Is Washington State closed for business? (How does Montana stack up?)

“I’d say we’re a `C,’ and the grade’s dropping, rather than
rising.” Dick Davis, director of the Washington Research
Council

By Richard Roesler
Spokesman-Review Staff writer

OLYMPIA _ When Seattle-based Alaska Airlines
needed to add a 200-person reservation call center
last year, it looked first at several nearby cities.

It decided to keep looking.

"The bottom line was that we ended up going to
Boise," said John Kelly, CEO of Alaska Air Group,
which owns Alaska and Horizon airlines. "It was just
night and day in terms of the environment over there.
We were greeted with open arms."

Not only was traffic and the cost of living better,
Idaho’s business climate just seemed better, he said.
Idaho’s governor and Boise’s mayor got personally
involved. And the state offered the company free job
training for workers.

"As we look to add jobs, that’s where we’re adding
them — in Boise, right now," said Kelly, a Puget
Sound native. "It just seems inconceivable to me that
we shouldn’t be able to find a site in Spokane or
Tri-Cities or Yakima. Those are the types of
communities where these jobs would be valued."

Many economists say the state’s current economic
woes are the result of a cyclical business downturn
that will reverse course at some point.

But Kelly’s voice is one of a chorus of business
leaders saying that if Washington doesn’t improve its
business climate — regulations, transportation,
unemployment insurance rates, and attitude — it’s
headed for long-term economic problems.

In recent years, they say, while Washington basked
in the economic glow of Puget Sound, other states
streamlined regulations, boosted business recruiting
and stacked up attractions like tax breaks and free
land. Those differences show up most starkly, they
say, in border communities like Spokane, where
businesses operate under different rules just a few
miles apart.

"I’d say we’re a `C,’ and the grade’s dropping, rather
than rising," said Dick Davis, director of the
Washington Research Council, a business-backed
think tank.

"You have to really have blinders on to not
understand that we really have a serious problem,"
said Larry Stanley, who founded Spokane’s Empire
Bolt and Screw 30 years ago.

The engine stalls

Throughout the late 1990s, business flourished in
much of Washington. Technology companies
sprouted in Seattle. High-tech manufacturers
bloomed in Spokane and Vancouver. The state’s
natural beauty charmed prospective employees and
workers alike.

Fruit growers and timber towns struggled, but the engine of the state’s
economy — central Puget Sound — was humming. Average personal
income in Washington — a statistic skewed by stock options — was
soaring. Investment money flowed in, taxes filled state coffers, and the
state’s unemployment rate was the lowest it had been in years.

Then came a series of shocks. The dot-com bubble burst, leaving a
wake of shuttered offices, deflated stocks and out-of-work employees.
Boeing moved its corporate headquarters to Chicago, and later
announced tens of thousands of layoffs. Money dried up and stock
values fell sharply after the Sept. 11 terrorist attacks.

In Olympia, legislators suddenly found the state’s
pocketbook more than $1 billion short.

In March, there were 71,000 fewer jobs in Washington
than a year ago, according to the state Employment
Security Department, and the state’s 6.8 percent
unemployment rate is worse than Mississippi’s. Only
Oregon, at 7.9 percent, is worse.

Idaho lost only 900 jobs over the past year.
Unemployment rose from 4.7 percent to 5.6 percent, but
that’s still better than the national average.

"Whether you like it or not, our state’s economy is
dependent on a strong Puget Sound economy," said Rick
Bender, president of the Washington State Labor Council.
"That affects you folks as well. We’re all in the same
boat."

Calling for relief

This spring, one business leader after another trekked to
Olympia to deliver this message: If the state’s going to
recover quickly, Washington must become more
business-friendly. It must, they said, untie the knots in an
increasingly tangled transportation system, simplify a
maze of regulations, pour more money into education and
lower the cost of housing.

"Complacency over the years is coming at a high cost,"
said Heidi Stanley, executive vice president of Spokane’s
Sterling Financial Corp.

Business groups maintain that while other states have
streamlined regulations, offered tax breaks and developed
other incentives to attract new business, Washington
didn’t do much.

"It was kind of, `Do you fix the roof while the sun is
shining?’ " said Phil Bussey, president of the Washington
Roundtable, a big-business group.

If the state’s business climate doesn’t improve, they say,
companies will go or grow elsewhere.

Some economists and researchers disagree, saying the
state’s woes are simply a cyclical downturn, the kind
Washington’s faced occasionally for decades, not a
broader measure of the state’s business climate.

"The problem will go away as recovery takes place," said
Paul Sommers, senior research fellow at the University of
Washington.

Researchers disagree over how Washington ranks as a
place to do business. The Small Business Survival Index
last year ranked the state third-best in the nation. The
high-tech New Economy Index ranked Washington fourth.
Idaho came in 26th and 23rd, respectively.

Among the state’s fans: Irv Zakheim, who fled Los
Angeles a decade ago, frustrated with taxes and rules and
wanting to take his family to a friendlier place. He spent
two years choosing a new home for his company, Zak
Designs, which sells children’s dishes and utensils to
places like Wal-Mart and Toys R Us.

After rejecting Seattle (too much traffic), Zakheim settled
on Spokane, largely because it’s his wife’s hometown. The
cheaper cost of living cut his payroll 20 percent. Water,
power and insurance were all cheaper, too — in some
cases by half.

In Los Angeles, the company employed 20 people and did
about $2.5 million in business each year. After a decade
in Spokane, it’s a 170-person company doing $55 million
a year.

"Washington looks pretty good, on a lot of levels,"
Zakheim said.

On the other hand, researchers at the corporate data firm
BizMiner recently ranked Washington 43rd best out of the
50 states. A 1999 Clemson University study on
"economic freedom" was even worse, putting the state in
45th place, largely because of environmental and labor
regulations. Washington businesses have the highest tax
rates of seven Western states studied last year by the
Utah tax commission. Idaho’s were third-highest.

Why should anyone care? Businesses in Washington pay
nearly half the state and local taxes, the money that
props up the social service net, hires police, pays for
schools and so forth. That’s one of the highest
percentages in the nation; in Idaho it’s less than a third.

They also provide jobs.

"Why is it important? Do you like to eat?" Stanley said.
"Do you like to go to the symphony, or the theater?
Businesses provide lots of resources to the community."

Roads, rail lines and regulations

One of the top things business groups want fixed is
transportation. Puget Sound’s highways are choking, they
say, and the rest of the state’s transportation network
needs fixing as well. Voters will decide this fall whether to
pony up more than $7 billion over the next decade for
transportation fixes, mainly on the West Side.

It’s a statewide issue, businesses maintain, because
much of the state’s freight — wheat, electronics, lumber,
tires — has to get through Western Washington ports, rail
lines and highways.

The gridlock also hurts employee recruiting and erodes
morale.

Environmental and labor regulations are another concern.
Businesses complain about a "hostility to development"
among state and local authorities.

"All the rules and regulations, it’s as if it’s set up to
prevent you from doing anything, irrespective of whether
you meet the law," said Kelly.

Bussey said regulations are layered upon each other,
making things cumbersome, particularly for small
businesses.

That’s what Spokane’s Empire Bolt and Screw found. For
years, it ran a small zinc-plating operation, but finally
abandoned it due to environmental rules, costing a worker
a job.

Labor and environmental groups, though, are wary of
changes.

"They (businesses) are always complaining," said Bender,
with the Labor Council. "If some had their way, there
would be no regulations."

"We’re in the tricky spot of trying to balance economic
growth and a good, healthy environment," said state Rep.
Aaron Reardon, D-Everett. Lawmakers have set up a
"permit assistance center," intended to speed things
along, at the Department of Ecology.

Nearby states and provinces are trying to address the
same problem. California launched a one-stop shopping
permit process in several parts of the state. And British
Columbia has appointed a "minister of deregulation" to
make agencies prove new rules are needed, write them
plainly, and scrap two rules for each new one.

The cost of keeping up

There’s no shortage of other states trying to attract
companies, with many offering free land, big tax breaks,
utility construction, worker training and, in many cases,
raw cash. Utah offers companies $100,000 to locate in
some rural areas. Oregon offers loans of up to $500,000
and no property taxes for three to five years. Idaho has
grants and loans to pay for utilities.

Washington has constitutional limits on how much it can
offer, apparently because numerous towns nearly
bankrupted themselves in the mid-1800s trying to attract
railroads.

In some parts of the state, though, Washington offers
loans and tax breaks of up to $4,000 per worker. Spokane
lawmakers, citing competition from Idaho, last year also
won a change allowing taxes to pay for utility work for
businesses locating in struggling regions.

Supporters of such deals point to auto plants sprouting
throughout the American Southeast. Earlier this month,
Korean automaker Hyundai chose Alabama for the
company’s first U.S. auto plant. The $1 billion plant will
churn out up to 300,000 vehicles a year.

A key factor in the decision, the company said, was "the
commitment shown by the state of Alabama," which,
according to the Asian Wall Street Journal, offered up to
$118 million in training for the plant’s 2,000 workers.
Similar deals have lured Mercedes-Benz and Honda
plants to the state. Nearby Kentucky has brought in Ford,
General Motors and Toyota plants.

At some point, critics say, the benefits become
questionable.

"It’s a bidding war," said Matt Hull, with the Corporation for
Enterprise Development, in Washington, D.C. The group
estimates that state and local governments are spending
$32 billion to $45 billion a year on such deals. It’s money
better spent, they say, on the nuts and bolts of a good
economy: education, keeping taxes low and providing
government services.

Border skirmishes

The competition for companies tends to be most visible in
border areas, where local economic development folks
often go head to head with the other state.

"It’s right over the fence," Bussey said.

Some of that frustration comes through in a recent e-mail
from Mark Turner, president of the Spokane Area
Economic Development Council. After eight months of
trying to entice a manufacturer to the area, he wrote, the
company was balking at Washington’s labor policies,
regulations and lack of incentives compared with sites in
Idaho and Oregon.

"We have been challenged from the beginning, as we
often are, to defend the state’s business climate," Turner
wrote in the e-mail, obtained by The Spokesman-Review
from another source.

In an interview, Turner said Idaho is reportedly offering one
prospective company up to $3,000 per employee.

"That’s a flat-out check," he said. "What they’re doing in
Idaho we’d be constitutionally prevented from doing."

State-to-state differences in regulations — minimum wage,
say, or taxes — also loom large in border areas like
Spokane and Vancouver, Wash.

"Policies that may appear benign in the Puget Sound
region can have harsh effects in the more depressed rural
counties, particularly in border communities," reads the
February report by the Washington Alliance for a
Competitive Economy.

"I’m afraid that sometimes legislators in Olympia define
economic development as just more congestion" on
Interstate 5, Turner said.

One bright spot amid the debate is Washington’s
entrepreneurial climate. A higher percentage of companies
start up in Washington than in virtually any other state,
although the state’s also a leader in business failures.

"That churn means there are constantly new ideas being
tested in the market. That’s a good business
environment," said Sheila Martin, an economic
development adviser to Gov. Gary Locke. "If it was a bad
business environment, we wouldn’t have all this activity
going on. The proof is in the pudding."

Another plus: Bad economic times tend to spur more
start-ups, as people lose their jobs and go into business
for themselves. Ford, Disney, Hewlett-Packard and
Microsoft were all born amid recessions.

• Richard Roesler can be reached at (360) 664-2598 or by
e-mail at [email protected].

http://www.spokesmanreview.com/news-story.asp?date=042802&ID=s1138455&cat=section.business