Gov. Jay Inslee has vetoed a major tax cut for manufacturing businesses that state legislators had passed as part of last-minute budget negotiations.
Drawing angry backlash from Republicans, Gov. Jay Inslee on Friday vetoed a big tax break for Washington manufacturers, saying it was passed in “an unaccountable manner in the dead of night.”
In a governor’s office ceremony, Inslee, a Democrat, vetoed portions of Senate Bill 5977 that would have lowered the business and occupation (B&O) tax rate by 40 percent for some 10,000 manufacturing firms across the state.
The cut would have given those manufacturers the same rate granted to Boeing and other aerospace companies in 2003, and then extended in a record-setting tax-break deal in 2013.
The tax cut had been agreed to by Democratic and Republican budget negotiators near the end of late-night secret talks last week. Republicans had insisted on the provision as part of a deal to avert a government shutdown.
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But Inslee called the tax cut “grossly unfair” to taxpayers. “It was done in the middle of the night. It had zero accountability. There’s not a single job that will be produced, that they can prove will be produced from this,” he said.
The veto drew immediate rebukes from Republicans, who accused Inslee of acting in bad faith.
“We just spent months coming up with a very complicated deal,” state Sen. John Braun, R-Centralia, chief budget negotiator for the GOP, said in an interview. “I think this makes future negotiations virtually impossible, frankly.”
Braun said both sides had to accept provisions they didn’t want to reach the bipartisan agreement. For example, he said his caucus had to agree to Democrats’ demands to add sales taxes to bottled water and close a longstanding tax break for oil refineries.
Inslee insisted he and his staff never endorsed the manufacturing provision, and he said they were never asked by Republicans to provide assurance that he wouldn’t veto it, as on some other bills. “There was no agreement regarding this measure with either myself or anyone in my office,” he said.
David Postman, Inslee’s chief of staff, said Republicans floated the idea at two points during budget talks. But he said the governor’s legislative-affairs director, Drew Shirk, advised them “don’t offer that, it’ll blow things up.”
Braun disputed that, saying the governor’s staff had been kept in the loop throughout the budget talks and that Inslee should have raised objections before the bill passed.
“It was not a surprise to anybody, and it was not a secret from the governor,” Braun said.
Inslee said one-fifth of the tax cut would have gone to out-of-state oil companies, and he called that unfair at a time when lawmakers are raising property taxes on some middle-class families.
“They’re wrong,” Inslee said of Republican critics accusing him of acting in bad faith. “And I can’t control their tender feelings, but I can control what the state constitution says. And it says that the governor maintains, including in this bill, the right to veto bad provisions. And this was a bad provision.”
The governor added that GOP leaders should “look in the mirror and understand these kind of things can happen when you string the state out and threaten to shut down the government within 48 hours.”
Before Inslee’s veto on Friday, House Speaker Frank Chopp, D-Seattle, said legislative leaders agreed to the tax cut during budget talks, but noted “it came in late.” He said there were “legitimate concerns” with the process, but said he did not pressure Inslee one way or the other on the measure.
Lawmakers could override the veto with a two-thirds vote of the Republican-led Senate and Democratic-majority House.
State Sen. Michael Baumgartner, R-Spokane, said unless that happens, Inslee’s action will kill already-stalled talks over the capital budget, which funds construction projects across the state.
“There will 100% NOT be a Capitol [sic] budget unless House helps override Veto. Deal is a deal,” tweeted Baumgartner, who had sponsored a bill containing the manufacturing tax cut earlier this year.
Twenty-three Democratic state representatives signed a letter calling for a veto, citing a lack of analysis and public notice before the passage of the tax cut, which would have reduced tax bills for companies by an estimated $64 million over four years.
The tax cut would have been phased in starting in 2019, so its value would have grown to about $60 million a year by 2022 and $86 million annually by 2027.
Business groups, including the Seattle Metropolitan Chamber of Commerce, had urged Inslee to keep the tax cut in place, arguing it would give relief to a sector of the economy that provides family-wage jobs.
Braun said Washington has lost more than 50,000 manufacturing jobs since the turn of the century, mostly outside the aerospace sector.
Labor unions praised Inslee’s action Friday. In a statement, Jeff Johnson, president of the Washington State Labor Council, said the state “is long past the time where we should be handing out tax incentives that fail to hold recipients accountable for creating or maintaining good jobs.”
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Inslee also vetoed another section of SB 5977 that would have given a tax break for a Centralia power plant to convert from coal to natural gas.
Braun said Inslee’s veto of that provision also was a surprise and came with even less warning than the veto of the manufacturing tax cut.
The coal plant is scheduled for a two-phase closure to be completed by 2025. It has been a source of jobs and taxes in the Centralia area, and the bill had some strong support in the community.
Environmentalists sought to speed up the transition to renewable power sources, and they lobbied against the provision.
Becky Kelley, president of the Washington Environmental Council, said the tax break would have benefited a large Canadian corporation, while locking in polluting emissions from the plant for decades.
“We are committed to coming together with workers and the community to put Centralia at the forefront of a just transition to a clean energy economy,” Kelley said.
The governor let stand 11 smaller tax breaks in SB 5977, benefiting interests from martial-arts centers to film-production companies, solar projects and certain companies selling seed and fertilizer.