R-53 upheld, a victory for state's building industry

Seattle Post-Intelligencer


OLYMPIA, WA-- The state Supreme Court bucked the will of the governor, The Boeing Co. and most of the Legislature to uphold the voters' will on Referendum 53.

Yesterday's ruling, which makes the results of November's R-53 election official, puts a stake through the heart of the Legislature's plan for overhauling the unemployment-tax system.

Now the question is whether lawmakers will sit down with all the parties to negotiate a new overhaul of this much-complained-about business tax.

Sen. Margarita Prentice, D-Seattle, isn't hopeful. She noted that the original bill, which was overturned by R-53, took years of careful negotiations to craft.

"Talk about another anti-business event in Washington," said Prentice, who shepherded the bill through the Senate last year. "This (bill) was finally allowing some equity in the system . . . what a wretched ruling."

But opponents of the underlying bill rejoiced.

"The Supreme Court is a little smarter than a lot of people like the governor who think they can use political muscle and power to jam through legislation that is unfair," said Rep. Jim Clements, R-Selah, one of 31 GOP House members who opposed the original bill.

The underlying law, House Bill 2901, revamped the system for calculating business tax rates in an effort to make it more fair. Businesses pay unemployment taxes, which go into a fund from which unemployment benefits are drawn.

Historically, businesses such as retailers, restaurants and Boeing have paid more in taxes than their laid-off workers use in benefits. At the same time, the building and construction industry generally pays less in taxes than its workers take out in benefits.

The idea was to overhaul the system so one type of business doesn't subsidize benefits for another.

The building industry didn't like the new law. It would have increased its tax rates, and the Building Industry Association of Washington argued that the unemployment-tax system needed a more thorough overhaul.

So the building industry sponsored Referendum 53 and raised enough signatures to put the underlying law on the ballot. In November, 59 percent of voters voted to overturn the underlying law.

Then a coalition of business and labor, backed by Gov. Gary Locke, took the sponsors of R-53 to court. They argued the measure should be struck down because the constitution says laws that "may be necessary for the immediate preservation of the public peace, health or safety, support of the state government and its existing public institutions" aren't subject to referendum.

The anti-Referendum 53 coalition said the underlying unemployment tax bill was just such a law.

The Supreme Court issued only a terse ruling yesterday, saying that the secretary of state should go ahead and certify the results of the R-53 election, which the office did yesterday afternoon.

The ruling doesn't say whether the justices decided the case on procedural or constitutional grounds; they will issue a more detailed opinion explaining their reasoning later.

"From the day we filed Referendum 53 we didn't think the constitution barred it," said Kris Tefft, Building Industry Association of Washington attorney. "We see this as a victory . . . at a minimum the court is going to do no harm to the referendum process."

As a result of the court's ruling, businesses will go back to the old system of paying unemployment taxes.

Locke said he is disappointed.

"The tax legislation that the Legislature passed in 2002, and (that) he signed would have benefited the vast majority of Washington businesses by closing an unfair tax loophole that benefits a select group," said Michael Marchand, Locke's deputy communications director.

Barbara Smith, spokeswoman for the business and labor coalition that supported the underlying law, said the court's decision strikes a blow against Washington's business climate.

"A small special-interest group of builders and contractors has overturned those reforms so they can keep their $800 million subsidy at the expense of other hardworking employers," Smith said.

She said the coalition will have to scrutinize the court's detailed opinion before deciding its next move.

The underlying law also capped unemployed workers' benefits at a maximum of $496 weekly for two years, limited the growth in benefits to 4 percent annually for six years after that, and earmarked $34 million for retraining laid-off aerospace workers.

The referendum didn't overturn those parts of the law. The benefits cap still stands.

That steams Prentice, who said the voter-approved measure upset the carefully negotiated balance of concessions from labor and business.

"The Supreme Court ruling makes labor the loser," she said.

The winner is the Building Industry Association of Washington, which painted itself as a David hoisting a stone against the Goliath of Boeing, the governor and most of the Legislature. Builders and contractors will escape the tax rate increase that they've been fearing.

"The court's decision to uphold the will of voters on R-53 is a victory not just for small businesses, but for voters and the referendum process," said Randy Gold, president of the BIAW and owner of Gold Construction in Wenatchee. "Small-business owners like me have been up against big corporations, big labor and big government."


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