The tax breaks for high-tech companies that are now seen by some as depriving the state of millions of dollars at a time of dire budgetary challenges were a proud accomplishment of his administration, says former Gov. Mike Lowry, noting they were created to lure new business to Washington.
"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.
The focus of the current criticism, and Lowry's comments during a recent interview, are what the critics refer to as "tax loopholes" and he calls "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.
"We kept encountering companies that said they had looked at and then rejected this state as a place for new facilities," Lowry recalled. "The incentives allowed us to move into one of the most competitive positions among states."
One of the state's key competitors in the hunt for new high-teach companies was neighboring Oregon, which had and has no sales tax, and that put this state at a dramatic disadvantage.
Soon after enactment of the sales-tax exemption legislation, Washington State won a major victory when Taiwan Semiconductor announced it would be locating in Clark County rather than in Oregon. "The largest one-time capital investment ever in this state," Lowry said. Other wins were a Sharp Electronics facility and an Intel plant in southern Pierce County
A $132 million tax break for Microsoft, due primarily to its construction of data centers in Quincy in Grant Country, has raised some eyebrows among those viewing the state's list of the dollar impact of such tax preferences.
While he is convinced about the importance to the state of having created the sales-tax exemptions, he is equally convinced that they need to be reviewed periodically to ensure they are doing what was intended.
"Those tax breaks shouldn't just continue automatically," Lowry said. "Each piece of tax-incentive legislation needs to be looked at individually from time to time for possible sunset (termination). Each must be justified on the basis of expansion of jobs."
In fact, in the intervening period since Lowry's program in 1994, sales tax exemptions, and exemptions from the state's business & occupation tax have proliferated and been extended to logical industries like aerospace manufacturing, biotech and medical-device manufacturers.
Other also logical exemptions are for manufacturing in rural counties and manufacturers of timber and wood products, though some of the exemptions may cause more head-scratching, like fruit and vegetable processors, dairy and seafood processors and cold-storage warehouses.
The State Department of Revenue's most recent figures on the tax exemptions, for 2009, indicate 278,000 jobs were credited to the tax incentives, which cost the state $236 million, $109 million of which was claimed by high-tech firms while $80 million in reduced state and local tax receipts was for rural manufacturers.
Mike Fitzgerald, who was a key member of Lowry's team as director of Community, Trade and Economic Development and who has held held similar positions in three other states and may be one of the nation's most experienced economic-development experts, reserves special praise for Lowry. Fitzgerald credits Lowry with really understanding the way the game had to be played to bring jobs to the state.
"He would bring his entire cabinet together and tell us that we were not to violate any environmental considerations, but otherwise we each had a role to play in working together to go after these companies," Fitzgerald recalled in a visit about a year ago. "Under Lowry, we recruited or were in competition for more big business than maybe under any other governor."