Campaign News

PRESS RELEASE

The State must fulfill its obligation to provide accurate and transparent information in regard to issues going before a vote of the people, and the errors in the fiscal note must be corrected.

Seattle, WA – October 14, 2016 – One of government’s core responsibilities is to analyze data and present the best possible factual information to citizens in the state. This responsibility is specifically legislated and required for the state to perform regarding the legal and fiscal implications of initiatives to the people and initiatives to the legislature. However, the state Office of Financial Management (OFM) made numerous mistakes in its analysis of Initiative 732. Furthermore, the state-produced models used to analyze the policy have been found to contain errors and have since been revised.

The state also mismanaged the timing of the fiscal note pertaining to I-732. Rather than publish the note after the initiative was certified by the Secretary of State as required, it released a “preliminary” analysis in December 2015, nearly a month before the initiative was certified.

The result was an inaccurate analysis of the amount of carbon tax revenue that I-732 would produce. This is because the existing state Carbon Tax Assessment Model (CTAM) was designed to analyze an entirely different type of carbon tax than what is specified in the I-732 legal language. Most notably the CTAM model does not apply any tax to fossil fuels consumed within the state to produce exported electricity, and it applies the wrong rate to “undeclared” electricity resources sold through the spot market. These two errors account for over $600 million in carbon tax revenue that were not reported in the OFM’s fiscal note.

The rushed and inaccurate State analysis was published by The Seattle Times on December 28, 2015, two days before final signatures were turned into the state by Carbon Washington, and well before the initiative was certified by the Secretary of State. But rather than correct the fiscal note, the state took to defending its flawed analysis.

The modeling errors – and mistakes involving double counting payments of the Working Family Tax Rebate — were explained in detail by CarbonWA to the OFM and publicly outlined in an Op-Ed in The Olympian after the “official” fiscal note was released on January 25, 2016.

Unfortunately the state refused to correct the fiscal note, and the following errors remain:

1. The Carbon Tax Assessment Model used by OFM for its analysis mistakenly excludes carbon taxes applicable to electricity produced in Washington State but consumed in other states. I-732 applies a carbon tax to all fossil fuels that are consumed in the state, including those used to produce exported electricity.
   • Additional Revenue: $375 million
2. To prevent the laundering of coal power by producers that don’t declare the source of their electricity, all non-declared electricity is taxed by I-732 at a rate similar to coal. CTAM uses a lower tax rate for this power than the one specified in the I-732 text, and OFM did not adjust its analysis for this discrepancy.
   • Additional Revenue: $323 million
3. The OFM analysis erroneously double counts the working families rebate in the first fiscal year. I-732’s legal language specifies a 15% match in year one, and a 25% match every year after that. OFM assumed two years’ worth of WFTR expenditures during the first year.
   • Additional Revenue: $263 million

Correcting OFM’s improper treatment of these issues restores $960 million in state revenues and transforms OFM’s estimated $797 million general fund shortfall into a projected $163 million revenue surplus. That represents zero point one percent (0.1%) of the expected six-year general fund revenue and is about as close to revenue neutral as this type of tax swap could ever be.

In August 2016 the Sightline Institute, a well-respected independent think tank that specializes in energy policy, published an analysis of the fiscal implications of I-732. Its conclusion: “I-732 is revenue-neutral to the best of anyone’s ability to forecast it… We conservatively estimate I-732 will reduce state tax revenues by about $80 million per year in early years; but the limitation of forecasting mean that, for all anyone knows, I-732 could very well generate an $80 million surplus for the state budget. As an argument against I-732 therefore, the ‘revenue hole’ case is a red herring.”

Further, they validated the errors in OFM’s analysis outlined by Carbon Washington:

• “We conclude the structure of I-732 makes clear it is meant to tax all fuel used or sold in the state, whether to generate electricity for consumption or export or anything else, plus all imported electricity.”
• “The Department is incorrect to assume that 100 percent of non-coal unspecified power will become specified.”
• “The department’s four-year analysis includes four years of carbon tax revenue and five years of Working Family Tax Credits.”

Despite having thoroughly made the case that I-732 is in fact revenue-neutral, our opponents continue to use the faulty OFM fiscal note as an argument against I-732. The Association of Washington Business (AWB)-sponsored opposition group even developed an ad campaign based on the incorrect CTAM model using “improbable” data to suggest I-732 would increase household electricity costs by 20 percent. On October 10, 2016 the Tacoma News Tribune concluded that “The claim that household electricity costs would go up 20 percent was based on faulty calculations.” And on October 13, 2016 The Seattle Times reported that the CTAM contained a major error and was applying a price to electricity that was off by a factor of four!

The State must fulfill its obligation to provide accurate and transparent information in regard to issues going before a vote of the people, and the errors in the I-732 fiscal note must be corrected. Voters must be able to make informed decisions based on information they can trust.

Addressing climate change is the critical issue of our time. I-732 is an essential first step toward making meaningful progress toward carbon reduction in Washington State. I-732 has been endorsed by economists, climate scientists, and political leaders on both sides of the aisle, and will serve as a model of effective bipartisan climate legislation for the entire country. The climate won’t wait. We all have a moral responsibility to focus on carbon reduction now to protect our children and future generations by tackling climate change now, and leaving them a cleaner, healthier, safer world.

About Initiative 732

I-732 represents the most effective climate policy and the most progressive tax shift in decades in Washington and is designed to move the state toward two goals – cleaner energy and fairer taxes – with the following policy objectives:

• Tax pollution, not people. I-732 will add a $25 per ton tax to polluting fossil fuels
• Pay less at the cash register. I-732 reduces the state sales tax by one percentage point, putting hundreds of dollars a year back into the pockets of each household in Washington
• Support working families. The policy funds the Working Families Tax Rebate, providing up to $1,500 a year for approximately 400,000 low-income households
• Promote innovation and economic growth. I-732 supports business growth and job creation by effectively eliminating the Business and Occupation Tax on manufacturing

About Carbon Washington

Carbon Washington is a non-partisan grassroots group of scientists, economists, former elected officials, business owners and concerned citizens focused on seeking a solution to climate change that works for businesses and households around the state. The group developed Initiative 732 as a revenue-neutral approach to taxing carbon pollution while encouraging economic growth for families and businesses in Washington. To learn more about I-732, view endorsements from around the state, and get involved, visit YesOn732.org and follow on twitter @carbonwa.

Media Contact

Samara Villasenor

[email protected]

206-478-5643