As part of a deal to close a state budget shortfall, boost education funding and avert a government shutdown, lawmakers last week agreed to give a new half-million-dollar tax break to Washington’s largest private company, Darigold.
The dairy-production company, which brought in nearly $2.5 billion in revenue last year, said it is considering building an infant-formula plant but can’t do so if formula exported from the state is subject to the state business-and-occupation tax.
The break is tiny compared to the state’s $33.6 billion two-year operating budget.
Nonetheless, one prominent lawmaker highlighted the break this week as an example of the unscrutinized items that sometimes make it into budget deals at the last minute.
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“Just thought you might want to know,” state Rep. Reuven Carlyle wrote in a widely-read Facebook post about the break.
Carlyle, a Seattle Democrat who chairs the House Finance Committee, says he voted for the break and several others as part of the “give and take” of the final budget deal. But he says he wishes the Legislature had vetted the breaks more fully.
He cited the Darigold break specifically because of the company’s size.
In all, lawmakers approved 16 breaks worth roughly $13 million over the budget’s two years, benefiting beekeepers, dance clubs, nonprofit gun clubs, international investment firms and others, as part of an operating budget that put an additional $1 billion into K-12 education.
Carlyle and other leaders in the Democratic-controlled state House say those tax breaks were the price for the Republican-led Senate to end a break for residential phone service that’s expected to net about $85 million over the two years.
Top Senate GOP budget negotiator Andy Hill said “the final deal was made up of a lot of moving parts.”
Hill, of Redmond, noted negotiators were contending with a June 30 deadline to reach an agreement on an operating budget to avoid a government shutdown that would have started Monday absent a deal.
But he said that the tax breaks had already been introduced — and in many cases, were sponsored by Democrats.
The infant-formula break was one of those. It was sponsored by state Sen. Brian Hatfield, D-Raymond.
Hatfield could not immediately be reached.
Hill said the Darigold break was meant as an incentive to get a new plant built in Washington, thus creating jobs.
Steven Rowe, a senior vice president at Darigold, said the break was critical to the company’s hope of expanding its formula business by partnering with another firm on a new plant.
“Without the B&O tax component, there’s no way they’d do it. They’d just go to Idaho or Oregon,” said Rowe, although he emphasized no agreement for a new plant is in place.
Rowe noted the dairy business is important to the state and operates with a small margin despite the high revenues.
Last year, the company’s profit was $20 million out of the $2.46 billion revenues, Rowe said.
Helping business helps the state, he said.
“This very small economic impact to the budget line is ridiculous — ridiculous compared to the value that will return to the state over the long term,” he said. “Bottom line, this was a very wise move for the Legislature and for the state.”
Carlyle said that might be the case. But, he said, it’s hard to know because the bill was not fully examined before being put into the budget as part of last-minute negotiations.
“In the dark hours of the end of the session, the Senate demanded new tax exemptions that were just put into the budget. They were not vetted,” he said. “I think the taxpayers deserve better.”
Brian M. Rosenthal: 206-464-3195 or firstname.lastname@example.org. On Twitter @brianmrosenthal