Published September 2003

State more competitive today, still has work to do

In the past year, public awareness of the need to create a more business-friendly environment in Washington state has increased, due in large part to Washington’s persistently high unemployment rate, which too often has ranked among the highest in the nation. The significant number of jobs lost over the last two years has put state and local governments on high alert as they attempt to prevent further job losses due to conditions that are within their control.

Strengthening the state’s economy through government action has been an agenda item for Gov. Gary Locke since the economic downturn. In 2001, the governor established the Washington Competitiveness Council, which assessed the state’s ability to compete effectively in the global economy. The council had four specific objectives:

• To discuss key business climate issues.
• To improve public understanding of the importance of a healthy business climate to the future of Washington’s economy.
• To engage the business community in advancing a competitiveness agenda.
• To identify and implement public policies that strengthen state and local governments’ ability to respond to business community needs.

With this short, but complex, agenda, the Competitiveness Council generated 99 distinct recommendations for improving the business climate in Washington. Since the release of those recommendations, a number of business advocacy groups, as well as the Governor’s Office itself, have measured the state’s progress by comparing it to the council’s recommendation list. In particular, an April 2003 report compiled by the Washington Roundtable detailed the state’s success and highlighted issues that continue to require state attention.

According to the Roundtable’s 2003 report and a new analysis by Economic Development Council Research Director Diana Dollar (www.snoedc.org), Washington has made significant progress toward improving its business climate since the Competitiveness Council report was issued more than a year ago.

The state adopted a number of measures during the 2003 legislative session that are directly linked to the competitiveness recommendations. Of particular interest, of course, is the connection between those measures implemented and the state’s response to the Boeing Co.’s 7E7 request for proposals for siting of the proposed new jetliner’s final assembly operations.

From improvements in the state regulatory system that have made it more predictable and customer friendly to the incentives passed by the Legislature earlier this summer, Washington state is better able to compete on the world economic stage today than it has been in the past.

Of course, our work is not done.

A June 2003 study by the Washington Research Council (www.researchcouncil.org) indicates that incentives to Washington state’s aerospace community are expected to reduce tax revenues by $180 million to $200 million in 2015, but that would be more than offset by the $265 million to $540 million in tax revenues that would be generated if the Boeing 7E7 is built here.

“That it was necessary for the state to offer such a large package for Boeing indicates that Washington’s basic business climate requires continued improvement, building upon recent progress,” the study concluded.

The EDC of Snohomish County agrees.

According to Dollar’s analysis, the state and business communities have addressed 67 of the Competitiveness Council’s 99 recommendations, some more thoroughly than others.

According to our research, while the state tackled some of the more difficult issues, such as unemployment insurance reform, it made the least progress on education and work-force issues. Thirteen of the 17 unresolved competitiveness issues relate to higher education and impact our ability to prepare our students for tomorrow’s careers.

Another area of significant opportunity is in the area of research-and-development tax incentives.

B&O credit for research-and-development expenditures and sales and use tax exemption for R&D equipment and facilities, which are scheduled to sunset this year, provide Snohomish County with significant economic advantages.

The incentives are invaluable for many small and midsize research and manufacturing firms that offer a diverse foundation from which to build the future of our state’s economy. They also assist larger, international companies that want to expand or create jobs here. It is important that the state maintain these tax incentives as a way of helping grow Washington’s economy.

On a related note, we believe governmental leaders should expand the recently enacted aerospace incentives package to include other manufacturing-related businesses. Manufacturing businesses also offer livable wages and have been shown to generate jobs in others industries as well, a version of the well-known Boeing employment multiplier effect. Even though difficult, we believe the state also should consider making incremental changes in its tax structure and continue reforming the current workers’ compensation system.

It is true that Washington is a better place to do business today than it was six months ago. It can be better still. We constantly compete with other states and countries for jobs and businesses, and we’re better prepared to do that today than we were. If we continue to work together to complete the changes required to establish Washington as an even stronger competitor, our children will be even better prepared as well, with a vibrant, diverse economy to show for our efforts.

Deborah Knutson is president of the Snohomish County Economic Development Council. She can be reached at 425-743-4567 or by e-mail to dknutson@snoedc.org.

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