Health Watched

Little-known measures passed by Washington Legislature now Law: Who Benefits? Part 1

The 2010 Washington State Legislature adjourned on April 12, after the special session called by the Governor to work on budgetary issues still pending at the end of this year’s regular short session. The arduous session focused primarily on filling the gaps created by this year’s $2.8 billion budget shortfall, coming on the heels of the $9B state deficit of last year.  In the realm of health and human services, most state-level advocacy attention naturally was devoted to preservation of the basics and safety net services, and monitoring developments with the federal health care reform legislation. But some bills that became law received limited public attention, including those which can directly impact Washington’s goal of access to affordable and appropriate health care for all by 2012 , and for all children by 2010.

While the  language of SESSB 6143, said that it was about Modifying excise tax laws to preserve funding for public schools, colleges, and universities, as well as other public systems essential for the safety, health, and security of all Washingtonians, in it’s final version,  Section 1101 , subsections 2a & 2b, contain an exemption from the temporary Business & Occupation tax surcharge for hospitals and institutions engaged in scientific research and development. For readers who are not Washingtonians, this temporary fix was proposed to help fill the dire budget shortfall, because our state does not have an income tax  and relies heavily on sales tax revenues — now greatly diminished– to fund services.

While the bill was being considered, the Seattle Times reported only that

It would increase from 1.5 to 1.8 percent the B&O tax paid by service businesses, with exemptions for hospitals and research and development. A tax credit for small businesses would be doubled.

Meanwhile, GenomeWebNews ran a feature story entitled Non-Profits, Investors Worry About Proposed Washington State Tax Surcharge Increase, describing how venture capital firms along with many research institutes and spin-off companies, joined forces  in fighting the proposed B&O tax surcharge hike.

After passage, the Times wrote about Why the Legislature ended up relying on ‘7-11’ taxes explaining that

Instead, the Legislature passed a $780 million tax package that included more than $250 million in new taxes on candy, mass-market beer, cigarettes, bottled water and soda pop. In other words, the vices of the Average Joe.

GenomeWebNews, to date one of the very few outlets to report details of the outcome of this proposed legislation, described in an April 22 article  Institutes, Companies Exempted from Washington State Tax Surcharge Increase how the thriving biotech  and biomedical sectors got their way:

Chris Rivera, president of the Washington Biotechnology and Biomedical Association, told GenomeWeb Daily News his 460-member organization organized its government affairs council, its Board of Directors, and key life-science organizations to lobby for an exemption to the tax hike.

“Literally within 48 to 72 hours, we mobilized our members in the life science community. And probably within a week to 10 days, we had an exemption,” Rivera said.

In 2008, the Washington life sciences sector is reported to have generated an estimated $6.4 billion in revenue. statewide. On the national scale, the University of Washington is the  #1  public university recipient of federal research funding, and the #2 such recipient of funding from the  National Institutes of Health. According to the state website on the sector, Washington is home to over 190 nonprofit organizations and 594 companies engaged in life sciences research and development, and employs some 14, 300 people. Big institutional names  here include the Fred Hutchinson Cancer Research Center, PATH, the Bill & Melinda Gates Foundation. Seattle BioMedical Research Institute ,WSU,and the Institute for Systems Biology, along with many smaller nonprofits and companies. Many of them will also be found listed as among major recipients of taxpayer funding, Washington was said to rank 7th among all states as a recipient of NIH funding, having received a total of $755 million in 2008.

The high tech sector has been receiving  state tax breaks (and from some cities and counties as well) for some time now. Since 1995, per legislation that became RCW 82.63,  there have been state sales tax exemptions for facility construction and purchases of eligible equipment , followed by  later legislation authorizing B & O tax credits for tech R & D expenditures. Entities that utilize benefits of these programs must report details annually to the WA State Legislature. The Descriptive Statistics for Tax Incentive Programs  2009 Report for calendar year 2008, published by the state Dept. of Revenue, reveals that dollar value of the sales tax exemptions  for this sector was $122.5 million out of a total  $194.1M  for all participating industries;  and that 481 companies received B&O tax credits that saved them some $22M . The other state tax incentive programs are primarily for the farming and timber sectors. The report explains in detail how the program works, and that

The original law provided the deferral/exemption only for a ten-year period.  In 2004 the
expiration date was extended to January 1, 2015.

Interestingly, at that time (2004) the Seattle Times commented:

.….the industry’s political clout has never been stronger. Along with high-tech lobbyists, the biotech group won a battle in Olympia earlier this year to extend multimillion-dollar tax breaks for the industry to 2015, despite the state’s budget woes.

A March 2010 editorial by local venture capitalist  Robert Nelsen in Xconomy-Seattle, entitled  Olympia: Don’t Crush Biotech With New Taxes. opined that the exemption from the temporary B &O surcharge would cure the problems of both high unemployment and high healthcare costs in Washington, all while improving the national economy.  However, the evidence he offered in support of his belief that that the “wrong” action by state legislators  would be the death of the industry seems pretty thin. In addition to the usual warning that jobs will be lost because companies will locate or, relocate, to locales with more favorable tax laws, the sole examples he offered about how the bioscience  industry reduces healthcare costs were

Pharmaceuticals have long been known to drastically reduce costs. New medications have brought down the cost of treating depression by mitigating the need for hospitalization. Likewise, cholesterol drugs have saved our health system billions of dollars by reducing the need for heart surgery…

If only controlling healthcare costs were so simple. While Nelsen has chosen to give examples only of pharmaceutical remedies, he doesn’t mention the problem of the affordability of so many of the newest medicines, most of which are biologics. Biologics are expected to account  for  50% of all new medicines by 2014, and now cost on average, 22 times more than ordinary drugs. Nelsen’s examples are of  2 types of small -molecule drugs, which also happen to be drugs about which there are concerns about effectiveness and safety.  Readers wanting  to learn more about  treatment for depression, and research on cholesterol-lowering drugs will find Consumer Reports Best Buy Drugs , and the Center for Evidence-Based Policy at OHSU to be helpful resources to get started.

Getting back to the topic of this post, the concept of sharing the pain in these tough fiscal times in order to promote the common good,  seems to have lost out once again.