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Xconomy Q&A: WA Gov. Inslee on Education, Life Sciences, Climate, R&D

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There’s a structural deficit of more than $1 billion, despite the economic recovery, he said. And legislators have to find an additional $4 billion over the next four years to fund basic education, as mandated by the constitution and state Supreme Court—and that figure does not include any funds for early learning or higher education.

“Our state revenues are growing, but at a much slower pace than in previous [economic] recoveries,” Inslee said, adding that revenues are not keeping pace with the demands of an aging population and increasing poverty “occurring because of the gross inequality that this new economy is creating.”

The state’s heavy reliance on sales taxes are insufficient given that more consumer spending has moved online and toward services that don’t incur as much sales tax. “Meanwhile, tax cuts enacted over the years have dramatically altered the ability of our revenue system to support our educational system in this state,” Inslee said.

Asked whether the state needs to fundamentally alter its tax system, Inslee said all options are on the table and suggested closing tax loopholes. But that’s unlikely to generate the kind of revenue needed to meet the budget shortfall, let alone pay for other priorities like transportation and infrastructure.

When Xconomy raised the issue of carbon regulation, Inslee called it an opportunity. “We have a way, with a carbon pollution cap, that could in a non-injurious way produce hundreds of millions of dollars of revenue that could be used for investments in a variety of ways, that the legislature could decide,” he said.

In some competitive state legislative races, Republicans are attacking Democrats with ads suggesting carbon regulation will lead to increased energy prices.

While Inslee has not settled on whether a carbon tax or a cap-and-trade system would be a better fit for Washington’s economy and emissions reduction targets, he extolled the “clear advantages” of cap-and-trade, in which government sets an enforceable limit on emissions and companies better able to meet it can sell emissions permits to those that cannot. Inslee said he’s waiting for the report of an advisory committee, expected in December, to finalize his approach.

Here’s a transcript of the full Xconomy interview.

Xconomy: You talked about the research and development tax credit. Do you have a specific strategy for how that’s going to be renewed in the next legislative session?

Washington Gov. Jay Inslee: Well, we’re still developing that. So our budget is under review, so we can’t reveal any budgetary revelations at the moment. We’re looking at it in the context of how we’re going to fund education, and at the same time incentivize R&D, and both of those are very important. I have long believed that an R&D tax credit, properly targeted—if it’s properly targeted—can have a benefit to the state. So we’re looking at that, potentially how to target that, also in the context of, we’re going to have to raise some revenues to support education. So we’re going to have to do both to maintain the R&D approach to this.

So we’re looking at a variety of alternatives, and our budget is still under construction at the moment, but I do believe an R&D tax credit—again, if you target it to the proper targets, that [are]really going to incentivize investments—could make sense.

X: Other states, such as California, New York, Texas, and Massachusetts—the WBBA actually put out a long list of other states that have greater life sciences incentives than Washington at this point. Given the financial constraints imposed here by the McCleary decision, is there anything else Washington can do to be more competitive, specifically for life sciences companies? … Next Page »

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