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The public does not want a state low-carbon fuel standard (LCFS) imposed by executive order. A recent poll for the National Federation of Independent Business found that 90% of the registered voters surveyed opposed the idea of Gov. Inslee circumventing the legislature to impose an LCFS with the stroke of a pen.

Yet that is exactly what the Inslee administration intends to do. It has been planning this for at least a year and half, despite past protestations to the contrary.

What is an LCFS?
A low-carbon fuel standard is a set of government rules that are supposed to lower the carbon-intensity of fuels, based on a complicated formula. For Washington state, lowering carbon intensity would likely mean blending more biofuels into gasoline.

The practical effect is that gas prices will rise if the state mandates higher blending levels of expensive biofuels. The amount of biofuels being produced today is not nearly enough for California to meet its LCFS goals, which start in earnest this year, let alone to expand it to Washington and other states. High hopes for mass production of “cellulosic” ethanol have not panned out so far.

How long has an LCFS been in the works?
When opposition first rose to the idea of an LCFS in Washington, Inslee administration officials claimed that opponents were arguing against nothing – there was NO proposal on the table, and thus nothing to criticize.

The governor’s spokesman said last spring that the administration “doesn’t have a specific plan yet” and that “it’d be wrong to talk about any costs associated with a clean fuel standard” since there was no specific plan.

The rule may not have been drafted yet, but as far back as September of 2013 the Inslee administration had already set its sights on the first quarter of 2015 as its target to roll out an LCFS rule that could be put in place by executive order. Documents obtained through a public records request found a top Ecology staffer editing a Pacific Coast Collaborative goals document. Under a goal titled “Washington: Establish LCFS by administrative rule”, the staffer changed the target date to “Q1 2015”.

Sure enough, the situation has played out exactly as planned. The administration quietly informed legislators a few weeks ago that they will unveil their LCFS rule on February 4 and take public comment through February 28.

Problems with an LCFS
1) The fact remains, if it goes ahead with an LCFS by executive order, the Inslee administration will be circumventing the legislature in a way that public clearly dislikes. They want this proposal debated in the legislature by their elected representatives.
2) An LCFS will raise the price of gasoline (how much is in contention) with little-to-nothing to show in the way of environmental benefit.
3) Meeting the standards set in an LCFS would require biofuels supplies that do not currently exist and are unlikely to exist soon. Unless a long-awaited technological breakthrough occurs in cellulosic ethanol production, we will remain years away from the significant biofuels production it would take to satisfy California’s LCFS program and expand it to Washington and Oregon.

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As cigarette taxes rise, smuggling-related activity rises. When they rise to absurd amounts, smuggling rises dramatically.

That shouldn’t be a surprise to anyone, but it’s relevant to Washington as it considers raising cigarette taxes by $.50 a pack (cigarette taxes were already raised by $1 a pack in 2010).

The governor’s proposed hike would bring the cigarette tax per-pack to $3.525. Already the sixth-highest rate in the country, the increase would rank Washington second, after New York. In addition to per-pack taxes, sales tax is also charged on cigarettes, the exact amount of which varies based on location and retail cost. Adding on a new $.50 per-pack tax would bring the total taxes on a typical pack sold in Washington over $4.

The state wants the money the tax increase would bring in, which it estimates at $37.8 million in the 2015-17 biennium. A Department of Revenue study from 2012 estimated that state and local governments lost out on $376.4 million in cigarette taxes that year; a hike in the per-pack tax would send that number even higher.

taxes

Washington already has the fourth-highest rate in the nation for smuggled and untaxed cigarettes. Raising the tax dramatically would put Washington on the path of New York, where the Tax Foundation estimates that 57% of cigarettes consumed in the state evaded the state’s taxes. New York charges a $4.50 per-pack tax, and the City of New York tacks on another $1.50.

When government taxes a product at a rate far beyond what consumers consider reasonable, it’s no surprise that they find alternatives: more reservation sales, more cigarettes brought in from Idaho (where the state tax is $.57), and more cigarettes smuggled from abroad.

Cigarette and other “sin” taxes are always tempting targets for state governments, but there is a point at which they merely encourage evasion and lawlessness. New York is a cautionary tale of what that approach yields.

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Sen. Mark Miloscia knows something about government efficiency and lean practices. As a seven-term Democratic state representative and a candidate for state auditor, Miloscia advocated performance audits and better state agency performance. He “audited billion dollar contracts to prevent waste and abuse” in the Air Force, he told voters.

Miloscia switched parties to run successfully for the state Senate last year. Now the Federal Way Republican chairs the Senate Accountability and Reform Committee, putting him in a prime position to ask when the promised savings from Lean Management will materialize.

Lean Management, of course, was Gov. Inslee’s standard response in the 2012 campaign when asked about state budget woes. Inslee preached the power of Lean Management, arguing that untold savings could be found by shaking up an “ossified” state government.

But so far the administration’s Lean Management effort, called Results Washington, isn’t producing big savings. David Schumacher, Inslee’s budget chief, told a House committee last week, “Our ability to save significant, meaning 20’s, 50’s, 100 million dollars, out of LEAN is not very realistic and I think the savings will show up more in the 1’s and 2’s of millions and perhaps in reduced waiting times for customers.”

That’s left Miloscia unimpressed. After a similar briefing to his committee, he said the Lean Management program “had no comprehensive performance measurements or significant waste reduction to report.” According to Miloscia:

This is not what the governor promised to deliver when he said he would bring a culture change to state government, nor is it what the Legislature required for reaching savings goals. Not only are there minimal results, but there is no way to measure the results. I think it’s time for the Legislature to take the lead on this issue where the governor has not.”

More robust legislative involvement, in Miloscia’s view, would involve performance measurements already used by many governments to improve efficiency and services.

With legislators trying to fund the McCleary education decision and other areas of rising state spending, hopes for Lean Management were high. So far, the program has, for the most part, reduced waiting times and “avoided costs” to show for it – not what legislators were hoping for.

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Gov. Jay Inslee calls his carbon tax proposal a “twofer” that will help the environment as well as fund transportation and K-12 budgets. In yesterday’s State of the State speech, he reiterated his belief that legislators should look to the carbon tax as an opportunity to lead in developing a “clean technology” economy.

As expected, Republican legislators are skeptical of the proposal. With the GOP controlling the state Senate, Inslee’s carbon tax proposal (in actuality a cap-and-trade system, though he prefers not to call it that) faces tough sledding in that chamber.

It’s unclear how much support the proposal enjoys among House Democrats, who run that chamber with a 51-47 majority. If the comments of some of Democratic committee chairs are any indication, it may not fare much better in that chamber.

Journalist Robert Mak asked House budget chair Ross Hunter (D-48) at an East King County Chambers of Commerce event last Thursday if the House had an “appetite” for a capital gains tax (Hunter said yes). Mak followed up about a carbon tax, and Hunter replied, “Well, I think that’s harder. It’s more complicated, people haven’t thought about it as much.”

Senate budget chair Andy Hill (R-45) had criticized Inslee’s proposal earlier in the forum, saying it “kind of read like a B&O tax” and was “ripe for political maneuvering.” Hunter told Mak, “I would agree with some of Senator Hill’s concerns about transparency,” adding that other proposals would have “less ability to manipulate” and “look less like the B&O tax” than Inslee’s cap-and-trade plan.

House transportation chair Judy Clibborn (D-41) was also cool to a carbon tax. She respectfully punctured holes through the idea that a carbon tax should fund transportation projects rather than a gas tax, which the state constitution requires be spent on highway projects.

Clibborn told the same audience, “I think that’s a really heavy lift to take a brand-new concept, and that has a relatively unproven revenue stream, and try and get that through the House and Senate with so many unknowables.”

Inslee’s proposal would bond even more of the current gas tax, but Clibborn said, “I don’t think that’s sound fiscal policy. I don’t think the Treasurer will agree to that. I don’t even think there’s enough money to do the number of projects that he has [budgeted] with that money when it’s being bonded.”

That has some openly wondering if the administration is even serious about the proposal. Rep. Jay Rodne (R-5), who sits on the House transportation committee, told the chambers, “I think the governor’s proposal is a wonderful jobs package for the states of Idaho and Oregon. I don’t even think the governor is very serious about the success of that package in this Legislature.”

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When the 2015 legislative session adjourns in April (hopefully), what will we be saying about it? At the very least, this session will be remembered for the big proposals Gov. Jay Inslee laid out – a new capital gains tax, even-higher cigarette taxes, and an all-new cap-and-trade carbon tax system, part of which would fund transportation projects.

How far those proposals get in the Legislature remains to be seen. If legislators’ comments at pre-session forums are any indication, even many leaders in the governor’s own party are skeptical of these plans. House budget writer Ross Hunter expressed doubts about the cap-and-trade system at a forum last week. From the same stage, House transportation chair Judy Clibborn made clear she thinks carbon taxes are a poor way to fund highway improvements.

Inslee may not have Democrats united on his specific tax proposals, but most in the party are seeking new taxes this year. With the session under way, legislative Republicans are pushing back on Inslee’s talking points that the state faces a huge deficit and requires new taxes.

Senate budget chair Andy Hill laid out his case last week, calling the idea of a massive budget deficit “a myth, propagated by the Governor and others”. By Hill’s take, Inslee’s very public call last summer for state agencies to prepare cuts of up to 15% was designed to mislead voters into thinking the state faced a massive budget deficit.

According to Sen. Hill, the true “carry-forward” costs to maintain state government at current levels plus add required new spending is $36.2 billion – $1 billion less than the state is projected to collect in taxes over the next two years.

“After continuing current services, the state is projected to have enough revenues to fully finance the next statutorily required McCleary enhancement, plus a salary increase for K-12 staff,” Hill wrote. “K-12 spending would be increased by over $2 billion, representing a 14.1% increase from current spending levels.

Hill was upfront about what this hypothetical no-new-taxes budget wouldn’t fund, including I-1351, the class size initiative. Inslee skipped funding I-1351 in his budget proposal as well, but it will take an act of the Legislature to suspend the new law. Also not covered: state employee pay raises recently bargained by the governor, and early McCleary funding not yet required by the state Supreme Court.

Hill’s analysis concluded:

With $3 billion in additional revenue and a sizable surplus heading into the upcoming biennia, the state has sufficient revenue to cover all existing costs, make the next required enhancement to McCleary, and increase the K-12 budget by the highest dollar amount in history.

Indeed, the focus of this session should not be on higher taxes or revenue, but rather advancing the best policies to enhance student learning and ensuring that every tax dollar is being spent efficiently and effectively.

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