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updated 2:54 PM CDT, Jul 28, 2018

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Voters, rather than the High Court or lawmakers, should decide school funding

What the Washington State Supreme Court seems to have done, with its ruling last week that charter schools violate the state constitution, is to reinforce its message to the governor and the legislature: "you are not in charge in this state. We are."

And anyone who agrees with the assessment that the state highest court's two education-funding cases amount to unsettling steps into the separation-of-powers arena could also agree that the constitutional question the court is thus raising is one that merits a focused public discussion.

The question of whether the Supreme Court has embarked on an undesirable drift away from the principal of three equal branches of government can be put into discussion by conversation on social media and analysis and commentary from traditional media.

But closure to that question in the form of "a ruling" by the state's citizens, the ultimate court to which all three branches of government answer, can only come in a meaningful way with the kind of debate that occurs during election season when the judges actually have to face public scrutiny.

Meaning the three Supreme Court judges up for re-election a year from now, three of whom were in the majority in the 6-3 ruling, including Chief Justice Barbara Madsen who wrote the majority opinion, should face opponents who feel the court has encroached inappropriately on the essential separation of powers.

The value of competition in next year's election for those three justices, Charles Wiggins and James Johnson in addition to Madsen, isn't to seek to punish them for their views but rather to ensure a sufficient airing of public attitudes on the issue of whether they are endangering the proper separation of powers.

Certainly the role of the Supreme Court is to have the last word, passing judgement on laws passed by the legislature and signed by the governor. But what troubles concerned legal observers is that in the two education-funding decisions, the court has assumed for itself the first word, telling the governor and the legislature what they WILL do rather than passing judgment on what they did.

If the sitting judges are voted out, it will amount to an affirmation of the view that the court has gone too far and the remaining six judges can then ignore that at their peril.

Now for a review of the court decisions that lead to the questions about limitation of the powers of the court and the possible abandonment of the tradition that the high court imposes those constraints on itself.

The court's most recent ruling held that charter schools are unconstitutional, ultimately because they are governed by appointed rather than elected boards and that the constitution requires that the boards that oversee common schools must be elected.

The state constitution merely requires adequate support for common schools. So in decreeing that elected boards must govern common schools, the court has basically usurped the legislative and gubernatorial right to decide in the future the manner in which the constitutional funding requirement can be best carried out. That means the lawmakers might want to decide whether funding oversight is best served by elected or appointed boards, perhaps at the state level.

Budget leaders in both houses and both parties have suggested that the state take a larger role in oversight, as in setting pay, for example. And some lawmakers are even convinced that they have to do that, since the lawmakers, just as they are answerable to students to provide a good education, are answerable to state taxpayers to ensure that those school dollars the court has ordered them to increase are being spent as wisely as possible.

They realize they need to step into the management role in ways that could elude locally elected school boards.

In the first education-funding decision, known as the "McCleary decision," the court ordered the legislature to spend more money on education, then followed up by holding the lawmakers in contempt for failing to provide enough additional funding. And in the past few weeks the court actually imposed a $100,000-a-day fine on the lawmakers to failing to "sufficiently" fund education.

In that McCleary ruling, the court said common schools funding needed to be 'ample" but also "uniform" and "stable."

Now the court's sole position is spend more money, focusing only on "ample" while saying it has "no opinion" on the "stable" or "uniform" points.

Some court observers have described as curious the fact that the high court backed off from two of the three central points on education funding, leaving only the edict of spend more money.

And since in the constitution, common schools specifically excluded high schools and "normal schools," (which became the state's Eastern, Central and Western state universities) the court may have cast doubt on the constitutionality other programs not overseen by elected boards, like Running Start, a program by which high school students can gain college credit.

All represent more than enough reason for deliberation beyond the legislators, governor and the courts to include the public in decisions about where the state should go with education funding and the process by which that should occur. 
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Rural economic development and young people

 

If Global Entrepreneurship Week, the annual worldwide celebration of innovators and job creators, had been a competition among nations, states and regions, Washington State could have laid claim to being the hands-down winner. And that would be appropriate recognition for the man who has guided much of this state's effort to advance entrepreneurship, particularly in rural areas and particularly with young people, for 25 years.

https://mlsvc01-prod.s3.amazonaws.com/f9d31d49001/30a3ef8d-4001-4795-971c-0da1ede61b9e.jpg

Maury Forman

Maury Forman, senior manager for the Washington State Department of Commerce, is proud of the fact that in this state, GEW 2015 was actually Global Entrepreneurship Month and extended to every corner of the state with activities in all 39 counties. Four years ago, when Forman plugged the state into GEW activities, three counties participated.

Forman says "we are changing the way communities look at economic development." That's an outgrowth of his effort, over much of his quarter century overseeing key economic-development sectors, to develop a culture of entrepreneurism in rural areas.

Global Entrepreneurship week was founded in 2008 by the Kauffman Foundation, the Kansas City-based 501c3 that is the nation's pre-eminent entrepreneur-focused organization, to create an annual celebration of innovators and job creators who launch the start-ups that drive economic growth.

Forman, who joined what was then the Department of Trade and Economic Development in 1991 in a career transition from healthcare at the age of 40, says "No other state can claim that every part of the state had at least one event that celebrated entrepreneurship."

"One of the exciting aspects of this year's celebration of entrepreneurship was the number of high school programs being held throughout the state," Forman said. "In many cases, college isn't the natural next step it was once for high school students so these programs expose them to the idea of starting their own business once they graduate. Or if they do go on to college, they can focus their education on skills that will allow them to start a business in the years to come."

Forman says he has kept his primary focus on rural economies because "they need the assistance much more than urban communities," as well as because he has become convinced that the strategies for growth of many rural areas that has been focused on recruiting companies from out of state is outdated.

"That has to change if rural communities are to survive," Forman said. "Communities have to be shingle ready and not just shovel ready."  

In a recent article in Governing, a national magazine covering state and local government news, Forman wrote about Washington's three-year-old program called Startup Washington that focuses on building local economies "organically" by serving the needs of local startups and entrepreneurs.  

Forman is likely among the national leaders in the conviction that programs to enhance local economic development "must nurture the belief that young people who grow up in rural communities can be guided to start businesses in their own community rather than moving to urban centers."

"Just as young people are looking at new ways to enter the work force other than working for someone else, so too are communities looking for ways other than recruitment of businesses from elsewhere to grow their economies," Forman said.

One of the ways he is seeking to do that "is by matching those students that are serious about being entrepreneurs with mentors, especially in rural communities."

Indeed matching students who hope to be entrepreneurs with mentors is becoming the model for successful communities, particularly rural ones, to pursue.

Some communities have long been employing that model, as chronicled in the oft-quoted book written by Jack Schultz, founder and CEO of Agracel, a firm based in Effingham, IL, that specializes in industrial development in small towns.

It was in pondering why some small towns succeed where others fail that Schultz set out on the backroads to rural America to find out as he became the nation's guru of rural economic development and wrote of his travels in Boomtown USA: the 7 ½ keys to Big Success in Small Towns.

I emailed Schultz about entrepreneurism's role in small town success and a possibly emerging role for mentor programs.

"Embracing entrepreneurism in communities has been a key factor that differentiated great communities from also-rans," he emailed back. "Increasingly, we are seeing those great communities taking it a step up by tying their local entrepreneurs up with their young people, educating them on both entrepreneurship and also the great things happening in the private sector of their towns."

Schultz' successes in believing in small-town entrepreneurs and small-business lending is partly responsible for the fact the Effingham-based bank he helped found and now chairs the board, has grown eight fold to $2.9 billion in assets and gone public.

"At Midland States Bank, we have very much focused on small business lending and it has been a major factor in our growth over the last several years," Schultz said.

In an unusual and innovative commitment to the dozens of communities it serves, the bank has funded a not-for-profit institute to expand an entrepreneurship class that was started in Effingham eight years ago and has now expanded to 27 other towns.

Forman seemed intrigued by the details Schultz provided:  The class meets each day during the school year from 7:30 to 9 am; meets in local businesses; is totally funded by local businesses with a maximum contribution of $1,000 per business or individual.  Each class has a business and each student must also start a business.  

Meanwhile, Forman approaches his 25th anniversary with the department on January 1 having collected numerous regional and national awards for his work and successes. Those include last year winning the international Economic Development Leadership Award and recognitionby the Teens in Public Service Foundation with the Unsung Hero Award for his work with at risk kids.   

He has authored 14 books related to economic development, and has also designed and developed creative "game show' learning tools, including Economic Development Jeopardy, Economic Development Feud and two board games for the profession.

Forman credits the directors who have guided the department over his time there for allowing him "to be intrapreneurial," meaning behaving like an entrepreneur while working in a large organization, noting "not many government agencies allow the freedom to take risks in an effort to solve a given problem."

 

 

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Rural economic development and young people

 

If Global Entrepreneurship Week, the annual worldwide celebration of innovators and job creators, had been a competition among nations, states and regions, Washington State could have laid claim to being the hands-down winner. And that would be appropriate recognition for the man who has guided much of this state's effort to advance entrepreneurship, particularly in rural areas and particularly with young people, for 25 years.


Maury Forman 

Maury Forman, senior manager for the Washington State Department of Commerce, is proud of the fact that in this state, GEW 2015 was actually Global Entrepreneurship Month and extended to every corner of the state with activities in all 39 counties. Four years ago, when Forman plugged the state into GEW activities, three counties participated.

Forman says "we are changing the way communities look at economic development." That's an outgrowth of his effort, over much of his quarter century overseeing key economic-development sectors, to develop a culture of entrepreneurism in rural areas.

Global Entrepreneurship week was founded in 2008 by the Kauffman Foundation, the Kansas City-based 501c3 that is the nation's pre-eminent entrepreneur-focused organization, to create an annual celebration of innovators and job creators who launch the start-ups that drive economic growth.

Forman, who joined what was then the Department of Trade and Economic Development in 1991 in a career transition from healthcare at the age of 40, says "No other state can claim that every part of the state had at least one event that celebrated entrepreneurship."

"One of the exciting aspects of this year's celebration of entrepreneurship was the number of high school programs being held throughout the state," Forman said. "In many cases, college isn't the natural next step it was once for high school students so these programs expose them to the idea of starting their own business once they graduate. Or if they do go on to college, they can focus their education on skills that will allow them to start a business in the years to come."

Forman says he has kept his primary focus on rural economies because "they need the assistance much more than urban communities," as well as because he has become convinced that the strategies for growth of many rural areas that has been focused on recruiting companies from out of state is outdated.

"That has to change if rural communities are to survive," Forman said. "Communities have to be shingle ready and not just shovel ready."  

In a recent article in Governing, a national magazine covering state and local government news, Forman wrote about Washington's three-year-old program called Startup Washington that focuses on building local economies "organically" by serving the needs of local startups and entrepreneurs.  

Forman is likely among the national leaders in the conviction that programs to enhance local economic development "must nurture the belief that young people who grow up in rural communities can be guided to start businesses in their own community rather than moving to urban centers."

"Just as young people are looking at new ways to enter the work force other than working for someone else, so too are communities looking for ways other than recruitment of businesses from elsewhere to grow their economies," Forman said.

One of the ways he is seeking to do that "is by matching those students that are serious about being entrepreneurs with mentors, especially in rural communities."

Indeed matching students who hope to be entrepreneurs with mentors is becoming the model for successful communities, particularly rural ones, to pursue.

Some communities have long been employing that model, as chronicled in the oft-quoted book written by Jack Schultz, founder and CEO of Agracel, a firm based in Effingham, IL, that specializes in industrial development in small towns.

It was in pondering why some small towns succeed where others fail that Schultz set out on the backroads to rural America to find out as he became the nation's guru of rural economic development and wrote of his travels in Boomtown USA: the 7 ½ keys to Big Success in Small Towns.

 

I emailed Schultz about entrepreneurism's role in small town success and a possibly emerging role for mentor programs.

"Embracing entrepreneurism in communities has been a key factor that differentiated great communities from also-rans," he emailed back. "Increasingly, we are seeing those great communities taking it a step up by tying their local entrepreneurs up with their young people, educating them on both entrepreneurship and also the great things happening in the private sector of their towns."

Schultz' successes in believing in small-town entrepreneurs and small-business lending is partly responsible for the fact the Effingham-based bank he helped found and now chairs the board, has grown eight fold to $2.9 billion in assets and gone public.

"At Midland States Bank, we have very much focused on small business lending and it has been a major factor in our growth over the last several years," Schultz said.

In an unusual and innovative commitment to the dozens of communities it serves, the bank has funded a not-for-profit institute to expand an entrepreneurship class that was started in Effingham eight years ago and has now expanded to 27 other towns.

Forman seemed intrigued by the details Schultz provided:  The class meets each day during the school year from 7:30 to 9 am; meets in local businesses; is totally funded by local businesses with a maximum contribution of $1,000 per business or individual.  Each class has a business and each student must also start a business.  

Meanwhile, Forman approaches his 25th anniversary with the department on January 1 having collected numerous regional and national awards for his work and successes. Those include last year winning the international Economic Development Leadership Award and recognitionby the Teens in Public Service Foundation with the Unsung Hero Award for his work with at risk kids.   

 

He has authored 14 books related to economic development, and has also designed and developed creative "game show' learning tools, including Economic Development Jeopardy, Economic Development Feud and two board games for the profession.

Forman credits the directors who have guided the department over his time there for allowing him "to be intrapreneurial," meaning behaving like an entrepreneur while working in a large organization, noting "not many government agencies allow the freedom to take risks in an effort to solve a given problem."

 

 

 

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Supreme Court's school-funding fine brings collective confusion to the issue

 

Washington isn't the only state where the struggle over education funding has reached the courts. But it's the only state in which the threat of punishment for legislative failure to act has actually become "a bomb" that was dropped, meaning the court's threat of punitive action for its finding that the Legislature was in contempt became action in the form of $100,000 per day fine for legislative failure to sufficiently fund basic education.

Additionally intriguing is the fact the court's six women and three men, each of whose civic and legal credentials make them an extremely impressive collection of jurists, would wind up, in their unanimous agreement, producing not collective wisdom but collective confusion.

The court stirred concern about violating separation of powers for stepping into the legislature's funding role when it first told the lawmakers they were not meeting the state constitution's requirement for adequate funding of basic education. But there has also been the suggestion that if the court was going to step into the legislature's constitutional territory by ordering them to spend more money, it should logically have told them take control of how the money was spent.

Some court observers this week used the word "curiously" to describe the fact that the high court backed off from two of its original decision's central points on education funding, what has become known as the "McCleary decision."

In the original ruling, the court said K-12 funding needed to be 'ample" but also "uniform" and "stable."

Now the court's sole position is spend more money, focusing only on "ample" while saying it has "no opinion" on the "stable" or "uniform" points.

And though the court told the legislators they should go into special session immediately to begin arriving at the solution to the funding problem, the lawmakers basically replied, in so many words, that they'd decide to go back into session when they felt like their discussions had brought them to a decision.

Could be they decided, now that the court has dropped its punishment "bomb," that the penalty isn't that big a deal since if they are going to increase education funding, the $100,000 daily tab will take more than three months to equal $10 million, all of which will go into a special education fund anyway.

Anyone who thinks the court's decision last September holding the Legislature in contempt for failing to make progress on "full funding" of public education, and imposition of that $100,000 fine was a decision devoid of political considerations will draw an amused smile from those more attuned to political realities.

In its original ruling in 2012 that the state was failing to fully fund basic education and thus violating the state constitution, the court was careful to try to sidestep the full brunt of a constitutional conflict. The court said it didn't intend to "dictate the means by which the Legislature carries out its constitutional responsibility or otherwise directly involve itself in the choices and tradeoffs that are uniquely within the legislature's purview."

There is at least a suspicion that political considerations would account for the fact that, while the high court told the legislature it had to put more money into basic education, it failed to take, or even suggest, the logical accompanying step of telling the legislature to take control of how the money for schools is raised and spent.

Though it's possible the state taking total control of education might have been what the court had in mind when it included "uniform" and "stable" in its original decision, before eliminating them from the latest decision.

Teacher salaries and how they are arrived at around the state, through local negotiations with sometimes friendly or fearful school boards, is a major cost factor. The Washington Education Association likes it that way and the court would have set off an outcry from teachers' union members and their supporters across the state if the legislature had been told to not just provide more money, but to take control so it could create spending efficiencies.

Budget leaders in both houses and both parties have suggested that the state take a larger role in setting pay. And some even realize that they have to do that, since the lawmakers, just as they are answerable to students to provide a good education, are answerable to state taxpayers to ensure that those school dollars are being spent as wisely as possible. They can't delegate that task.

It will be much harder for Democrats in the legislature to confront irate teachers' union members than for Republicans. Thus, perhaps, Republicans who control the state Senate should be allowed to take the lead on funding reform that puts the state in the management role.

As Dick Davis, president of the Washington Research Council, wrote in a column after the court's 2012 decision holding the legislature in contempt for its education funding failure, "As the primary funder and constitutionally responsible party, the state needs to step into the management role. That preserves collective bargaining, but changes the dynamic. And, negotiations could include provisions recognizing regional cost-of-living variation throughout the state."

As indicated earlier, adequate funding for education has reached higher courts in a number of states for a variety of reasons.
Thus the debate about separation of powers and limitation of the powers of the court that the Supreme Court decision set off in this state is a discussion now going on in an array of states.

One is Texas, where that state's Supreme Court will hear oral arguments September 1 on a lower-court ruling sought by dozens of independent school districts in the state.

The Texas case has far more sex appeal than Washington's, since the all-Republican Supreme Court is considered likely to overturn a ruling by District Judge John Dietz, who is identified as "Austin Democrat and State District Court Judge," that the state's 'Robinhood style' funding mechanism is unconstitutional."

That system requires districts with high property tax values or large amounts of tax revenue from oil and natural gas interests to turn over part of their property tax collections to poorer districts.

To bring things full circle from one state to another, one of the things being talked about in Washington to correct the funding disparity among districts more reliant on special levies is a property tax swap whereby some richer districts would send money to poorer districts.

I'm not sure how that would come about legislatively, but it has an amusing ring of "Robinhood style" funding.
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Life Science Discovery Fund, defunded by Legislature, will exit with last hurrah

 

The Life Science Discovery Fund (LSDF), created a decade ago from the state's share of tobacco-settlement millions to promote the growth and competitiveness of the life science industry in Washington but defunded by the 2015 Legislature, has found a way to go out in style after all.

In what amounts to an unusual but fitting last hurrah, LSDF announced today that it is launching a six-month competition for what might be described as a "legacy" or "ecosystem" grant of almost $2 million to one or more organizations that can stimulate momentum within the life sciences commercialization sector.

The LSDF was established by then-Gov. Christine Gregoire and the legislature with the vision of using Washington's multi-million-dollar share of the Tobacco funds from the 1998 settlement to promote life sciences competitiveness, improve health and healthcare and help shape that industry's future.

But perhaps proving that vision can't be passed on, the 2015 Legislature defunded LSDF, with Democrats in the House and the Statehouse eventually acquiescing to the demand of Senate Republicans that funding for LSDF end.

In writing about that final legislative action, I said that LSDF went out "not with a bang but a whimper," given that strong support for the organization from Gov. Jay Inslee and House Democrats evaporated in the final days of legislative give and take on what would be included in the budget.

Wrong about going out with a whimper! LSDF will be going out with a bang after all, but not one the Legislature intended, or knew was possible.

In defunding LSDF. the Legislature specified that the $11 million in the organization's treasury balance be shifted to the state general fund.  

Except that in Addition to the $11 million that was to be LSDF's operating funds for the next year, and the nearly $12 million in the LSDF treasury to manage the stable of 46 grants already awarded by the fund, there was almost $2 million left in the treasury. Unallocated and not ordered sent to the general fund.

So the LSDF board last week approved the idea of turning that nearly $2 million remainder into what Executive Director John DesRosier refers to as " a life science ecosystem grant" and LSDF took the first step today by announcing the request for proposals with a pre-proposal deadline of September 21.

Full proposals will be due by January 6 with awards (possibly more than one) to be announced February 8 as an appropriate denouement for LSDF, which since it first began making grants in 2007 has awarded nearly $106 million to non-profit and for-profit life science businesses.

DesRosier said the grant o grants could be awarded to either a non-profit or for-profit entity that might already exist or come into existence "to stimulate momentum within the life science commercialization sector."

DesRosier views LSDF's eight years of funding activity, largely to startups for whom the grants often served to allow entrepreneurs to bridge the early funding challenges referred to as "the valley of death" for startups, as "creating a momentum for the life science industry's emerging companies.

And for all the lamenting from those focused on how this state stacks up against competing states and the message they fear that LSDF's demise sends to entrepreneurs in other states, it needs to be remembered that LSDF's legacy is in the life science startups it funded and that are now growing and creating jobs.

"So now the question is how do we keep this momentum going," he asked. "We think one way is to create programs that support entrepreneurs in their endeavors, not with individual grants but in a less prescriptive way."

It's clear that the LSDF board wants to be flexible in determining what type of organization or groups might best contribute to the life sciences ecosystem they seek to foster. "We want to keep as much flexibility as possible, depending on the scope of the proposals we receive," DesRosier said.

LSDF will be downsizing its staff by the time the board awards the grant, or grants. But DesRosier avoids referring to the end of the organization, saying "we're not using words like dissolving."

It's worth remembering that the legislature only denied LSDF future funding, it didn't strike the organization from existence.

"We're actually downsizing the staff by the end of February and we may or may not be in or current physicial space (LADF has been housed in the headquarters of the Washington Biotech & Biomedical Association)," he said. "But whether or not the organization continues to exists still up in the air, as well as the question of whether we will continue to oversee the existing grants."

"We're still quite flexible if something interesting comes up between now and then," said DesRosier.

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Lawmakers bring Life Science Discovery Fund to an end, not with a bang but a whimper

The fund established a decade ago by then-Gov. Christine Gregoire and the legislature with the lofty goal of supporting innovative research in this state to promote life sciences competitiveness, enhance economic vitality and improve health and health care has been terminated by the Legislature. And an oft-quoted line of poetry may best sum up the outcome: "not with a bang but a whimper."

The Life Science Discovery Fund (LSDF) was defunded by the Legislature at the insistence of the Republican Senate and at the eventual acquiescence of both the Democratic House and Democratic governor who had touted its importance to the state's future. In the rush to final budget passage, the fate of LSDF drew little attention except from the disappointingly few who understood its to the future of the state's economy.

Those who recognize the quote in the lead paragraph above as from T.S. Eliot's "The Hollow Men" should be forgiven for a quick sense of how appropriate the description "Hollow men" might be for the members of the Legislature.

And how appropriate also for that body might be the poem's line, "headpiece filled with straw."

The "whimper" is in the still unexplained rollover by both Democrats in the House and the governor himself after they had fought fiercely for LSDF funding and owned the vision space as it related to the importance of biotech and biopharma start-ups to the state's future.

The final budget was passed by the Legislature and signed by Gov. Jay Inslee last week after a conference committee had hammered out the details of issues in conflict, including the future of LSDF.  

In the end, House Democrats gave in and allowed a GOP-demanded shift of LSDF's treasury balance of $11 million to the state general fund and the stripping it of any revenue from any source over the coming biennium.  

I confidently (and obviously misguidedly) told friends and business associates the governor would use his line-item veto power to eliminate those LSDF death-knell provisions and turn GOP opposition to state support of entrepreneurs and biotech startups into campaign issues for Democrats next year.

Didn't happen. For reasons yet unexplained, the governor failed last week to employ the veto power he used a year ago to save the fund and thus become the political darling of those who saw LSDF as this state's message to the life sciences world about Washington's commitment to its future role in economic development in this state.

But for all the lamenting from those focused on how this state stacks up against competing states and the message LSDF's demise sends to entrepreneurs in other states, it needs to be remembered that LSDF's legacy is in the life science startups it funded and that are now growing and creating jobs.

And appropriately, one of the grant recipients, Seattle-based Omeros Corp., could possibly become a springboard for biopharma startups in the future because of its unusual program funded with a $5 million LSDF grant and, in an leading-edge partnership, $20 million from Paul Allen's Vulcan Capital in 2010.

Those potential spinouts could come from Omeros' G-protein coupled receptor (GPCR) program, a potentially lucrative focus in what is viewed as one of the most valuable families of drug targets.

GPCR's relate to key physiological processes in the body in which molecules bind to the receptors. GPCR relates to drugs that act on brain-cell receptors, unlocking them to drug development with such drugs representing 30 to 40 percent of marketed pharmaceuticals. Examples of the wide range of GPCR-drugs are antihistamines, opioids, alpha and beta blockers, serotonergics and dopaminergics.

 

The Omeros focus is on what are known as orphan GPCRs, those whose brain-cell receptors lack a certain DNA factor. There is a broad range of indications linked to orphan GPCRs, including cardiovascular disease, asthma, diabetes, pain, obesity, Alzheimer's disease, Parkinson's disease, multiple sclerosis, schizophrenia, learning and cognitive disorders, autism, osteoporosis, osteoarthritis and several forms of cancer.

 

A key Vulcan executive said at the time of the partnership announcement that the Omeros GPCR focus could accelerate new pipeline development across a broad range of highly attractive drug targets and can make a significant impact on the pharmaceutical industry.

 

Dr. Greg Demopulos, CEO of publicly traded Omeros, says the GPCR focus of his company is designed to promote the life science industry in this state in a way that is provided by other states that are spending millions to move life science to the fore in their economic development focuses.

 

But if the Omeros effort is successful in turning out startups to focus on various diseases that could relate to and be impacted by the GPCR research, the result would be a private-sector successor to, or funder of life science discovery since Vulcan Capital and LSDF have a right to receive a percentage of net proceeds generated by the GPCR program.

 

Meanwhile, the legislature, in head scratching fashion, didn't strike the Life Science Discovery Fund from existence, merely left it without resources to survivc.

 

But as a friend who has surveyed the legislative process for decades, and been closely involved with the lawmakers, explained: "This is how the legislature operates. They don't outright kill things.  They just turn off the money spigot because that's the way it's handled in the secretive budget process, which is gutless."

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A small example of government caring can do much to alleviate broad public cynicism

At a time when cynicism about government, and elected officials in particular, is at its zenith, there's some satisfaction in encountering those occasions when government has a more caring demeanor.

Seattle City Councilman Tim Burgess' announcement that he is seeking re-election reminded me of one of those occasions because he was a player in what to most people would be a minor incident but was one that had a larger import for me because it grew out of a column I had done.

The point of the column, which I think has increasing relevance, was that "elected officials need to weigh the implications of anger that constituents feel toward government in certain situations and consider how to bring private-sector principles of customer-friendliness into their thinking."

To many friends and those who read the column, there was an amusing, and some said typical, overreaction on my part to two traffic-related citations, one for $42 for parking wrong against a building and the other a $124 ticket for rolling through a stop sign in my neighborhood at 6:46 one morning.

The point of the column was that it may be at government's peril when citizens, particularly in tough economic times, find serious financial impact from traffic-related brushes with the law and are angered out of a sense that the penalty exceeded what was just or even moral.

 

I wrote that I would go to court on the two tickets and make the point to the magistrate that the cost of the minor moving violation had come during Christmas season and for some in Seattle, that $124 could have a serious financial impact on their holiday.

 

I said I would suggest to the magistrate that since "customer friendliness" was important to government's relations with its "constituents," I was going to ask permission to make a donation equal to the ticket amount to charity rather than pay it to the city. That would make me feel better about the citations, I said.

 

A number of those who received the column urged a follow-up column once I had met with the magistrate.

 

When I arrived in court and handed Seattle Municipal Court Magistrate Lisa M. Leone the column and explained why I was in front of her to discuss the tickets, she said "there is certainly a lot controversy about this issue, and a lot of angry people," then added: "And a lot of poor people are involved."

 

I could perceive that she cared about that fact and was sensitive to my suggestion that since charitable organizations are squeezed as never before, I'd write a check for the amount owed to any charity she designated. But she noted she lacked the power to issue that sort of order.

 

I explained my point about it being in her hands and the hands of her peers to be the instruments of customer friendliness that so often seems lacking, especially in cases where merely the law and not a moral issue is involved, though admittedly some might debate me over a beer about breaking the law basically being a moral issue.

 

To my surprise, she said she was going to change the parking ticket to a warning, then offered me the opportunity to do community service from a list of approved non-profits, for a number of hours equal to the $124 citation amount.

 

She said she lacked the authority to tell me to make a check out to the charity for that amount but was accepting of my statement that I felt compelled to do that.

 

It was clear that while she logically wouldn't share the information with me, there obviously were a number of citizens for whom the traffic-incident costs would pose a serious hardship who found themselves fortunate enough to be in the hands of a magistrate who fit the image of "justice."

 

So I wrote a follow-on column about what happened, with the lead: "It turns out that Justice does have a smile on her face, even when challenged to defend the workings of government against accusations of possible heavy-handedness."

Councilman Burgess comes into the picture because perhaps a year later, following a parking-ticket incident (I always go to court if I think I was treated unfairly) I went to court again and wound up again before the same Magistrate Leone.

 

I asked her if she remembered we had met earlier and that I had done a column on our encounter and she said she did. And she told me that after the column came out, Burgess, who had also seen the column, spent the bulk of a couple of days sitting in her office as those seeking relief from their traffic-infraction costs appeared before her.

 

"I think he genuinely wanted to get an understanding of those who came to appeal their tickets," she told me.

 

Now any politician seeking re-election wants to have good things said about them. But even Burgess might chuckle at the idea that relating this court incident could help his re-election.

 

But I've carried a respect for him since then because little things that are unpublicized tell much about the person.

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LSDF's comparatively tiny budget should be easy to fund, given its role in the state's future

Don Brunell, retired president of the Association of Washington Business, summed it up best as we were discussing the perilous state of the fund whose purpose has for a decade been to promote the state's life sciences competitiveness.

"A $19 million expenditure in a $40 billion biennial budget is too small a percentage to even try to calculate," said Brunell, who as longtime president of the state's largest business association guided business's side of negotiations through four governors and two dozen legislatures.

"If it's a really important issue, as it seems the Life Sciences Discovery Fund (LSDF) should be viewed, you just take the $20 million out of a major-funded item," Brunell said, "particularly at a time when the state is experiencing an unexpected surge in revenue. It's not that difficult."

Brunell's comment, borne of years of playing the game of helping lawmakers reach budget goals while finding a way to save the most important business items in the final budget, is an important comment, since it's a thought that may still occur to the small group of legislators deliberating the final form of the state budget for the coming biennium.  

To be sure, there are a lot of smaller programs whose supporters are seeking to pressure lawmakers to safeguard in the final budget."Molehills vs. the 'mountain' of holding off new taxes," as one prominent business friend of mine, whom I respect but disagree with on this, put it in referring to those various programs.

That current LSDF funding of $19 million a biennium is the small remainder of the $400 million tobacco-settlement money from which LSDF was established in 2005 by the Governor and Washington's Legislature. The goal of the fund was to support innovative research in this state to promote life sciences competitiveness, enhance economic vitality, and improve health and health care.

The challenge for LSDF at this point is that while the money to sustain its funding for another biennium is in the House (Democrat) budget, and strongly supported by the governor, there is nothing for the agency in the Senate (GOP) budget, and there apparently is even Senate talk of taking back some of the money already granted.

Word leaked out earlier this week that the four budget negotiators (a Democrat and a Republican from each house) had reached a tentative deal on the total size of the budget. That's the first step before lawmakers begin tinkering with details, hammering out individual items (like the funding for LSDF's survival) and, of course, reaching some compromises before the hard deadline at the end this month when the biennium itself ends.

There is some belated talk, but probably not nearly enough of it, from business leaders about hammering the Senate with the reality that Republicans can't abdicate the image of supporters of entrepreneurs and innovation to a Democratic governor and Democratic House members.

Brunell was one of a half dozen major business-community figures I had talked within the past week to get a sense of the depth of understanding of and interest in the LSDF and its purpose. And Brunell admitted, as others have, that he was only vaguely aware of LSDF's role (which is visible mainly to the biotech industry and its supporters) or that it was in danger of disappearing, assuming that if it was an important business issue, Republicans would be watching out for it.

 

Brunell, who in his retirement now produces a regular column that appears in several dozen newspapers, seemed struck by the lack of visibility on what he agreed seemed vital to future of an emerging industry in this state.

Noting that there are a number of issues whose backers are bombarding supporters to press their legislators, Brunell said "I am pummeled with emails and contacts from wildlife and recreation and the folks wanting a carbon tax, but besides you I am not hearing from LSDF advocates. But supporting LSDF seems like a no-brainer."

It's important to share that my belief in the importance of LSDF comes, as is usually the case, from personal involvement and commitment. I had only been generally aware, as a journalist, of LSDF and its background and role.

Then I became involved in actively supporting an emerging biopharma company named M3 Biotechnology, believing in its potential dramatic impact if it gains FDA approval for a drug that would reverse neurodegenerative diseases, and in the CEO, Leen Kawas, who has been guiding the company's successful growth.  

As one whose wife suffers from Parkinson's Disease and with a father who died of it, and relatives and friends who have Alzheimer's, the company was a natural one.

It was as a result of involvement with the company that I learned the importance of LSDF, since the then just-launching M3 received grants from LSDF that allowed it to bridge what's referred to as the funding "Valley of Death," the financially challenging period from birth of a company to the successful initial funding round.

 

I also researched what states are doing to attract biotech, which this state's sound and fund has largely substituted for commitment, and learned that others are spending millions of dollars to attract and grow what they realize will be a key economic pillar in the future.

"M3 isn't the only company that needed the LSDF funding to survive until finding conventional funding," said Chris Rivera, CEO and President of the Washington Biotechnology and biomedical Association.

"Legislators tell me 'if we give LSDF $19 million, we'll have to take it away from somewhere else," Rivera said. "And I reply, 'if LSDF goes away, and the industry begins fading and the economy is being impacted in this state a result, you'll be doing a lot more looking somewhere else to make the cuts that will be necessary.'"

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Could proposed capital-gains tax be vehicle for Supreme Court re-look at income tax?

The proposed capital gains tax that the Democratic controlled House of Representatives insists must be a part of the final legislative budget package likely stirs the inevitable liberal hopes and conservative fears about it being the vehicle to bring the issue of state income tax before the state Supreme Court.

Democrats are routinely hopeful of finding an opportunity to pass a tax measure that would cause the state's highest court to re-look at the constitutionality of a Washington income tax while Republicans are pretty much always on guard against that happening.

Thus the seemingly illogical positions of Democrats wanting a tax measure the Legislature passed over GOP opposition to be challenged to the Supreme Court and Republicans not wanting a measure they opposed to be appealed.  

Hugh Spitzer 

But the real logic is in understanding realities. Proponents of adding some sort of a tax on income to the tax structure in Washington have become convinced that the state Supreme Court, given the opportunity, would reverse the longstanding precedent that an income tax is unconstitutional in this state. And many opponents of an income tax apprehensively agree with that analysis.

  

It's been 82 years since Washington's Supreme Court, in a 5-to-4 decision, held that a graduated net income tax would violate the state constitution's uniformity provision because 'income' was 'property' and property was to be taxed uniformly.

Washington is one of only seven states with no income tax, but by almost any measure, it is the most progressive of the states with no tax on either personal or corporate income.  

The 1933 ruling on the unconstitutionality of an income tax has meant that it would require a two- thirds vote of the legislature and the voters to amend the constitution to impose an income tax. And despite repeated efforts to get the voters, since that supreme court ruling, to approve an income tax, no proposal has come close to approval.

But Seattle attorney Hugh Spitzer, an expert on the state constitution and long an advocate of a state income tax, agrees that the state high court, given the opportunity, would overturn the precedent case. But he says the proposed capital-gains tax, which Gov. Jay Inslee and Democrats pitch as targeting the investment income of the super wealthy, isn't likely to be the vehicle to get the issue before the court.

"Although I wish that this legislation, if enacted, would provide an opportunity to re-look at the constitutionality of a Washington income tax, I'm not sure that it would necessarily provide that opportunity," Spitzer emailed me when I posed the question to him this week.

"The state capital gains tax proposal has been carefully drafted to stay comfortably within the definitional parameters of an excise tax," Spitzer said, adding "I helped with the drafting of early versions of the proposed capital gains tax, and the language I worked with is still there."

"It's a one-time tax on a transaction rather than a periodic (i.e., yearly) tax on property.  The tax can be easily avoided by not selling the asset giving rise to the capital gains tax-this is an indicator of an excise tax rather than a property tax," he explained. "Property taxes can't be avoided by means of a voluntary action (like refraining from a purchase or a sale)." 

But likely stirring the emotions of liberal hope and conservative fear about a new supreme court decision, Spitzer, now acting professor at the University of Washington Law School, argues that the current State Supreme Court would accept an income tax as constitutional.  

"Fundamentally, the cases they relied on in 1933 all tied back to three United States Supreme Court cases which have been reversed or, in one case, wiped out by a U.S. Constitutional amendment. The background law no longer exists." Not to mention that this Supreme Court is dramatically more liberal in its makeup than the court in 1933.

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Legislative disinterest in funding assist for life science industry troubling to many

(Editor's noteThis is the first of a two-part series on the state's life science/biopharmaceutical industry with this first article dealing with the challenges of getting the state to provide the financial tools necessary to grow the industry. The second article will deal with a couple of newly emerging companies that will help carry the hopes for the future of the sector in Washington.)

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The apparent legislative disinterest in the state having a financial role in the future of Washington's life science industry isn't a fatal flaw for what has become the nation's sixth largest biopharma cluster. But it will send the wrong signal to biotech entrepreneurs and investors elsewhere in the country and will inevitably mean some startups won't make it across the early-funding challenge that's known as "the valley of death."

 

"Legislative disinterest" means the very real possibility that the 2015 Legislature may turn its back on key funding for startups, who represent the seeds that grow into players and job creators in the industry, by declining to keep the innovative Life Science Discovery Fund (LSDF) alive.

 

If LSDF, created to foster growth of the state's life science sector, went out of existence on its 10th anniversary because the Legislature decided not to fund it anymore, It would represent an ironic measure of the legislature's lack of commitment to the future of that industry in Washington.

 

Key states around the country are going to great financial lengths in their funding commitments to life science, both to foster growth of that industry within those states and also to send "come join us" messages to biotech innovators and investors elsewhere in the country.

 

LSDF was established in 2005 by then-Gov. Christine Gregoire and the state Legislature to guide investment dollars from the Master Tobacco Settlement Agreement into research and development grants to entities that demonstrate the strongest potential for delivering health and economic returns to the state.

 

It was only the intervention of Gov. Jay Inslee, a key proponent of a strong life-sciences sector, that saved LSDF at the end of the 2014 legislative session, but he couldn't prevent the demise of the research & development credit against the state sales and business & occupation taxes.

 

The R&D credit expired at the end of 2014. More than 2,000 companies had used the credit against the B&O tax since it was instituted in 1994, and about 400 have used the sales tax credit. The lost revenues through 2012 totaled about $950 million, but the investment the credits generated came to about $8 billion, and repaid the state several times over in overall tax collections, according to industry sources.

Chris Rivera
WBBA president.

Washington is now is on a short list of companies that don't offer R&D tax credits, and perhaps the only state on that short list that actually hopes to see its life sciences fortunes be an important component of economic success.

 

The budget Inslee has submitted to the Legislature would make a $20 million investment for LSDF and re-establish a $70 million Research and Development Tax Credit program with the governor telling the life sciences industry he is "a strong supporter of the R&D tax credit and sales tax deferral."

 

To be sure, the industry, guided by the Washington Biotech and Biomedical Association and its president, Chris Rivera, himself a former biotech CEO, have friends in Olympia in addition to the governor.

 

But the myopic among lawmakers will point to this region's sixth-largest life sciences ranking and say "well, things are obviously going pretty well for us."

 

The fact that the Seattle area ranks third among cluster-cities in the total of NIH dollars, at $142 million for the most recent year calculated, is viewed as reflecting the fact the region is anchored more by academic and independent research institutions than by local companies.

 

In fact, those academic-independent institutions, like the Gates Foundation, Fred Hutchinson Cancer Research Center, PATH, Institute for Systems Biology and the University of Washington may well be the most prestigious collection of industry research players in the country.

 

But the startups spun out of those institutions need conventional financial support to become full-blown businesses and that has been a challenge for companies in this state.

 

And from a competitive-clusters standpoint, the fact that two of the cluster cities above Seattle on the list are in California, with San Diego third and the Bay Area a far-ahead number one, is something that the lawmakers and policy makers need to be continually focused on.

 

Indeed nothing points up the importance of competitive awareness than the experience of Chris Rivera himself.

 

Rivera recalls that when he sought advice on launching a biotech firm in Seattle that would focus on orphan diseases "I told a key industry leader I needed space, talent and money. The response was 'you won't find those here.'

"

So having been involved with firms in Boston and the Bay Area before moving to Seattle in the mid-80s, he headed for California where, in 2005 in South San Francisco, he launched Hyperion Therapeutics, a specialty biopharmaceutical company focused on the development and commercialization of therapies for gastroenterology and hepatology diseases.  

 

Rivera guided his company through the usual ebbs and flows of early growth challenges, including downsizing when the IPO market dried up. He stepped down in 2008 as the company prepared for what turned out to be successful Phase II trials and a $69 million funding in June of 2009 in one of the largest VC raises that year. Hyperion went public in 2012. He remains an investor in the company, but it is a growing Bay Area firm, not the Seattle-area firm it might have been.

 

Thus it wasn't surprising that when the WBBA executive committee went looking for a new president in late 2008, they lured Rivera back to Seattle with one of his goals being to create a strategy to help keep companies in Washington.  

 

"I think we've done a pretty good job of achieving that," he says.

 

Success for Washington's life science industry often seems a matter of two steps forward and two steps back, despite the best efforts of WBBA, whose strategies include a successful mentor program for entrepreneurs.

 

There was some of both forward and back in 2014. The steps back were the departure Amgen, taking with it the jobs of more than 600 biotech employees, and the demise of once-high-flying Dendreon, which had more than 700 employees, leaving perhaps the largest number of jobless biotech employees ever in this area.

 

But the steps forward were the emergence of Juno Therapeutics, a company less than two years old that surged into an IPO in late 2014, and the surge in interest for Omeros Corp., whose CEO Greg Demopulos jokes that it has taken his company 20 years to become an overnight success.

 

Ironically, the hiring mode for Juno, which develops immunotherapy treatments for cancer and has had remarkable results in small clinical trials, has benefitted from the availability of former Amgen and Dendreon employees.

 

Omeros, a Seattle-based biopharmaceutical company focused on developing and commercializing small-molecule and protein therapeutics for large-market as well as a variety of orphan indications, has become the best biotech story of 2015 and we will take a look next week at the company that celebrated its 20th anniversary last June.

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Abe Bergman has mixed pediatrics, 'political medicine,' to benefit kids for half a century

Abraham (Abe) Bergman, M.D., a respected pediatrician and pediatrics professor in Seattle for more than 50 years, had a second practice over all those years that he refers to as "political medicine," which frequently found him twisting arms of state and national lawmakers for kids-related issues. Now he has a new cause that is painfully close to him: to build new community facilities to house the mentally ill.

Bergman, who retired as chief of pediatrics at Seattle's Harborview Medical Center in 2002, is seeking to have the 2015 Legislature clear the way to include construction of facilities for mentally ill housing in the capital construction budget the lawmakers pass each biennium.

Dr. Abraham (Abe) Bergman 

Bergman, who practiced pediatrics at Children's Hospital for 20 years and Harborview for 30 in addition to teaching at the UW Medical School, thinks the time is right for his proposal for several reasons.

An obvious one is a State Supreme Court ruling last year making the practice of warehousing mentally ill patients in hospital emergency rooms due to a lack of available treatment space illegal.

That ruling dramatically complicated the processes in place in the state mental health system and forces the Legislature to confront the question of how to deal with the longstanding dilemma of the impact budget cuts have had on the availability of mental-health treatment space.

But a decision immediately after the ruling by the Medicare and Medicaid Services to allow Washington State to use Medicaid dollars to pay for services in what are officially called Institutes for Mental Diseases may be another boost to Bergman's campaign. That decision would allow qualified non-profits to provide services in the facilities that he would like to see built with state capital construction bonds.

He candidly admits his interest "has been piqued" by having a 19 year old, one of three children from the Russian Far East that he and his wife adopted in the late '90s and early 2000s, "who has been at the intersection of the criminal justice and mental health systems for the past two years."

"The problem is visible everywhere in society," Bergman said. "People who are psychotic are walking around on the streets. Jails are full of people with mental illness and there is no place, no supportive housing, where these people who are a danger to themselves and others can go."

 

Bergman points as a possible model to a long-standing program in Maryland that provides for capital grants to non-profits or county or municipal corporations for from $100,000 to $2 million per project to construct buildings to provide services to individuals with development disabilities, mental illness or addiction.

"I feel there's a glimmer of hope now for the Legislature to consider this because, after talking with several legislators, it seems possible partisan swords will be sheathed, partly because there are certain issues, like child welfare, that have always been exempt from partisanship and this may well be one," Bergman said.

"The neat thing about my proposal is that most construction costs can be covered by the sale of bonds (in the capital budget) and funds to operate the programs can come mostly from Medicaid," he added. "So it's not a budget breaker."

Bergman notes that his plan, now being considered by the House budget committee, doesn't necessarily need passage of a bill to implement, but rather could merely be inserted directly into the capital budget itself.

I've been watching Bergman, now 82, practice his "political medicine" for more than 40 years, since we first connected in 1973 after the death of our infant, Sarah, who was a victim of Sudden Infant Death Syndrome.

Bergman and another young physician, Bruce Beckwith, were, for nearly a decade, the first contacts for Seattle-area parents whose infants had died unexpectedly and unexplainedly from what was long referred to as "crib death."

It was on behalf of those lost infants and their grieving parents that Bergman had already successfully guided a national campaign that led to research efforts to explain the sudden deaths and changed thoughtless and heartless medical and law enforcement practices. And their national efforts gave what had merely been "crib death" an actual medical name.

It was about the same time, in the mid-'60s, that Bergman also provided a key assist to Washington's Sen. Warren Magnuson in getting Congress to amend the Flammable Fabrics Act to expand its coverage to include foam and other materials used in children's clothing.

But Bergman's activities on behalf of kids extend way beyond mere political activism. He has been engaged for more than a decade leading efforts to improve healthcare for foster children, a campaign that he says is beginning to bring results.

He's been an outspoken advocate of adoptions by retirees, particularly of special-needs children. He became an advocate of retiree adoptions after he and his wife adopted their three youngsters from the Russian Far East.

And another successful campaign of Bergman's on behalf of children with special needs was creation of the Seattle Children's PlayGarden, which he proudly points to as "the only facility of its kind in the country located in a public park."

Bergman was the founding board chair and a key advocate for the PlayGarden when it became a 501c3 in 2003 and the Seattle Parks Department offered the south end of Coleman Playfield as the site for a public-private development. He calls it "the most gratifying project I have ever been involved with."

The annual luncheon on behalf of the PlayGarden, which is described as "improving the lives of chldren with physical or mental disabilities by providing them with full access to a safe indoor/outdoor recreation space and offering programs that improve their potential," is March 27 at the Four Seasons at 12p. 

Bergman once described the rewards of his half century as a pediatrician as satisfying "the passions of my bleeding heart by practicing 'political medicine' on behalf of underserved kids." It's a passion that hasn't abated in his retirement years.  

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State's Business & Occupation tax could get a look from Legislature as new-revenue source

The fact that it will take a two-thirds vote to get any new-tax measure through the state Senate this year could prompt lawmakers to take their first serious look in years at potential new dollars from the business and occupation (B&O) tax, the state's primary source of revenue from business.  

And if that happens, not only might some lawmakers be surprised at the disparity scattered among the nearly 30 categories of the B&O Tax -- Washington's unusual tax on gross receipts -- but it would also emphasize how out of sync the imposition of that tax is with the current-session's legislative mantra of "fairness."

After all, we have House Democratic Leader Ross Hunter, D-Medina, on the record with "when we are done, our tax system should move toward fairness." So lawmakers could decide there's some logical opportunity for new revenue from some of these categories while getting credit for looking to create fairness

Seeking revenue-producing changes in the B&O could be an attraction because

apparently the GOP Senate rule on two-thirds for any new tax allowed continuation of a simple majority for tinkering with existing taxes. 

 

This column's focus on the B&O tax is a topic that came to mind for me as a consultant who, with attorneys and accountants, pays a B&O tax under the "services" category, of .015 percent, basically $15,000 on $1 million of gross revenue, while our clients pay a tax of maybe $2,500, as the manufacturers' .00275 percent rate would impose. As publisher of Puget Sound Business Journal, I paid $3,500 for each $1 million of revenue.

An honest look at a tax structure where an attorney, accountant or consultant could pay a rate two or three times as high as a client they are advising might well provide additional tax revenue as part of creating tax fairness for all businesses.

But across the state tax spectrum, the fairness issue should also be weighed against the reality of why some tax breaks legitimately came about. Thus lawmakers need to evaluate, and perhaps restore at least some of the 20-year-old high-tech B&O tax credit, a tax break for five categories of tech business that expired as of January 1 this year.

It would be a mistake for the lawmakers to succumb to the temptation to merely pocket the nearly $50 million in revenue that the tax break cost the state, rather than seek to evaluate the changing value of the tax break to some of the five tech sectors to which it applied.

The challenge for legislators in evaluating either the B&O tax disparity or the tax break for high tech is in being able to understand the difference between tax breaks important to the economy and tax breaks that are merely the result of good lobbying.

And the manner in which the tax credit came about for high-tech research and development for advanced computing, advanced materials, biotechnology, electronic device technology, and environmental technology is an example of what was once viewed as an important-to-the-economy tax break.

The tax breaks for high-tech companies, both B&O and sales tax credits, were created by a Democratic legislature responding to the goal of creating jobs that came from a Democratic governor, Mike Lowry.

 

 "We were coming out of what was, at that time, the state's worst recession and we needed to attract industries that would produce good-paying jobs," Lowry recalled of the proposal he came up with and pressed through the 1994 Legislature as a way to lure new business to Washington.

 

And for Democratic lawmakers who have since sometimes come to refer to such tax breaks as "tax loopholes," Lowry still responds with his view that they are "incentives" that have permitted high-tech companies to avoid paying state sales tax on new facilities, including equipment.

 

"We were absolutely correct to come up with policies to lure companies to the state that would create high-paying jobs that were basically the jobs of the future," Lowry said.

 

And among those "jobs of the future" that still deserve nurturing is the biotech category, an industry that by all rights should be a third-leg of this state's economic stalwarts but that has lagged for several reasons. Removing the tax incentives on new facilities and equipment would be one more reason.

 

So back to the B&O tax, which actually came into existence in 1933 after the state Supreme Court threw out the income tax that lawmakers had passed in an effort to find new sources of revenue for a financially struggling state. The '33 Legislature adopted the gross receipts tax as a temporary, stop-gap move to balance the state budget.  

But the temporary, as in most legislative "temporary" moves, became permanent, though the rationale for creating B&O special treatment for one industry over another is lost in the antiquity of legislative deal making. But once that bridge was crossed, crafted from some handshake deal between one or more lawmakers and a lobbyist or two, the following special deals were somewhat like kisses: once the first one is bestowed in a relationship, the rest come much more easily.

Now, in a sense, some lawmakers are toying with what would likely be considered a form of tax on income with Democrats expressing an interest in taxing capital gains, saying it would make the state's tax system less regressive, and more fair (that word again).

Sen. Andy Hill, the Republican who chairs the Senate Ways and Means Committee as is thus the upper chamber's chief budget writer, has put down the capital gains idea, branding the phrase "regressive tax code" as a code-word for getting an income tax.

 

Voters have consistently rejected the idea of a state income tax, but it doesn't take too clever a legislative mind to realize that, even though any tax increase would almost certainly be sent to the voters, there might be a significantly different view of state residents about taxing capital gains than for taxing their own income.

 

And savvy lawmakers have a sense that a far more liberal State Supreme Court faced today with the question of whether a state income tax was unconstitutional or not, might well have a different answer than the one 82 years ago.

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Businessman, education activist Don Nielsen's call for ed overhaul drawing national attention

As the 2015 Legislature looks down the double barrels of a pair of multi-million dollar education-funding challenges, one ordered by the court and the other by the voters, a new book by former Seattle school board president Don Nielsen calling for a major overhaul of the basic structure of education is attracting increasing attention.

Don Nielsen 

Nielsen, a successful businessman who turned his attention to education and began a 20-year role as education activist, including two years traveling the country in search of good ideas and a decade on the Seattle school board, says funding isn't the issue. "It is the system and the people who populate it that need to change."

But the Washington State Supreme Court, in a January 2011 ruling that ordered the legislature to fully fund basic education and last fall held the lawmakers in contempt for failing to comply with that order, says funding IS the answer. Then voters, by a bare majority, in November approved Initiative 1351 to limit class sizes. That brought an additional multi-million-dollar reality to legislative deliberations.

And as the issues relating to education funding come under increasing scrutiny, there is increasing visibility for Nielsen, who seems to be at the epicenter of discussion about the future of basic education in this state, and elsewhere. His book, Every School: One Citizen's Guide to Transforming Education, has become a national focal point in discussions about the future of public education.

The book has led to speeches before a long list of Rotary clubs and other organizations, beginning late last year before the Seattle Rotary Club. Another five rotary talks are scheduled for next month, and radio interviews are occurring on talk shows across the country.  

"Most of what we're hearing is that we need more money and lower class sizes, but we have tried that and it hasn't worked," said Nielsen. "We now spend three times as much per child in inflation-adjusted dollars as we did in 1970 and we also have four times as many adults in our schools with only eight percent more children."  

While Nielsen confides he has little hope that his ideas will ever pass muster before a legislature in this state because of the power of the forces opposed to dramatic change in the public education system, a legislature closely divided politically may decide that a dramatic education-funding change should be accompanied by other dramatic changes.

It's logical that Nielsen would take a businesslike view of analyzing what changes are needed for basic education to work since dramatic success as an entrepreneur over nearly a quarter century preceded his personal commitment to learn about education's needs, and then seek to bring those about.

His business success involved co-founding in 1969 a start-up biological and chemical testing company that he helped grow into the world's largest company in its industry by the time he had taken it public. He then helped guide its acquisition in 1987 by Corning, which kept him on as CEO of the firm, Hazelton Corp., and over the following five years he doubled the company's annual revenue to $165 million.

Newspaper editorialists, policymakers and lawmakers from both parties have begun to suggest that if more money must be spent on education, then perhaps dramatic change in the system itself should be considered.

And the fact that Nielsen is reaching audiences on talk shows in cities across the country suggests that what he describes as an "obsolete" system is facing serious scrutiny in states other than just Washington.

"Basically, my premise is that the system is obsolete and needs radical change," he told me in one of several phone conversations  in recent days. "However, like a failing business, you don't embark on radical change with the people who created the problem in the first place.  So, to fix our schools, we must first fix the people and we must do so at all levels; teaching, leadership and governance."

As a frank and to-the-point kind of a guy who has brought an entrepreneur's focus, innovation and zeal to his pursuit of improving education, Nielsen has stirred critics who were protective of the status quo while attracting respect and support from those who shared his view that the structure of education needed to change.

Interestingly, the latest Elway Poll shows that for the first time in seven years, economic issues are not at the top of the public's wish list for legislative action. Rather it is education.

Stuart Elway, president of Elway Research, says his poll shows that 65 percent of those polled think the Legislature should do as much as possible without cutting other programs or raising taxes, 51 percent think education funding is the first priority and 48 percent says it will be necessary to raise taxes to meet education's funding needs.

Nielsen, a 1960 graduate of the University of Washington, where he was student body president in his senior year, seeks to have education reform seen as an issue that transcends politics.

"Fixing our schools, so they effectively educate every child should not be a partisan issue," he told me.  "I am hopeful that the Republican Party will soon recognize that and take on education as their primary issue.   The Democrats have claimed schools as their issue for the last three decades and our schools have not improved. Time for a change."

The changes that Nielsen espouses boil down to three key steps.

"First, we have to improve the quality of teachers," suggested Nielsen, who says a key first step is eliminating certification laws, which he refers to as "the culprit" because they give "education schools a monopoly over the supply of human capital that can work in our schools."

"Next we must improve leadership," he said. "A quality principal will give you a quality school but certification laws again hinder our ability to hire top leaders for our schools."

We also must address governance, not just leadership. We need high quality, competent people governing our schools.   In urban systems, I would recommend going to appointed school boards or even eliminating them altogether and have the superintendent become part of the mayor's cabinet.  

Nielsen decided, after his decade of schools leadership at the local level, that the necessary changes couldn't be achieved locally. And he suggests the fact No Child Left Behind Act has produced disappointing results, and may be dramatically altered in this Congress, suggests Washington, D.C., isn't the place to drive necessary changes.

"To improve America's schools, we need to do so at the Statehouse," said Nielsen.

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NIelsen calls for major education overhaul

As the 2015 Legislature looks down the double barrels of a pair of multi-million dollar education-funding challenges, one ordered by the court and the other by the voters, a new book by former Seattle school board president Don Nielsen calling for a major overhaul of the basic structure of education is attracting increasing attention.

Don Nielsen 

Nielsen, a successful businessman who turned his attention to education and began a 20-year role as education activist, including two years traveling the country in search of good ideas and a decade on the Seattle school board, says funding isn't the issue. "It is the system and the people who populate it that need to change."

But the Washington State Supreme Court, in a January 2011 ruling that ordered the legislature to fully fund basic education and last fall held the lawmakers in contempt for failing to comply with that order, says funding IS the answer. Then voters, by a bare majority, in November approved Initiative 1351 to limit class sizes. That brought an additional multi-million-dollar reality to legislative deliberations.

And as the issues relating to education funding come under increasing scrutiny, there is increasing visibility for Nielsen, who seems to be at the epicenter of discussion about the future of basic education in this state, and elsewhere. His book, Every School: One Citizen's Guide to Transforming Education, has become a national focal point in discussions about the future of public education.

The book has led to speeches before a long list of Rotary clubs and other organizations, beginning late last year before the Seattle Rotary Club. Another five rotary talks are scheduled for next month, and radio interviews are occurring on talk shows across the country.  

"Most of what we're hearing is that we need more money and lower class sizes, but we have tried that and it hasn't worked," said Nielsen. "We now spend three times as much per child in inflation-adjusted dollars as we did in 1970 and we also have four times as many adults in our schools with only eight percent more children."  

While Nielsen confides he has little hope that his ideas will ever pass muster before a legislature in this state because of the power of the forces opposed to dramatic change in the public education system, a legislature closely divided politically may decide that a dramatic education-funding change should be accompanied by other dramatic changes.

It's logical that Nielsen would take a businesslike view of analyzing what changes are needed for basic education to work since dramatic success as an entrepreneur over nearly a quarter century preceded his personal commitment to learn about education's needs, and then seek to bring those about.

His business success involved co-founding in 1969 a start-up biological and chemical testing company that he helped grow into the world's largest company in its industry by the time he had taken it public. He then helped guide its acquisition in 1987 by Corning, which kept him on as CEO of the firm, Hazelton Corp., and over the following five years he doubled the company's annual revenue to $165 million.

Newspaper editorialists, policymakers and lawmakers from both parties have begun to suggest that if more money must be spent on education, then perhaps dramatic change in the system itself should be considered.

And the fact that Nielsen is reaching audiences on talk shows in cities across the country suggests that what he describes as an "obsolete" system is facing serious scrutiny in states other than just Washington.

"Basically, my premise is that the system is obsolete and needs radical change," he told me in one of several phone conversations  in recent days. "However, like a failing business, you don't embark on radical change with the people who created the problem in the first place.  So, to fix our schools, we must first fix the people and we must do so at all levels; teaching, leadership and governance."

As a frank and to-the-point kind of a guy who has brought an entrepreneur's focus, innovation and zeal to his pursuit of improving education, Nielsen has stirred critics who were protective of the status quo while attracting respect and support from those who shared his view that the structure of education needed to change.

Interestingly, the latest Elway Poll shows that for the first time in seven years, economic issues are not at the top of the public's wish list for legislative action. Rather it is education.

Stuart Elway, president of Elway Research, says his poll shows that 65 percent of those polled think the Legislature should do as much as possible without cutting other programs or raising taxes, 51 percent think education funding is the first priority and 48 percent says it will be necessary to raise taxes to meet education's funding needs.

Nielsen, a 1960 graduate of the University of Washington, where he was student body president in his senior year, seeks to have education reform seen as an issue that transcends politics.

"Fixing our schools, so they effectively educate every child should not be a partisan issue," he told me.  "I am hopeful that the Republican Party will soon recognize that and take on education as their primary issue.   The Democrats have claimed schools as their issue for the last three decades and our schools have not improved. Time for a change."

The changes that Nielsen espouses boil down to three key steps.

"First, we have to improve the quality of teachers," suggested Nielsen, who says a key first step is eliminating certification laws, which he refers to as "the culprit" because they give "education schools a monopoly over the supply of human capital that can work in our schools."

"Next we must improve leadership," he said. "A quality principal will give you a quality school but certification laws again hinder our ability to hire top leaders for our schools."

We also must address governance, not just leadership. We need high quality, competent people governing our schools.   In urban systems, I would recommend going to appointed school boards or even eliminating them altogether and have the superintendent become part of the mayor's cabinet.  

Nielsen decided, after his decade of schools leadership at the local level, that the necessary changes couldn't be achieved locally. And he suggests the fact No Child Left Behind Act has produced disappointing results, and may be dramatically altered in this Congress, suggests Washington, D.C., isn't the place to drive necessary changes.

"To improve America's schools, we need to do so at the Statehouse," said Nielsen.

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Hara takes taxpayer anger over property taxes as opportunity to deliver several messages

Meetings with property owners angry about their taxes might usually be viewed as an intimidating experience for the elected official responsible for determining the taxes, but King County Assessor Lloyd Hara sees such contacts as merely an opportunity to educate his "customers."  

Hara, who will be running for re-election next November though he hasn't formally announced, says he generally finds that the taxpayer anger or apprehension is the result of misunderstanding of how property taxes are determined. So in addition to correcting misperceptions, he looks forward to such sessions as an opportunity for him to offer a couple of key messages that he's been delivering for years.

Lloyd Hara 

The first of those messages for such audiences is an attention getter: if you think your property taxes are too high it may be your own fault.  

Hara doesn't actually tell taxpayers that if they think their property taxes are too high they may have themselves to blame. But he does routinely tell groups he speaks before that a third to a half of property taxes are from special levies, taxes approved by voters to impose additional taxes on themselves to pay for everything from parks to schools to emergency medical services.

"People have more control over their tax bill than they often realize," says Hara.

Hara, who was first elected assessor in 2009 to fill the unexpired term of the previous assessor, has held more appointive and elective offices locally over a longer period of time than likely anyone. He was first appointed King County Auditor in 1969 at the age of 29, youngest person ever to hold that post. In that role he achieved national recognition for his work on performance auditing of government agencies.

He was elected four times between 1980 and 1992 as Seattle City Treasurer, honored with national awards for his performance in that role.  

Then he was appointed head of the regional office of the Federal Emergency Management Agency and, in 2005, was elected a commissioner of the Port of Seattle.

In his assessor role, Hara's department appraises all property in the county then places a value on each parcel and determines a tax per thousand dollars of value.

The information is then passed to the county treasurer, who proceeds to send out the tax bills to each property owner for the coming year.

Hara this month had a typical meeting with Bellevue residents who were upset because the values of their property had gone up dramatically and they were concerned about taxes going up in relation to value.

Hara explained that wasn't going to happen, noting that under state law, the total tax take in the county can't increase by more than 1 percent, although some individual property owners may, for several reasons, see their taxes go up more than others. And one of those reasons is special levies.

The average impact of special levies in Seattle is about 30 percent, Hara said, while in Bellevue special levies account for about 50 percent of the average residential property-tax tab. It's clear at some of Hara's taxpayer "customer" gatherings that the levy total is a shock to some listeners.

"Proposition 1, the ballot measure on parks, was a good example," Hara said. "Everyone loves parks. So do I. But they need to be looked at in terms of relative priority, as compared, for example, with public safety."

"Unfortunately, the capacity isn't there to do all things and if we just put up a single issue that's a high-visibility one, it can get approved by a big margin, as happened with the parks measure this summer," he added. "But if the voters had a package to choose from, that single issue might suddenly be less logical when viewed holistically."

"It' possible for something to be a good thing but yet not pass muster when looked at holistically," he said, praising the League of Women Voters for taking the broader view in opposing the parks measure, which will add as much as $148 per year for the average home in the county.

The second message Hara takes the opportunity to discuss with audiences, that government consolidation may reduce your tax bill, sparks little more than a yawn. But government reorganization needs to attract more attention from elected officials, and Hara's focus on the topic by discussing the issue with taxpayer audiences may help lead toward that greater legislative interest.

Hara has been a proponent of reorganizing government to create efficiency for taxpayers since, while working in the state budget office in the late 60s, he was involved in the effort to reorganize state government into what were characterized as "super agencies" that tried to consolidate agencies by program functions.

He's been a constant advocate since then of consolidating taxing districts, taking the view that regionalization, consolidating functions of various elective offices across local or even county boundaries, may be a way that taxpayers in smaller districts or counties may be better served.

Hara wonders "how many jurisdictions should there be that taxpayers are helping support? Could some services be merged into regional units? Can some be privatized?"

It's out of such discussions that new ways of doing things at the local-government level may emerge as lawmakers and policymakers cope with new funding realities.

The website for the Assessor's office has received recognition and it may include an unusual addition next year, for which Hara has passed the first hurdle, the funds being included King County executive Dow Constantine's budget. Now the King County Council must go along.

Hara, who says Chicago was the first city to put advertising on its property tax website, admits "certain officials thought it might look a bit cheesy," but he says "it doesn't make sense to overlook possible new sources of money," which he is initially estimating at a conservative $35,000 a year.

He's also seeking legislative approval again this coming session for the right to impose a fee on appeals of assessments by commercial property tax payers, which would help defray appeal costs for other taxpayers, who must foot the bill if they wish commence a challenge to their taxes.

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State crowdfunding legislation moves toward the implementation date despite SEC uncertainties

As criticism of the Securities and Exchange Commission's dawdling with its charge from Congress to implement crowdfunding through the federal JOBS Act grows to a chorus, there's now criticism emerging that the agency is seeking to disrupt the process for states like Washington that are creating intrastate crowdfunding.

The SEC critics, with increasing plausibility, contend that the agency has done its best to ensure that the federal JOBS Act won't come about as Congress intended.

And now that some states have given up waiting for SEC action, it seems that the federal agency is trying to put roadblocks in the way of frustrated state legislatures that have sought to find ways to have crowdfunding for startups work at the state level through selling shares to large numbers of people, typically via the Internet.

Washington is one of a dozen states that have decided nothing meaningful will come out of SEC machinations, prompting the Legislature last spring, after a year of preparation, to pass a bill that will permit entrepreneurs who are state residents to raise up to $1 million a year in small amounts from in-state investors.

The Legislature gave the State Department of Financial Institutions (DFI) until October 1 to put in place the rules and the process under which crowdfunding can be carried out and Bill Beatty, Director of Securities for DFI, says the agency "remains on track" to meet that deadline.

 

The department will have a hearing Thursday on the proposed rules and "will proceed to adopt the rules shortly after that unless we determine we need to make significant changes to the rules as currently proposed," Beatty said.

 

Joe Wallin, an attorney for Seattle-based law firm Davis Wright, predicts that entrepreneurs who are state residents will be able to begin selling shares to large numbers of Washington resident by the end of the year.

 

The legislation in this state and others was in reaction to what has transpired, or failed to transpire, at the federal level after Congress,

with an election-year flourish in the spring of 2012, passed the so-called JOBS Act, officially the Jumpstart Our Business Startups Act.

 

Then Congress turned it over to the SEC to enact rules to implement the law and gave the agency 180 days to put together the process for how entrepreneurs could fund their start-up companies, primarily via the internet, by selling equity to large numbers of average investors.

 

 

It soon became obvious to all but the most myopic, with one delay following another, that SEC Chairman Mary Schapiro had little interest in seeing the law come about, possibly because she was more concerned about protecting average investors than following the law's guidance toward funding entrepreneurs.

 

Now the SEC has a new chairman but there is a growing sense that the details of compliance, if and when the SEC finally acts, will be so onerous on entrepreneurs that the costs of starting to raise capital on the Internet will deter many if not most would-be entrepreneurs. Indeed the latest deadline for the rules to be established has passed and the regulators have not provided a new timeframe, now almost two years after the launch date Congress intended.

And now there is also a sense on the part of many crowdfunding supporters, including Wallin, that Congress, unless it has lost interest, may have to intervene to keep the SEC from removing or changing a number of securities rules that stand to burden in-state entrepreneurs who hope to raise funds in their states to launch businesses.

Wallin, who proposed the wording of the original state legislation and whose blog is viewed by many as the final word on what's happening with federal as well as state crowdfunding, worries that the SEC is trying to make it harder for states to do what Congress intended the federal government to do.

 

 

An example is in the fact that the state laws are not subject to the federal crowdfunding law because the companies raising the money are incorporated in those states and raising money solely from investors in those states. Congress created that specific exemption from federal law for intrastate offerings when it enacted the Securities Act of 1933.

However, the SEC has recently issued interpretive guidance on the intrastate exemption that says that if the company uses the internet to promote or discuss its offering then the offering is not an intrastate offering even if a company is incorporated in a particular state and all investors are in that state.

"This is nonsense and it needs to be corrected," says Wallin, who is seeking to stir an outcry from start-up supporters to demand that Congress get involved. "It's nearly impossible not 

 to use the internet to communicate any fundraising or community organizing event that involves these start-up businesses."

"Section 201 of the JOBS Act was a big help to entrepreneurs in that it allowed startups to talk publicly about their efforts to raise money, a process known as General Solicitation," Wallin notes."Unfortunately, the SEC put rules in place that discourage most companies from taking advantage of this new opportunity and Congress needs to restore the intent of its own legislation."

Wallin offers the following suggestion that can be forwarded to members of Congress by those seeking to use the Internet for crowdfunding of their startup:

"Please either pass a simple piece of legislation to fix this or direct the SEC to clarify or fix its intrastate crowdfunding decisions. Otherwise, by prohibiting the use of the internet in intrastate crowdfunding, the SEC is tamping down a nascent but important opportunity to cultivate local funding and entrepreneurship ecosystems before they even have an opportunity to develop."

It may well be time, in these final weeks of an election season in which most members of Congress are on the November ballot, to send a message that indifference and ineptitude on the issues of innovation and job creation won't be taken well by those who understand the role entrepreneurs play in economic health.

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Angel-investor group fears SEC will change accreditation rules and shrink angel ranks

Although the Securities and Exchange Commission (SEC) hasn't yet proposed an increase in the financial resources required for an individual investor to be accredited, the Angel Capital Association (ACA) fears such a move may loom ahead and has been pressing its members to collectively protest such a step.

The ACA sees the issue as having the potential to dramatically deplete the ranks of what are officially called accredited investors, individuals who are free to make the kind of high-risk investments that fuel the funding of financially risky early stage companies that are key contributors to job creation. All angels are accredited investors

Dan Rosen

The issue is front and center right now because when Congress passed the Dodd-Frank Act four years ago, it retained the long-time "accredited investor" threshold of $1 million net worth and $200,000 of annual income but ordered the SEC to do a quadrennial review of the qualifications. The first of those four-year reviews is to be due to conclude next month.

Angel-investor groups successfully overcame an attempt to include in Dodd-Frank a change that would have basically disqualified what by some estimates would have been up to 50 percent of angel investors by boosting the accredited minimums to $2.5 million net worth and annual individual income of $400,000.

But Congress did include in what is officially the Dodd-Frank Wall Street Reform and Consumer Protection Act a change to preclude primary residences from the $1 million-net-worth calculation.

The ACA website plays the job-creation card in preparing for a possible campaign by urging members: "Do you believe in preserving the health of early stage companies and their role in job creation? Then join the Angel Capital Association campaign to 'protect angel funding.'"

Dan Rosen, chairman of the Seattle-based Alliance of Angels and a longtime leader in ACA, says "a change to make the accredited investor definition more restrictive is exceedingly bad public policy."

"This is a time when America needs to unleash innovation and create exactly the kind of jobs that high-growth startups provide," argues Rosen, who until a few months ago chaired the ACA public policy committtee . "Angels fund most of these high-growth startups, investing well over $20-billion per year." 

"We are not financial institutions in New York or Boston, we are individuals in every major city and town in the U.S. who invest not only our money, but also our knowledge and experience, to help these high-growth startups get off the ground and flourish," wrote Rosen, who is CEO and president of Dan Rosen & Associates, a technology investment and advisory firm

Although the multi-part mission of the SEC includes helping facilitate capital formation, the agency makes clear its "investor protection mission" has become most compelling, particularly after the excesses that led up to the "Great Recession."

Thus there is an amusing bit of irony as the SEC may move to "protect" a major segment of the high-net-worth angel-investor category by removing their "accredited" status while preparing to remove protections for scores or "unaccredited" investors by opening the door for them to do crowd-funding investment in startups.

Crowd funding is a concept spawned by legislation known as the JOBS Act, passed by Congress four years ago to permit entrepreneurs or a start-up business to raise up to a $1million a year by selling equity on the internet to up to 500 "unaccredited" investors. Some described passage of the bill and its signing by the president as a "democratization of investments." In essence, Congress felt those across the financial spectrum should all have a chance to own a piece of a company.

The ACA says a survey of its 12,000 members, who are the most active angel investors in the country, found that if the definition of accredited investor was changed to add an inflation factor, which is the standard being urged by those pressing for a change, more than 25 percent of its members would fall below the new threshold. The inflation factor would relate to the inflation that has occurred since 1972, when the accredited regulation first came about.

ACA, whose campaign to bring pressure against the change includes form letter and email template on its website, says such a change would be "devastating," particularly outside the angel-heavy population centers of New York, California and Boston. It claims the number of angel investors across the country outside those three areas would fall by one third.

Even so, not all angels oppose raising the bar for individuals to quality as accredited investors.

Steven J. Schueth, president of First Affirmative Financial Network in Colorado Springs, who has been a leader in the sustainable and responsible investment industry for more than 20 years and created the prominent SRI Conference that rotates annually around the West, is one who isn't sure a change would be bad.

"With my fiduciary duty hat on, I could make the argument that an investor with only $1 million in liquid, investable net worth is probably too small to be investing in private deals," Scheuth said in an email exchange. "I don't think someone with only $1 million has any business playing in this game."

I have assumed that increasing the qualification for accredited investor might have a large impact on sustainable and renewable startups seeking investment and asked Schueth if there might be less S-R investing.

"Perhaps there would be, but would that be bad?  Maybe for entrepreneurs who are looking for capital from less-than-the-most savvy investors," he said. "But would it be bad for investors who now only meet the minimum accredited investor threshold?  Not in most cases.  There's a reason those rules were promulgated in 1972-to protect some people from themselves."

There are some investors who with some portion of their portfolio seek higher positive impact and care less about risk adjusted returns," Schueth added. "When I talk with these people, I try to help them think about making these kinds of investments out of their philanthropy budget; or at least know that the likelihood of making little or no financial return is a high probability."

I asked Schueth, whom I had quoted in previous columns because of his reputation in the sustainable and renewable investments arena, whether he thought it was interesting that while Congressional direction may guide a boost in what it takes to be qualified investor, crowd-funding is opening the door, also at congressional direction, to let everyone in.

"I don't believe I have ever heard anyone claim that Congress is a rational beast," he replied. 

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Oregonians find little they'd like to emulate in Washington's liquor-privatization initiative

There won't be a liquor-privatization initiative on the ballot in Oregon this fall and there seems to be a growing sense that Oregonians have decided Washington voters signed off on a bad deal when they passed Initiative 1183 in the fall of 2011, taking their state out of the liquor business.

Officially, the Oregon-ballot effort died last week because major grocery chains that wanted the opportunity to sell liquor said they were giving up on any hope of collecting the necessary signatures to out the initiative before voters this fall. Those proponents of the Oregon initiative said they will continue seeking privatization of liquor sales through the Legislature or by putting a measure on the 2016 ballot.

But as Oregonians look north across the Columbia River, they apparently perceive that what Washington voters bought themselves was dramatically higher liquor taxes, a dramatic rise in alcohol-related emergency-room visits and small businesses being squeezed out of business.

When Washington voters approved the privatization of liquor sales, they did so with the promise of lower prices. Instead, they got sticker shock at the checkout counter while the state got a $200 million windfall.

Meanwhile, many of Washington's independent spirits retailers and craft distilleries, viewed as important economic engines in many local communities, were being squeezed out of the market.

And perhaps significantly, Costco, which put enough money behind the effort to pass the Washington initiative that some media stories referred to the ballot measure as "the Costco initiative," decided not to participate in the funding for an Oregon initiative campaign.

One aspect of the fallout in Oregon from passage of the Washington initiative has apparently been some change in the approach of the Oregon liquor control agency, which some have described as "loosening a bit" in its relations with private liquor sellers. Some of those retailers contacted in one survey said the agency was "doing a good job."

Plus, the agency has made friends, in part, by leaving the distinct impression that it views part of its mission as an economic development role with small businesses involved in producing or selling liquor, in marked contrast to the fact the new world liquor order in Washington has made clear that basically there are two distributors that control the flow of liquor nationally.

That prompted one Oregon observer to remark "who is likely to do a better job for consumers, the state or two big national companies?"

Meanwhile, a recent study noted just what Washington residents bought themselves by passing the initiative.

The most striking part of the study focused on the increase in alcohol-related emergency room visits in King County, which was chosen because it had the most available data. In the 16 months following liquor privatization, more than 5,500 alcohol-related visits were made to emergency rooms, 50 percent more than they expected, and an increase most significant among teens and young adults.

Plus there are now four times as many liquor outlets in Washington state as there were before the initiative's passage.

I am not really an objective observer in this discussion since I voted against the initiative, solely because I vote "no" on any complex initiative, as this one was. I have voted for only one initiative, a measure years ago that rolled back a sales-tax increase that the legislature had approved. It was a simple question: should the sales tax be rolled back.

My argument about initiatives has always been: measures that become law should emerge from the give and take of the legislative process, whereas most initiatives are basically written at a kitchen table by a half dozen people who have a cause, and a contrary voice is never permitted at the table. So a ballot measure emerges that represents only one side of an issue, And frequently hidden within its provisions is the excess that comes from single-sided discussion.

Welcome to a review of what happened with Initiative 1183.

And with respect to the view of Oregonians about what they see happening north of the Columbia River, there seems to be a growing sense that Washington residents screwed up in passing the initiative. And with that comes a satisfied sense that those Washington voters have no one to blame but themselves.

As I've noted in previous columns, the idea of writing the power of citizens to initiate legislation was considered for possible inclusions in the U.S. Constitution.

But Thomas Jefferson turned back the effort with the simple admonition that if the people had the power to legislate, governmental chaos would result.

Those who provided for the initiative process, primarily western states, weren't listening.

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State crowd-funding legislation to ease raising money for startups gets early legislative focus

A proposal that would permit entrepreneurs to raise up to $1 million a year from small investors through what's known as crowd funding, which is seen as a tool to both facilitate the launch new companies and create jobs, will get its initial hearing before the Washington Legislature the end of this week.

 

Washington is among a handful of states where lawmakers have decided that no matter what finally happens with long-awaited implementation of a federal crowd-funding law, they want to move ahead at the state level to open new funding doors for entrepreneurs and startups. And the scheduled hearing Friday may suggest there's some momentum to get the bill passed soon.


The bill (HB2023) is viewed by legislative supporters, and there is no visible opposition, as "a tool for small-business growth all around the state" as well as a potential lure to attract would-be entrepreneurs in other states to move here to launch their business. Only state residents could raise equity under the proposed law and only state residents could buy shares in the companies.

 

Rep.  Cyrus Habib

The federal crowd-funding legislation was passed by Congress in the spring of 2012 as the JOBS Act and directed the Securities and Exchange Commission to come up with the rules that would allow entrepreneurs to begin raising funds under the act. The SEC has moved at a glacial pace in implementing the rules and may still be as much as a year away from final approval to allow crowd funding to begin.

 

If supporters of the bill in the Washington Legislature are successful, the state measure will become law and create the opportunity for entrepreneurs in this state to begin using crowd-funding to raise money from large groups of small investors, primarily on the Internet, before the federal legislation even becomes operative.

 

The fact that Washington and a handful of other states are pressing ahead without regard to what happens in Washington, D.C., is an example of a growing realization that it has become more workable for legislation and regulation to be done at the state level. The reason for that emerging sentiment isn't just the gridlock that allows little to get done in Washington, but also the brainlock that occurs when something does get approved in Congress and is then turned over to the bureaucracy and regulators to implement.

 

Rep. Jeff Morris

HB2023, sponsored by Rep. Cyrus Habib, whose 48th District spans Redmond, Bellevue and Kirkland, would like the federal act allow companies to raise up to $1 million a year from small investors. The Internet is viewed as the most likely vehicle to reach large numbers of those small investors, who would be permitted to invest a maximum of $2,000.

 

Rep. Jeff Morris, D-Mount Vernon, a key supporter of the state legislative proposal, is one who thinks state legislation will serve the needs of both start-up entrepreneurs and small investors who would like to have equity in such companies better than the eventual federal act.


"The federal crowd-funding law, even once rules are in place, is going to require companies to work through an intermediary and is likely to have compliance expenses that will be cost-prohibitive for many start-ups," said Morris.


Morris, who is a co-founder of the Northwest Energy Angels and former director of the Northwest Energy Technology Collaborative (NWETC) at the Washington Technology Center (WTC), is an angel investor far more knowledgeable on the topic of funding start-ups than might be expected of legislators.


The SEC has produced more than 500 pages of proposed rules as it nears the point, more than 18 months after the legislation was approved by Congress, of clearing the way for entrepreneurs to actually begin raising money under the act. But observers think the

90-day comment period will likely produce voluminous comments that will cause the SEC to extend the time when the rules actually go into effect until late this year or early next.

 

Habib says flatly it would be "highly undesirable" for entrepreneurs to have only the federal legislation to deal with in seeking to employ the crowd-funding concept of raising money and selling equity.

 

"I think it will be far easier for start-up entrepreneurs to deal with local regulators who, can design rules that fit our culture, that are less burdensome to issuers, and give us the opportunity to create our own fund-raising product," said Habib, a Seattle attorney who works with many small firms.

 

Habib's first attempt at the bill last session would have imposed an excise tax of 3 to 5 percent, a tax of up to $50,000 on a $1 million fund raise, with the explanation that it was necessary to cover costs the state would incur in things like more consumer protection for investors and added costs for state oversight of the crowd-funding activity.

 

But he has backed off of that in the current version, saying thatrather than imposing an excise tax, "we will give authority to regulators to decide what kind of a fee to impose on the entrepreneurs. The program has to pay for itself, but we decided it's best to leave that to the Department of Financial Institutions to determine what's necessary to achieve that."

 

It was Habib who made the observation that the bill would be a tool for economic development for all parts of the state.

"Using equity crowd funding for those who can't just start a business without money and don't happen to know a friendly millionaire will be a way to raise capital for small businesses anywhere in the state," Habib said.

 

And he and Morris both suggested that small economic development organizations or chambers of commerce could serve the role of gatekeeper, meaning someone to fill the legally required role of an entity to sign off on the legitimacy of the fund-raising effort, to say it wasn't a scam or fraud. Otherwise the gatekeepers would be attorneys, accountants or similar professionals who would be involved in reviewing the legitimacy of would-be entrepreneurs.

 

Scott Jarvis, director of the state Department of Financial Institutions, which has been working closely with lawmakers as the legislation has taken shape, says it is "closely monitoring the SEC's final action to be sure the state legislation avoids conflict with it or sends confusing messages."

 

He said lawmakers and his department must also provide some sort of cost benefit analysis to ensure that any costs incurred by the state or the agency must be provided for and that will depend, in part, on the size of the group of entrepreneurs seeking to raise money through crowd funding.

 

"To steal liberally from 'Field of Dreams,' there is a question as to'If we build it, will they come in sufficient numbers as to justify the costs,'" Jarvis quipped.

 

Among angel investors in favor of the proposed state legislation is Tom Simpson, longtime venture capitalist now head of the Spokane Angel Alliance, who suggests "it will broaden the capital-formation alternatives for certain unique, early-stage enterprises not otherwise candidates for traditional angel or v.c. funding."

 

 

In fact, Simpson shares the view of many angel investors that traditional funding won't likely follow crowd-funded businesses but adds "as long as everyone knows the pros and cons, I expect this form of fund raising to stimulate the growth of new, innovative businesses in this state."

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Long wait for SEC's crowd-funding rules stirs legislature to consider state-level measures

It's now been a year since Congress, with a bipartisan display remarkable for this politically dysfunctional era, passed the JOBS Act that was touted as a breakthrough for funding entrepreneurial start-ups and thus eventually creating jobs.

 

Well, the entrepreneurs are still waiting for the rules that would let them proceed to launch businesses by using internet websites to gather small amounts of money from large numbers of people online.

 

 The rules are to be written by the Securities and Exchange Commission where, despite repeated pressure from some members of Congress who really care about the issue rather than merely having voted for a JOBS bill in an election year, there's been no action.

 

But some states, including Washington, have decided they're tired of waiting and are seeking to proceed on their own. In fact, two bills that would allow Washington entrepreneurs to raise up to $1 million a year from Washington residents on the Internet have been filed in the state House of Representatives, one of the measure described as "democratizing venture capital."
  
And sponsors of the measures filed in this state say they are needed regardless of what kind of rules the SEC finally brings forth. The key sponsor of one of the bills, Rep. Cyrus Habib, D-Bellevue, frankly makes clear details of his bill (HB2023) are being worked on to groom the measure for serious consideration in the 2014 session.
Rep. cyrus habib
Rep. Cyrus Habib

 

The measure Congress passed last May was officially called the Jumpstart Our Business Startups (JOBS) Act by the clever bill drafters who attach can't-oppose names and acronyms to legislation to help ensure that balky lawmakers will find it difficult to vote against. Few lawmakers wanted to vote against JOBS in an election year.

 

Despite the congressionally mandated 180-day timeframe to the SEC, whose then-chair had large misgivings about the legislation, that time passed, as did a promised end-of-year date. Now the SEC has a new chairman, Mary Jo White, who has promised Congress she will make issuing the rules a priority.

 

If there's any doubt that there's a queuing up of entrepreneurs and those who would be involved in crowd funding, consider that the LinkedIn group "CrowdSourcing and CrowdFunding" has over 19,000 members.

 

Both supporters, who view the legislation as a major breakthrough for funding startups, and critics, who are convinced it's a funding disaster in the making, are awaiting the opportunity to be proven right once the rules allow the process to begin.

Tom simpson

Tom Simpson,

angel supporter

 

Tom Simpson, the long-time venture capitalist who now runs the Spokane Angel Alliance, thinks if the rules are "effectively drafted and supported, we would see large amounts of liquid capital flowing into emerging companies, in amounts even greater than during the pre-Sarbanes-Oxley, IPO glory days."

 

"Current regulations are chocking our nation's entrepreneurial fuel tanks," he added.

 

Bill Payne, generally regarded as the Dean of Angel Investors because of the role he plays in providing guidance to angel groups both in this country and internationally, sees a possibility that the regulations to be issues by the SEC "will be so restrictive that crowd funding will be viewed as not worth the effort."  

 

Bill Payne

   Bill Payne,

not a fan

 

Payne, who summers in Montana and winters in the Las Vegas area and who has launched four angel-investor groups around the West, has been a critic of the crowd-funding legislation from the outlet and says "I am less excited about crowd funding now than I was when it was passed."

 

"My guess is that entrepreneurs' advisors have suggested they seek angel capital instead of crowd funding," added Payne, who told me for a column I did a year ago that he viewed crowd funding "as a trainwreck waiting to happen" because he felt "a lot of investors will get scammed."

 

An issue that may further delay SEC action, and provide an added challenge for the internet masses to begin buying shares in companies via the Internet, is the potential sales tax liability in a crowd-funding project.

 

The U.S. Senate this week approved giving the 45 states that currently charge sales taxes the right to require large online retailers to collect tax on purchases made by their residents. The legislation must still clear the House, but political observers give it a good chance for passage and while it would only apply to online sellers that have sales of at least $1 million in states where they don't have physical operations, the SEC may decide to wait final determination on the bill.

 

Habib's bill would impose an excise tax of somewhere between 3 and 5 percent on investors, which Habib explains as necessary to cover costs the state would incur in things like more consumer protection for investors and added costs for state oversight of the crowd-funding activity.

  

"We can't go to the legislature in this financial environment ask for legislation to try something new and not cover the fiscal impact," habib added.

  

Rep. Frank Morris, D-Mount Vernon, who filed the other Washington state bill (HB2054)also a Democrat, said the state proposal is important regardless of SEC rules.

Rep. Frank Morris
Rep. Frank Morris

 

"The federal crowdfunding law, even once rules are in place, is going to require companies to work through an intermediary and is likely to have compliance costs that are cost-prohibitive for many start-ups," Morris said.

 

"The intent of the state legislation is to facilitate crowdfunding for Washington investors in Washington companies, with regulation that is protective of consumers, but less cost-prohibitive."

  

Bill Beatty, Securities Administrator for the state Department of Financial Institutions, points out that any offerings under state legislation would be "intrastate only, that is, limited to Washington Companies offering to Washington investors," adding such legislation at the state level doesn't require SEC approval.

 

Meanwhile, interest on the part of entrepreneurs and businesses that hope to be a part of the process continues to grow.

 

A business called Crowdfund Productions LLC is putting on Pro and Contra Conferences around the West, including one last week and Denver.

 

 

A Pro and Contra Conference is schedule for Seattle in September, by which time the SEC rules may be out, opening the door for a lot more pros and cons to be aimed by entrepreneurs and support groups.

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