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Serving The Needs Of Washington Bankers Since 1889 Legislative Update by Denny Eliason, WBA Lobbyist, Alliances Northwest The 2011 Regular and Special Sessions of the Legislature proved to be some of the most challenging yet for our industry. Anti-banking bills were at the forefront of legislative issues from the time lawmakers convened in January through the final days of the Special Session in May. Lawmakers adjourned Sine Die on April 22, two days before the scheduled end to the 2011 Legislative Session. They left Olympia without completing their most important task – passage of the 2011-2013 General Fund Budget. The most controversial issues surrounded the General Fund Budget and the numerous bills necessary to implement the many governing reforms that were being contemplated to reduce state spending. Governor Gregoire immediately called lawmakers back into Special Session. It began on April 26, and lasted for 30 days. The Special Session was mostly limited to bills related to the passage of the 2011-2013 General Fund Budget, the Transportation Budget and the Capital Budget. The most controversial issues surrounded the General Fund Budget and the numerous bills necessary to implement the many government reforms that were being contemplated to reduce state spending. The WBA was most exposed during the Special Session in the context of taxation. (All policy bills had been resolved to our satisfaction.) Lawmakers were constrained from raising taxes for the next two years by the protections contained in I-1053, which requires a 2/3 majority to raise taxes. Legislators could avoid those protections if they referred any tax measure directly to voters for approval. There were numerous proposals aimed at our industry during the Special Session, most of which focused on eliminating the first mortgage deduction. Here is a summary of some of those measures: HB 2078 – This bill received a great deal of attention by lawmakers in the House. It was signed by 48 members of the Democratic Caucus and sought to repeal the first mortgage deduction for earnings in excess of $100 million. The estimated $170 million raised by this proposal would be dedicated to K-3 education funding. The bill received a high profile hearing, and was passed to the floor of the House. Republican members “locked up” against this measure and remained steadfast in their opposition, based mostly on their belief that it would raise the cost of first mortgage lending. House Democrats did ultimately bring this proposal to a vote, and it failed by a 52 to 42 basis, with four of our additional “no” votes being absent. The bill was brought to the floor by Democratic Leadership even though they knew it would not ultimately receive the 2/3 vote necessary to pass given the restrictions of I-1053. In the near future House Democrats strategically hope to use this vote when they legally challenge the constitutionality of the Initiative. The United Financial Lobby worked very effectively on this issue. All parties held together www.wabankers.com 10 in opposition, even in the face of amendments proposed for the bill that would exempt smaller financial institutions. SB 5945 – Similar to HB 2078, this legislation sought to remove the first mortgage deduction. The proposal would have removed the deduction for banks doing business in more than ten states, and thus would only apply to the largest of national banks (it remains unclear whether the bill would have run afoul of federal law). The bill was brought up twice in the Ways and Means Committee, but the WBA had intensively lobbied lawmakers on both sides of the isle, and thus it failed to receive a majority vote of support from lawmakers. This vote was critical during the Special Session, but will also be important if there is a lawsuit challenging I-1053 as it will signal to a court that a majority of lawmakers in the Legislature did in fact oppose repeal of this tax treatment. SB 5944 – This legislation sought to remove the 2/3 vote protections found in I-1053 for tax exemptions. The bill had a referendum clause and thus would only require a simple majority vote of the legislature. The WBA worked directly with the rest of the business community in the Senate to ensure there is not a majority of votes available to pass this measure. That said, the labor community and social service groups put on a full court press in support of the bill. In the end this issue was hotly debated in the Special Session, but ultimately did not pass. HB 1768 & HB 2048 – Mortgage Lending Fee Proposals – During the 2011 Session the WBA defeated HB 1768. The measure sought to apply a $48 fee on the secondary sale of mortgages to help fund affordable housing programs. Ultimately our industry agreed not to oppose HB 2048, a measure that would add a $10 fee to the recording fees that already exist in our State and are borne by homebuyers. HB 2048 ultimately failed to pass during the Special Session.
Serving The Needs Of Washington Bankers Since 1889 HB 1087 – State General Fund Budget – Job one for the Legislature was to pass a 2011-2013 General Fund Budget. Ultimately this was achieved on a rather unprecedented bipartisan basis. The $32.2 billion measure represents a budget that actually spends just shy of $2 billion more than the past biennium. That said, it also is the first budget in six years that does not spend more than the State is expected to receive in future revenues. Lawmakers did this largely through approximately $4.6 billion in spending cuts. It is hoped by all that this budget will be sustainable. In anticipation of further revenue challenges for the State, the budget does contain a reserve of $741 million. That said, the most current revenue forecast – that occurred after the Legislature went home – indicates revenue collections may be down as much as $570 million. 2011 Regular Session Review The Legislature entered this Session with much discussion regarding bipartisan cooperation. Much of this was in reaction to the fact that the 2010 elections brought both the House and Senate closer in terms of control. In the Senate, Democrats still held a 26 to 22 margin; but there were a number of moderate Democrats who made it quite clear that they had little interest in passing extreme legislation in the areas of budget, taxation or labor issues. In the House, Democrats controlled handily by a 56 to 42 margin. Moderate Democrats in the House were less organized, but still made their presence known. There were more than 2,180 bills introduced during the 2011 Session. The WBA directly tracked more than 240 bills, and actively worked more than 100 of those measures. In the end, all of these measures were dispatched in a manner that was acceptable to our members. The United Financial Lobby – an informal coalition of banking organizations, individual banks, thrifts, credit unions, and other financially related interests – once again functioned very well and was instrumental in handling the sheer volume of legislation. The WBA chairs this organization. The following are a few of the highest priority bills that the WBA lobbied during the 2011 Regular Legislative Session. (Note: A nonpartisan review of these bills can be found on the Legislature’s web site at www.leg.wa.gov.) Mortgage Lending Issues 1. HB 1362/SB 5275 – The leading non tax issue for banks in 2011 was foreclosure. Given there were more than 30,000 foreclosures in Washington State in 2010, lawmakers and leadership from both sides of the isle came to the WBA and asked that we work on legislation that would help to address this issue. HB 1362 in its original form would have resulted in an overly expensive, time-consuming, and litigious foreclosure process. An agreement was ultimately reached on a dramatically amended version of the bill after more than 36 hours of direct negotiation with lawmakers, the Housing Finance Commission, and consumer groups. The measure modifies current non judicial foreclosure statutes, with a focus on getting borrowers to housing counselors. Mediation can occur, but is restrained and reflects a balanced approach to mediation. Banks with 250 or fewer Notices of Default (NODs) per year are exempt from the $250 fee assessed on NODs to pay for housing counselors. Banks 11 with 250 or fewer Notices of Trustee Sale are exempt from the mediation provisions of the bill. While this bill is not one our industry would have requested, the amended bill is a dramatic improvement over the legislation as introduced and is in a form that we can accept. 2. SSB 5590 – This legislation deals with short sales. As originally proposed it would have required banks to reply to a short sale offer within 45 days from the receipt of an offer. If a financial institution failed to respond it would be subject to actual damages and violations of the Consumer Protection Act. The bill was ultimately amended to remove the CPA and the time to respond was lengthened to 120 days. The WBA removed our objection to the bill once amended and it ultimately did pass. 3. SB 5309 – Consumer groups pushed this measure as a companion to the larger foreclosure bill. It was a subtle attempt to discourage the use of the MERS system in the State of Washington, and also attempt to apply the Consumer Protection Act to the entire Deed of Trust Act. This bill was killed in committee, but only after a law firm representing trustee interests tried to resurrect the bill in an attempt to amend other Deed of Trust issues onto the bill. This irresponsible tactic failed and the bill was killed. State Bank of Washington 1. HB 1320/SB 5238 – These two bills were a major push by labor unions during the 2011 Session. The measures received a great deal of attention from the press and had 27 sponsors in the House. The bills would have established the State Bank of Washington, a state sponsored financial institution that could compete with banks on virtually every financial product. The state bank would have been capitalized by requiring that all state funds be deposited in the new Washington Investment Trust. Jim McIntire, our State Treasurer, weighed in actively against these measures for a host of thoughtful reasons. (These measures quite clearly ran afoul of our State’s constitutional prohibition against the lending of the state’s credit.) The bills both received hearings and a great deal of support from labor unions and consumer groups. Ultimately, both died in committee. 2. HB 2039 – This legislation was introduced late in the process by a member of the House Democratic leadership. The measure sought to establish the Washington Economic Prosperity Bank. This bank would manage the economic development grant and loan funds of the State, and also establish a single state financing authority that would have the ability to issue taxable and tax-exempt revenue bonds. The bill did not receive a hearing, but is expected to be considered in 2012. Street Utility Tax SHB 1929 – This legislation received a great deal of attention during the early months of the 2011 Session. Local governments continue to also face significant deficits within their budgets, and street maintenance is a considerable expense. The bill would have taxed retail businesses based on the “theoretical trips” generated by their customers. As a result, the measure LEGISLATIVE UPDATE — continued on page 13 July/August 2011 ⏐
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