producing new jobs at a rate well below that needed to replace lost jobs and accommodate population growth. Unemployment is especially high among the young, people of color, those without college degrees and recent college graduates.

Washington faces significant competition with other states for investment and job creation. The national economy, characterized by low consumer confidence, credit problems for small business, and the still suffering housing sector, remains the biggest drag on employment in the states. But there are specific steps state government can take to give us a leg up in creating new jobs and getting people back to work. Above all, we must no longer allow Washington to be one of the ten most expensive states in which to operate a business and employ people.

Goals

• Reduce Washington State’s unemployment rate and give more families the assurance of a steady paycheck.
• Reduce the burdens that hold back existing employers and make Washington less attractive to potential employers.
• Give relief to small businesses that are struggling to keep their doors open. Onerous regulations and a complicated tax structure are costly barriers to more hiring.

Guiding Principles for Reform

• Job growth will be led by entrepreneurs and risk takers, not debt-financed government stimulus programs.
• Other states have proven you can reduce costs on businesses while still protecting workers and helping the unemployed.
• What entrepreneurs and business owners do best is creating new products and services, finding cost efficiencies, driving down prices, creating new products and growing their businesses. To reduce unemployment, state bureaucracies must change their culture and begin seeing encouragement of private sector job growth as part of their mission.

Preparing for Job Growth

The Governor and Legislature must act to restore employer and consumer confidence, encourage job creation and reduce employment costs, and improve the state’s overall business climate. We must get Washington off the list of “ten most expensive” states in which to do business.

Competitive tax reform

• Small businesses, particularly those with small profit margins, struggle to keep their doors open in this economy. Last year’s flawed income tax initiative (I 1098) offered one good idea, increasing the Business & Occupation tax credit to $4,800 per year for small businesses in all categories. Not only will this provide cost savings for small business owners, it should significantly reduce their paperwork headaches. The estimated cost of this credit is less than two percent of the state's 2010 revenues, while more than 117,000 small businesses would be exempted from the cost and headaches of paying the B&O tax, often to multiple jurisdictions.
• The B&O tax is a gross receipts tax which results in “pyramiding,” taxing the same transaction multiple times. In addition, the system often taxes the purchase of goods and services that are inputs to the production cycle – like machinery and equipment used to create new products.
• Over the years, legislators of both parties have corrected for these two effects by adopting specific tax preferences (exemptions, incentives, credits). Such preferences, attacked by some as loopholes, can make good economic and fiscal sense. We have a system in place for re-evaluating them over time, which is appropriate. Those that demonstrate continued value should be preserved, especially when the demonstrated value includes job creation and preservation. Where promised benefits have not materialized or are too small to justify the tax preference's cost, they should be eliminated by the Legislature.
• In addition, we should work hard to ensure that out-of-state businesses that sell into our state pay their fair share of state taxes, even if they lack a physical presence here. This should include online, mail order and sales force companies with Washington customers.

Eliminate the workers compensation insurance monopoly

• The 2011 Legislature made positive progress toward reducing our state's very high unemployment insurance costs, yet we continue to have the nation’s highest UI costs. It also fell short in reforming the workers’ compensation system monopoly. Our neighbor to the south, Oregon, has not raised its workers’ compensation premiums in over ten years because its state system has competition. Washington constantly raises L&I premiums and now has some of the most expensive workers’ compensation benefits in America.
• Oregon workers also return to work in less than half the time than in Washington, where the average workers’ comp time loss is now 264 days and a much higher number of workers go out on permanent disability. Yet Oregon still protects workers, as does California which also allows competition and sees lower costs than do our employers.
• Supporters of the current state monopoly attack competition proposals by characterizing them as a gift to private insurers. If legislators are concerned with such appearances, one solution would be to open the system to competition from new non-profits enterprises, such as co-ops.

Responsible regulation

• Washington has a “one-up” regulatory policy: Whatever regulators require, state regulators often will go a few steps farther within their discretion. This should only be allowed when there is a clear demonstration of significantly improved public benefits, following a thorough cost-benefit analysis.
• All regulations should be periodically reviewed for cost-effectiveness and obsolescence. If it makes sense to reconsider tax preferences and public spending on a regular basis, then it surely makes sense to do so for regulations that impose real costs on job creators and others.
• Back in early 2009, our Governor ordered that state permits be expedited for public projects that might qualify for federal "stimulus" funds. I assigned lawyers in my office to assist our agency clients with that expediting process, which made sense to me. I also suggested it would make sense to take the same approach for non-government projects, such hospital and factory construction, but this has not happened.

Liability Reform

• Washington is a personal injury attorney's paradise. State taxpayers already pay out four to twelve times more in tort judgments and settlements than comparably sized states such as Massachusetts and Arizona. Local government taxpayers are similarly exposed to frequent lawsuits as enterprising lawyers seek access to the ultimate deep pocket: We, the People.
• Since at least 2001, the Attorney General's Office, Governor's Office, and state agencies have worked very hard to manage risks and reduce claims. By many measures, real progress has been made: litigated cases and claims referred to the AGO are down significantly, allowing a more than 20 percent reduction in the number of AGO attorneys who defend these cases; we use early dispute resolution to avoid or reduce litigation in nearly 30 percent of cases referred to our office, a notable improvement over years past; and this year our attorneys were able to have the state dismissed as a defendant 68 percent of the time - with zero payout!
• Yet, despite all this progress, a handful of huge judgments and settlements, all in cases involving an accident or other harm caused by a third party - not the state - have driven payouts to over $70 million this year. This is lower than the record $81 million paid out in 2001, but is part of a steady upward trend powered by our state's one-of-a-kind liability rules.
• Consider the rule of "joint and several liability," for example. Under our state's law, what a defendant pays is not limited to his share of fault, if any. If the person who actually caused the accident or other harm is an empty pocket, the co-defendant can be forced to pay all or nearly all of the awarded damages. Amending this rule would make the tort system fairer to all defendants.
• We don't need Texas rules to end our outlier status among the states; even California or Massachusetts standards would be a big improvement over the status quo. When it comes to standards of tort liability, being average would dramatically improve the business and health care climate in Washington.

A New Direction for Washington Requires New Leadership with a New Attitude Toward Job Creation and the Economy

• Beyond specific policy changes, we need an attitude transplant in Olympia. We need to replace the traditional state government approach which views taxes and regulations as the price for the "privilege" of doing business here. The new attitude will treat job creators as the invaluable resources they really are, and approach them with a customer service mentality.
• I have visited many dozens of employers since being elected to statewide office – from small companies to our largest employers – in many different sectors ranging from agriculture to aerospace, from food manufacturing to high-tech firms. To a person, the entrepreneurs, managers and CEOs I have visited expressed disappointment that state government takes them for granted at best, and at worst sees them as a problem to be managed.
• This frustration is not limited to for-profit businesses. We have many important employers that operate as non-profit enterprises, such as hospitals and private schools and colleges. They, too, express bewilderment that they seem to be taken for granted rather than supported and appreciated.
• And the greatest frustration expressed to me, by far, is by small business owners. Especially in this very difficult economy, they feel increasingly overwhelmed by layers of local, state and federal regulation and complicated business taxes which sometimes cost them more in tax preparation expense than the amount of the tax owed to a particular jurisdiction. They also feel that federal and state labor laws have become so complex that no employer can ever really be certain they are in full compliance. The ever-present fear of lawsuits brought by aggressive plaintiff's attorneys, who know very well that most defendants cannot afford to litigate and will be forced by pure financial consideration to settle, are an ongoing concern.
• Given all these challenges, and the innate unwillingness of most state leaders to help, it's no wonder that Washington has one of America's highest business failure rates, and is regularly ranked among the most expensive states in the nation in which to operate a company and create jobs.
• As Governor, I will reach out to all types of private employers – large and small, for profit and non-profit, in all sectors of our economy – to ask them how state government can help, how it must change, and sometimes how it can just stay out of the way.