When the smoke clears after a fire, home, business and property owners look to their insurance policies to help them rebuild. So, it is troubling that today there is a plan in Olympia that will raise costs for insurance policies that Washington’s families, businesses, medical providers, builders, drivers, boaters and others rely on for their financial security.
When the smoke of the legislative session clears in Olympia in just a few days, we hope legislators will have seen through this smoke and mirrors, tax-and-shift plan and opt to make forest health and wildfire suppression a priority without adding more taxes on people’s insurance policies.
The bill in question is SB 5996. It creates a dedicated account for the state Department of Natural Resources, funded by a 25 percent increase in the state tax on property and casualty insurance policies. Not just home or property insurance; all property and casualty policies, including homeowner and renter’s coverage, auto liability insurance (plus motorcyclists, boat owners and commercial drivers), malpractice coverage for medical providers, construction liability for contractors, professional liability … even cellphone and pet insurance policies will see the new higher tax. Under the current bill, insurers that don’t add the cost of the tax to insurance premiums will instead add it directly to consumers’ insurance bills — like the long list of local and state taxes on a cellphone bill.
SB 5996 is a shell game; a budget gimmick. It shifts the cost of wildfire suppression and prevention from the state’s general fund — paid by insurers and all other taxpayers — to a dedicated account paid entirely by a tax increase on insurance policies. Moving that $125 million “off the books” means even higher state spending on other programs in the proposed $53 billion budget.
There are no reforms or new oversight in SB 5996 — no guarantee that added $125 million will make our forests more resistant to wildfire. Nor is there a provision reducing or eliminating the tax if the wildfire threat is reduced over time. In fact, the same “fire borrowing” that occurs today in federal forests — where dollars meant to improve forest health are used instead to fight fires — will now happen on state forest lands, because SB 5996 specifically prioritizes new tax dollars for firefighting first and forest health last. We can do better.
Shifting the burden to insurance policyholders isn’t necessary — the Legislature could dedicate existing general or “rainy day” surplus funds to a dedicated account to prevent and fight wildfires. But as needless and harmful as SB 5996 is to consumers, it also disproportionately hurts Washington-based insurance companies (and policy holders) compared with their out-of-state competitors — which is bad public policy for our economy.
Every state has a “retaliatory tax,” to protect their own in-state insurance companies. It works like this: Washington’s current insurance premium tax rate is 2 percent on all policies sold. In Idaho, insurers pay 1.5 percent in state taxes, unless the company selling insurance is based in Washington (or another state with a higher rate). That means a Washington-based company selling insurance in Washington and Idaho must pay Washington’s 2 percent tax rate in Washington and in Idaho. Meanwhile, companies from other lower rate states (like Illinois and Delaware) get to pay less in Idaho than Washington-based companies.
SB 5996 would make the problem worse, increasing the premium tax rate to 2.52 percent and more than doubling the number of states with lower tax rates, from 17 to 36. One Washington-based insurer calculated that for every $1 of increased premium in Washington created by SB 5996, they could pay $3 in higher taxes to other states.
Legislators have attempted to make this tax increase “retaliation-proof.” But other states do not — and are not required to — heed the wording of Washington’s statutes and regulations. States will impose higher taxes on Washington-based insurers because of SB 5996 — because they can.
Existing insurance policy taxes will contribute more than $1.4 billion to the new state budget in 2019-21, even without a 25 percent tax increase. Wildfire prevention and suppression are goals shared statewide. Reaching those goals should not mean unfair treatment for Washington companies or higher insurance costs for families, businesses, medical providers and other Washington consumers.
Let’s ensure our forests are healthier and that our summer skies are clear by prioritizing the use of existing, broadly-paid state revenues to invest in prevention and forest health.