Legislators smarting over Gates' education comments

OLYMPIA — Microsoft Chairman Bill Gates made headlines across the nation last weekend when he decried America's high schools as obsolete and pinned much of the blame on elected officials.

"Everyone who has been elected to uphold the obligations of public office should be ashamed that we are breaking our promise of a free education for millions of students," Gates told the National Governors Association, meeting in Washington, D.C. He later added: "The key problem is political will."

The speech struck a sour chord in Washington state this week with some lawmakers who are grappling with a $2 billion budget shortfall this year. They note Microsoft and other big companies have lobbied hard to keep their own tax bills down.

"We'd have a much easier time funding education if companies like Microsoft weren't picking our pockets for tax breaks year in and year out," said state Sen. Erik Poulsen, D-Seattle.

Sen. Ken Jacobsen said it's hard to stomach Gates' message, given the business community's persistent efforts to cut the very taxes that help fund schools.

"They seem to have a bad case of corporate cognitive dissonance," said Jacobsen, D-Seattle.

Brad Smith, a senior vice president at Microsoft, said the company is sympathetic toward the difficult budget lawmakers face, and doesn't want to compound the situation. He said the criticisms from lawmakers would be fair if Microsoft were pushing for a tax break this year.

"We're not asking for a large corporate relief package," he said.

Smith added that Gates was not just talking about money when he said elected officials are failing high schools.

"Bill's speech was not, 'Let's go increase the state budget,' " Smith said. "It was, 'Let's do this in a smarter way.' "

Microsoft spokeswoman Tami Begasse noted that Gates and Microsoft were big supporters of Initiative 884, an attempt last fall to raise $1 billion a year for education by increasing the sales tax. The initiative was defeated.

Begasse pointed out that Microsoft and the Seattle-based Gates Foundation have donated tens of millions of dollars in cash and software to schools and learning centers.

"We all share the important goal of improving education," Begasse said in a statement. "As a major employer in the state of Washington, we have a responsibility to engage constructively in key public-policy issues, like education, that are of critical importance to the future of the state."

For the past half-decade, legislators have had to grapple with a state budget that is fundamentally flawed: Tax collections don't keep pace with spending.

Some blame a lack of spending discipline by lawmakers and government managers. But others, like Poulsen, say the bigger problem is that — in the name of improving the business climate — political behemoths like Microsoft and Boeing have been so effective in pushing new tax breaks through the Legislature.

The biggest of these may be the $3 billion, 20-year package of incentives for the aerospace industry enacted in 2003 to persuade Boeing to keep future jetliner manufacturing in the state.

But the state has more than 200 business and agriculture tax exemptions on the books, including several that over the years have saved hundreds of millions of dollars for high-tech companies.

The breaks include a sales-tax exemption on equipment used for research and development and a business and occupation (B&O) tax credit against research-and-development spending.

The state also has a tax break on software licensing, but Microsoft found a better deal in Nevada, which has no general business taxes. So several years ago the Redmond-based company opened a small office in Reno to handle its software licensing.

In recent years, there has been a growing push in the Legislature to rein in some tax exemptions. And there is a lot of talk this session about doing that to help close the projected $2.2 billion shortfall the state faces in its next two-year budget.

Leaders in the Democrat-controlled House and Senate say they will have to raise taxes this year. And they'd love to have someone like Gates on their side.

"It would help us a lot, because nobody believes us," said Hans Dunshee, D-Snohomish. "Imagine if he stood up in an ad and said, 'Please raise my taxes because it will help the kids of Washington.' "

Several major business associations are preparing to do just the opposite. Hoping in part to protect existing tax breaks — and prevent any tax increases — the groups plan to soon launch an ad campaign cautioning lawmakers against doing anything that will jeopardize the state's economic recovery.

Smith said Microsoft was asked to help pay for the campaign, but has not decided whether to participate.

"We have a keen appreciation for the difficult job and huge set of responsibilities that our state legislators have," Smith said. "These are a lot of hard decisions that need to be made, and we're not trying to make it harder."

Steve Mullin, president of the Washington Roundtable, said Gates was mainly calling for "radical structural changes" to the nation's high schools.

"The easiest thing to get is the money," said Mullin. "The hardest thing to get are the major structural reforms."

Mullin also said that, if lawmakers want to find more money for schools, they should work harder to tackle the state's skyrocketing health-care costs.

Others say money isn't the problem at all.

"I've been around Olympia for years and there's never enough money for education," said Don Brunnel, president of the Association of Washington Business. "We have to be more prudent about where we put our dollars for education."

Ralph Thomas: 360-943-9882 or rthomas@seattletimes.com