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Dispatches from public radio's correspondent at the Washington Legislature. Austin Jenkins is the Olympia correspondent for the Northwest News Network. You can also see Austin on television as host of TVW's (the C–SPAN of Washington State) weekly public affairs program "Inside Olympia."

Tax Break For Russell Investments Riles House Finance Chair

Washington House Finance Chairman Reuven Carlyle. Credit: Washington Legislature

It was the legislative equivalent of a buzzer beater. Just as the Washington legislature was about to adjourn last month, the House and Senate quickly passed a series of tax breaks mostly for businesses. They included exemptions for dance clubs, mint growers, dairy products and this one: digital data used by international investment firms.

That last one will largely benefit a single global firm – Seattle-based Russell Investments. This tax break passed despite efforts to close these kinds of loopholes.

On the evening of Friday, June 28, the Washington legislature was working late. Without a new budget, the state government would shut down in 48 hours.

In the Washington Senate, Republican Floor Leader Joe Fain acknowledged the race was on. “Clearly we are learning a little bit about how the sausage is made tonight,” he quipped.

Fain then proceeded to endorse a complex, 66-page omnibus tax bill that was on a lightning track – from public hearing to final passage in about 12 hours.

Fain praised the measure saying it contained several important tax incentives. “Along with a new way of looking at tax exemptions: how do we use them, how do we evaluate them, how do we put them into law.”

Over in the Washington House, Finance Chairman Reuven Carlyle, a Democrat, knew the minute the bill passed the Senate it would come over to his chamber for a vote. It was a key component in a delicately crafted final budget deal between the two chambers.

But Carlyle wasn’t happy about it. “It was forced at gunpoint by the Senate," he says. "They felt very strongly about creating new tax exemptions.”

Whereas Carlyle says he had gone into the legislative session determined to close tax exemptions to raise money for education – not open new ones.

Carlyle was especially riled by one of the tax exemptions up for a vote that night – for financial market data used by international investment firms. Dozens of firms could benefit, but by far the largest beneficiary would be Russell Investments.

Born in Tacoma, now in Seattle. Russell Investments has 1,800 employees worldwide. More than $170 billion in assets under management. So what did this global company want? A tax exemption worth about a $1 million a year.

Carlyle says the company and its lobbyist began pitching him early in the legislative session. “They made it super clear that it needed to pass, they wanted it to pass and they felt strongly about it and if they didn’t pass it there could be severe and negative unintended consequences down the road.”

That included, says Carlyle, the possibility the company could pick up and move elsewhere. But he remained skeptical.

“We have hundreds and hundreds of exemptions in this state in large part because it’s been incredibly easy to pass them," says Carlyle. "And my central policy goal as chair of the Finance committee has been to bring a whole new level of rigor to the decision to create tax exemptions.”

Carlyle was something of a one-man roadblock. Russell Investments had already won over a bipartisan group of lawmakers in both the House and Senate.

Despite his skepticism, Carlyle agreed to a public hearing.

Russell’s Leanne Webber testified this was not a new tax break, but an old one that went away when the state of Washington moved in recent years to tax electronic products. “As part of this though the 2007 exemption that we had was repealed and we believe that was an unintended consequence,” she said.

Russell’s Erik Strom added that it was a matter of competitiveness not just for his company, but for the state of Washington. “This type of legislation if not enacted would be a deterrent for other companies to want to come and do business in our state.”

Chairman Carlyle remained unconvinced.

“I listened and I felt like the more responsible approach, rather than just rubberstamp a continuation of this existing exemption, would be to create a comprehensive analysis of what does it take, for example, for Washington state to be a premier financial services hub?”

So Carlyle proposed a formal study to see how Washington stacks up to other states on taxes and incentives for financial services companies.

Meanwhile over in the Washington Senate, the tax break that would benefit Russell Investments had traction.

“I don’t want them to leave,” says freshman Democrat Mark Mullet, a former Wall Street trader who now operates pizza and ice cream franchises.

He also wanted to attract new firms here and says there was no time to wait for Carlyle’s study. “I think the timing is important to make sure as we’re trying to get these people here in the next 12 months, that we do as much as we can to kind of show them ‘hey we understand the financial services industry.’ The last thing we want to do is penalize the people who are already here.”

In the end, Mullet and Russell Investments won. The tax break passed. When it came over to the House as part that larger tax break package, Chairman Carlyle reluctantly voted for it. He says he did so in part because he managed to insert a cap on how much Russell can claim and an expiration date.

But it still bothers him that the exemption got through the process at all.

“It’s an indication of the fact that this is an incredibly important company that legislators were unable to play chicken with.”

In a statement Russell Investments says the bipartisan legislation will help Washington “be an attractive place for businesses to grow and create new jobs.”

Since January 2004, Austin Jenkins has been the Olympia-based political reporter for the Northwest News Network. In that position, Austin covers Northwest politics and public policy, as well as the Washington State Legislature. You can also see Austin on television as host of TVW's (the C–SPAN of Washington State) Emmy-nominated public affairs program "Inside Olympia."