Big Oil aims to kill tax increase to fund toxic site cleanups

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Paul Joseph Brown/InvestigateWest

A bill in the Washington State Senate would increase taxes on oil imported to Washington refineries and use the proceeds to more quickly clean up the Duwamish River, where these geese swim in Seattle's biggest toxic waste site, as well as other polluted areas around Washington state.

OLYMPIA – While newly empowered Democrats and environmentalists are winning passage of many pro-environment bills, big oil companies are laboring mightily to defeat one proposal that would speed cleanups of toxic waste sites by increasing a tax on crude oil brought to Washington refineries.

The Senate proposal – SB 5993 – would roughly double the state’s hazardous substances tax. The proceeds would pay for cleanups that have been put on hold or slowed due to large fluctuations in global oil prices and legislative budgeting maneuvers after the Great Recession that in effect stole voter-approved cleanup funds for other uses.

As the Legislature nears the end of its regular session, the state’s oil refiners, agriculture and business lobbyists are joining Republican lawmakers in pushing to halt any tax increase. Meanwhile, environmental advocates and local government lobbyists are pressing for additional funding to speed the state’s cleanup of some 6,000 remaining toxic waste sites.

The green side of the political equation has enjoyed the upper hand at the Legislature all year after environmentalists helped elect larger Democratic majorities in the House and Senate. The Democratic control comes after a six-year period when Republicans commanded the Senate and blocked many Democratic initiatives, including some tax increases. But to prevail on the oil tax this year, the Democrats may need help from at least some Republicans.

Whichever way this fight plays out, a lot of cleanup projects could be affected by the outcome. These include cleanups in Seattle’s Duwamish River and at Gas Works Park, Bellingham Bay, Tacoma, Grays Harbor and at landfills around the state. Those could get additional funds if the Senate bill passes.

Matt M. McKnight/Crosscut

Volunteers pick up trash at Seattle’s Gas Works Park. The park is one of a number of contaminated sites that would receive funding for delayed cleanups under legislation pending in the Washington State Senate. While toxic waste from the plant’s gasification of coal and petroleum last century have been cleaned on the land, toxic materials remain in the waters offshore, where people and dogs have been seeing wading despite signs warning of danger.

 

Blocking the tax hike has been one of the two largest priorities in Olympia for the Western States Petroleum Association, the oil lobby. The other is a climate-friendly fuels mandate for motor vehicle fuels that also is down to the wire. The 105-day session is scheduled to end on Sunday.

Sen. David Frockt, a Seattle Democrat, is pushing for the tax increase. He says it is time to act and fix a funding system for toxic cleanups that is broken — in part because oil revenues have fluctuated with wide swings in crude oil prices.

“We are trying to reset this program and get it on a good footing,” Frockt said, warning there are costs if the state does not change its ways, which in the current budget cycle include borrowing through bonds to cover some $80 million in projects that should be funded by the oil tax voters intended for that purpose.

The senator told the Senate Ways and Means Committee that for every $80 million issued in bonds there is a corresponding yearly cost of about $5.2 million in interest. Speaking before the committee voted along party lines to approve the proposal on April 18, he said: “Over 25 years that is an additional $132 million. So, there are costs to taxpayers in the current way we are doing it.”

A major reason that demand for cleanups has outpaced the funding available is that past legislatures have raided the cleanup accounts to pay for other state needs. In some cases, they replaced the lost money with borrowed funds but the result was also fewer cleanups.

“This tax is essential – for really important work – but is outdated,” said Darcy Nonemacher, government affairs director for Washington Environmental Council and Washington Conservation Voters. “It is not enough to keep up with demand.’’

Earlier this year House budget writers suggested again using bonding — borrowing money — to leverage the state’s expected collections of hazardous materials taxes in the 2019-21 budget cycle. Frockt wants to end the borrowing with his proposal.

Frockt’s Republican opponents agree the state should stop raiding taxpayer-approved toxic cleanup funds for other purposes. But they strongly oppose raising the tax and Republican Sen. Doug Ericksen, whose Whatcom County district has two refineries, warns it will be a mistake to add more burdens to an industry that provides good jobs.

A recent report from the business-funded Washington Research Council said the refineries – located at Cherry Point in Whatcom County, Anacortes in Skagit County and Tacoma in Pierce County – employ  2,171 full-time workers who earn $129,132 on average each year and another 2,658 contract workers who do maintenance and repair work.

During the committee vote approving Frockt’s bill last week, Republican Sen. John Braun of Centralia warned against putting burdens on refineries that he said are providing “good family-wage jobs in parts of our state that I think are critical to our economy.”

“I worry that (an increase) will … pass costs onto the folks that are purchasing gas and other products from this industry,” Braun said. “And it may actually get the industry thinking about relocating to other parts of the country or the world.’’

The backlog of uncleaned toxic sites traces in part to a tax rate on oil and other hazardous liquids that was established when Ronald Reagan was still president and before there was a World Wide Web. It was in 1988 that Washington voters approved Initiative 97 to tax pesticides, oil and other hazardous substances brought into the state.

That rate was set at a small percentage of the value of the product such as crude oil imported for refining. However, within the last decade or so, that value has been inconsistent, topping out above $100 per barrel of crude oil and hitting bottom below $30. Those fluctuations are a huge problem for state and local officials trying to pay contractors working on multiyear cleanup projects.

At current oil prices, the current tax rate is expected to bring in about $310 million over the next two years. Frockt wants to boost that to almost $600 million. And he would charge a per-barrel fee, no matter how much the oil costs, to avoid topsy-turvy toxic cleanup budgets that have resulted from swings in the price of oil.

“This tax is essential – for really important work – but is outdated,” said Darcy Nonemacher, government affairs director for Washington Environmental Council and Washington Conservation Voters. “It is not enough to keep up with demand.’’

As the end of the session looms, the proposed tax increase is alive because it is one possible piece in the puzzle for a nearly $5 billion capital construction budget.

Though Republicans are in a minority in both the House and Senate this year, their votes carry extra weight on capital-budget matters, because part of that budget is financed by bonds, which need a 60% supermajority to win approval.

That means some GOP votes are needed for bonds — although Republicans are not saying they’ll hold up the whole capital budget, as they did in 2017 over a water rights issue. But they have some clout to force changes.

The state has cleaned up an estimated 7,000 sites since voters approved I-97 in 1988, but there are new sites discovered or added to the list every year, which brings the total left to clean at about 6,000, according to Denise Clifford, government relations director for the state Ecology Department.

Frockt says his proposed higher effective tax rate on hazardous oil materials will let the state speed the cleanups. He said it also lets the state avoid borrowing costs and allocate about 15% of the revenue for cleaning up stormwater, the runoff from streets, parking lots and other hard surfaces that carries toxic chemicals into waterways after it rains. Although stormwater is cited by Ecology as the No. 1 pollution threat to Puget Sound and other Washington waterways, the state currently doesn’t have a dedicated source of funds to intercept and clean the stormwater.

Frockt’s measure is also meant to stabilize the revenue stream collected from the tax on toxic materials. It also would bar the use of the resulting revenue for other purposes. Republicans and the oil industry support those latter provisions.

But Kevin Slagle, strategic communications director for the Western States Petroleum Association, says higher taxes would land on top of heavy regulatory impacts on the industry. He cited conclusions of the Washington Research Council report that says state refineries are paying three times the taxes that refinery counterparts in California do – a lot of it due to the hazardous materials tax and a lot due to the state’s manner of taxing businesses.

“The issue is that eventually (there are) potential costs to industry, consumers jobs and folks who use our product,” said Slagle. “We’ve always done our part when it comes to being responsible in this area. That is not the issue. The issue is the amount they are trying to increase this tax.”

There are a couple of reasons why Washington’s taxes on refineries are higher than in California. One is that Washington collects the hazardous materials tax; it also collects a unique Business & Occupation Tax instead of the corporate profits tax that California collects. Washington’s B&O business tax is levied on gross receipts, regardless of profit margins, which makes it onerous on low-margin industries.

The Research Council report says that those two tax differences add up to more than $30 million a year – if each state’s tax regime were applied to a hypothetical refinery that, for illustrative purposes, produced 160,000 barrels of oil a day.

Overall such a refinery in Washington would pay $48.8 million in total state and local taxes and fees compared to about $16.9 million in California, the report says.

The report estimates the total tax for its hypothetical Washington refinery would include roughly $21 million for the hazardous materials tax and another $19.5 million for business taxes, which together are far greater than California’s corporate tax that equals roughly $7.3 million in the council’s example.

California property taxes and oil spill taxes were a little higher than Washington’s, according to the report, but not enough to offset the other disparities.

It’s unlikely the oil companies would close refineries or move jobs as a result of the proposed tax increase, Braun’s prediction notwithstanding. But to press home their point about the importance of refining jobs, 80 to 90 workers from the state’s refineries showed up at the Capitol last week. They sported their respective blue or red work jumpsuits as they milled around the Legislative Building, waiting for a chance to talk to lawmakers.

Wearing such distinctive attire has long been a tactic used by lobbying groups — whether by refinery workers in jumpsuits, doctors in white coats, homecare workers in purple T-shirts or state workers in green shirts — to amplify their prsence in hearings and in capitol hallways.

Based on the budget proposals from the House and Senate, the higher tax is needed unless the state funds fewer projects over the next two years. The Democrat-controlled House passed a capital budget without an increase in the tax rate on hazardous materials.

The Senate budget goes much further – allocating $127 million more for remedial cleanup work, half of it at sites yet to be identified. It also provides funds for numerous Bellingham-area port projects including nearly $7 million for the I & J Waterway, $2.9 million for the Westman Marine project, another $2.3 million for the Whatcom Waterway, $1.9 million for a central waterfront project and others.

Seattle’s Lower Duwamish River project gets more than $6 million more in the Senate plan than in the House plan. The Senate also provides millions for landfill cleanup at Yakima, Ephrata and other sites around the state. A handful of Tacoma port projects would also be funded including $7.5 million for the Arkema Manufacturing site, and the Grays Harbor Historic Seaport Landing would receive $1.8 million – all if the Senate’s tax proposal is adopted.

Representatives of ports, cities and counties testified along with environmentalists in favor of the Senate tax-reform measure because it would clarify how funds from the toxics tax are spent, make state accounting more transparent, pay for more stormwater projects, and provide both certainty and extra money for projects that are held up by the Legislature’s past budget maneuvers.

Business and agricultural interests support transparency and more reliable streams of revenue for cleanups. But they oppose higher taxes, saying they are not needed, would add costs to an important industry and pass on costs to consumers.

The Legislature’s past shifts of cleanup money for other uses was significant and added to the state backlog. It meant the funds available for Model Toxic Control Act projects fell from $297.5 million during the 2013-15 biennium to just $137.7 in the subsequent budget cycle, according to a study by the state Office of Financial Management.

Frockt said his bill attempts to make changes that the budget office’s report recommended to stabilize toxic cleanup revenues and halt the fund transfers. Frockt, other Democratic lawmakers and lobbyists on the environmentalist side also say the oil industry can easily afford the higher taxes — if the Senate and House are able to enact them.

Frockt noted that the oil industry received generous benefits under the federal tax reform of late 2017, and Democratic Sen. Reuven Carlyle of Seattle said refiners now pay the equivalent of just over 1.25% of their $16 billion in gross revenues in taxes to Washington.

Industry lobbyists object to Carlyle’s measurements on grounds that profit margins are slim for the oil industry.

House Democrats are watching with interest to see if the Senate can pass the measure because it would fund more cleanups, says Rep. Beth Doglio, D-Olympia, and vice chair of the House Capital Budget Committee.

The Senate bill moved from the Rules Committee in preparation for a floor vote that could come any day, and there is always a chance lawmakers will be forced to go into overtime to finish their budgets, which could give this measure a few days past Sunday to pass the Senate and House. If approved by the Senate, it would need to pass a House committee and then the full House in order to be sent to Gov. Jay Inslee for his signature.

“The House is definitely interested in the (tax) bill,” Doglio said. “There is a series of messes that the Senate is funding that we are not.’’

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