There's a growing conviction among economic-development groups in the Seattle area and Washington State that targeting the financial-services sector could bring dramatic and relatively quick returns for the local and state economy.
With the third annual Financial Services Summit taking shape for this summer, California's finance industry is clearly in the sights of many of those who are leading the charge and touting the fact that Washington State has neither a corporate nor a personal income tax.
and is attracting perhaps the most interest.
The fact that California didn't just shoot itself in the foot, but in the head, when it imposed a surcharge on the wealthy has raised the benefits bar on a concerted marketing effort aimed at financial firms. Several hedge funds have already moved from the Bay Area to Seattle and that surcharge is seen as the "moving" force.
The EDC, which has returned to the name it had for more than 30 years prior to being rebranded as EnterpriseSeattle early last decade, held the first summit on that industry sector in May 2011. That gathering dealt with the value of targeting financial firms and showed that Washington State ranks fifth in the nation as a hub for the financial-services industry. The six subsectors the study identified within the financial services cluster include things like banking, accounting, credit and lending.
But the excitement about potential rapid growth is focused on the financial-services subsector. And California's finance industry is the most prominent target for many, though there's a bit of "in-bad-taste" reluctance to talk about specifically targeting California's businesses.
David Allen, McKinstry Co. executive vice president and chair of the EDC, agrees the financial-services sector could well provide the quickest and most lucrative returns, if the state's benefits are marketed well.
Karl Ege, a Seattle attorney at Perkins Coie who served for a time as vice chair of Russell Investments and is heading the Regulatory Task Force, is unabashed about touting the state's tax benefits.
"Why shouldn't we go after 21st Century high-paying jobs for educated people?' Ege asked in an e-mail exchange with me. "Financial services encourages a bigger business base, creates good jobs and their money comes from assets they manage around the world. And really this state's advantage, for high-margin businesses, is that we have no income tax."
Washington is one of only seven states without a business or corporate income tax and the only others in the West are Nevada and Alaska.
In addition, the service sector (law, accounting and financial activity) is exempted from the state sales tax, though the 1995 Legislature punished the service-sector businesses for battling against imposition of the sales tax by hammering those businesses with the highest business & occupation tax rate. The B&O tax rate for service firms is 1.8 percent of gross revenue, three times higher than the next highest industry and almost seven times higher than the lowest B&O rate.
Jeff Marcell, president and CEO of the EDC, says "one reason we feel it's so important to target this industry is that it yields unbelievable results for the community in terms of fantastic wages and international connections."
"Thanks to technology, more and more financial services companies are enjoying the freedom to base operations where it best suits their needs," Marcell added. "And Seattle/King County is increasingly becoming a hub of major financial players who want their headquarters far from the negativity conjured up by Wall Street."
"I don't know how to define 'the biggest reward,' but I certainly agree that the logistics of a move by one of those firms are relatively simple and the ability to be up and running, literally over a weekend, takes much uncertainly and 'down time' out of the decision to relocate," he replied.
And Jarvis is significantly involved in shaping the strategy for financial-services firms, including working with Ege's group to modernize Washington's trust laws, an effort which he explains is "to make them more relevant, modern and attractive to business."
"Currently, our trust laws are in the same chapter as our banking laws and have not been significantly amended in many years, Jarvis added. "We plan to work during the
interim with interested parties to separate out the trust law elements while at the same time ensuring that the elements needed for effective consumer protection remain and are modernized to address current and even future improper practices."
"Scott Jarvis been amazing," Marcell replied when I asked about the involvement of the state agency involved with overseeing financial institutions. "It's striking to see a regulator work so collaboratively about growing the industry cluster. He's an ace up our sleeves when we are competing for business."
"DFI has worked hard to foster a regulatory environment that is attractive and responsive to, and supportive of, financial entities while aggressively protecting consumers from improper or illegal behaviors," Jarvis replied when I asked about his department's involvement. "Those two activities are not mutually exclusive. Reduced to its essentials, we assist the good guys who want to play by the rules and go after the bad guys."