Business Pulse magazine November | December 2021 by Business Pulse magazine

NOVEMBER / DECEMBER 2021

Ready for takeoff! The arrival of Southwest Airlines at BLI lifts Whatcom County economy

PLUS: Tidal Vision’s innovative ideas bring environmentally friendly changes to industries around the world Supply chain woes take toll on Whatcom County Ferndale’s 360 Modular Systems growing one wall at a time

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We Can’t Give You a Hug So How About a Mug

Your local business news brought to you by WHATCOM BUSINESS ALLIANCE

VOL. 46 | NO. 6 PUBLISHER Whatcom Business Alliance EDITOR Matthew Anderson CONTRIBUTING Cheryl Stritzel McCarthy WRITERS Dustin McKissen Tony Moceri Mary Louise Van Dyke Lorraine Wilde GUEST COLUMNISTS Jeffrey Fairchild Mark Harmsworth Troy Hawes Pam Lewison Patti Goethals Rowlson Laurie Trautman ART DIRECTOR Whitney Pearce PHOTOGRAPHY Sattva Photo EXECUTIVE DIRECTOR Barbara Chase

Stop by Our New Digs, 1415 Iowa St. So We Can Give You a Mug Birchequipment.com • Facebook • Instagram

Cover Photo: iStockphoto.com/chanceb737

WBA BOARD OF DIRECTORS: BOARD CHAIR: John Huntley, President/CEO, Mills Electric Inc. EXECUTIVE COMMITTEE: Pam Brady, Director NW Gov’t & Public Affairs, BP Cherry Point; John Huntley, President/CEO, Mills Electric Inc.; Doug Thomas, President/CEO, Bellingham Cold Storage; Josh Turrell, Partner, Larson Gross PLLC; Josh Wright, VP/Broker, Bell-Anderson Insurance BOARD OF DIRECTORS: Tyler Byrd, CEO, Red Rokk Interactive; Jane Carten, President, Saturna Capital; Andy Enfield, Vice President, Enfield Farms; Bryant Engebretson, Managing Principal, Tradewinds Capital; Jon Ensch, Commercial Banking Officer, Peoples Bank; Mitch Faber, Partner, Adelstein Sharpe & Serka; Sandy Keathley, Former Owner, K & K Industries; Tony Larson, President, Barlean’s; Laura McKinney, NW Gov’t Affairs & Public Relations, Alcoa-Intalco Works; Nicole Newton, Semiahmoo Resort/Golf/Spa; Becky Raney, Former Owner, Print & Copy Factory; Sarah Rothenbuhler, Owner/CEO, Birch Equipment; Patti Rowlson, Founder/ Marketing Director, Bellingham PR & Communications; Patrick Schuppert, Commercial Banking Relationship Manager, Wells Fargo; Galen Smith, Operations Manager/Owner, Coldstream Farms; Carryn Vande Griend, Government Affairs Representative, PSE; Billy VanZanten, CEO, Western Refinery Services For editorial comments and suggestions, write info@whatcombusinessalliance.com. The magazine is published bimonthly at 3111 Newmarket St., Ste. 106, Bellingham WA 98226. (360) 746.0418. Yearly subscription rate is $25 (US). For digital subscription, visit businesspulse.com. Entire contents copyrighted ©2021 Business Pulse. All rights reserved. POSTMASTER: Send address changes to Business Pulse, 3111 Newmarket St. Ste. 106, Bellingham WA 98226

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IN THIS ISSUE 10 SOUTHWEST AIRLINES IS HERE The “Southwest Effect” will boost airport traffic for all carriers as well as the local economy.

14 SUPPLY CHAIN WOES TAKE TOLL ON WHATCOM COUNTY

Unlike the shortages in March 2020, America is running out of more than toilet paper and food.

18 THE TIDAL VISION REVOLUTION Creating positive systemic environmental change brings exciting new ideas to industries such as water treatment, textile, food preservation and agriculture sectors.

22 BY THE NUMBERS

Top 5 employing sectors in Washington state.

23 360 MODULAR SYSTEMS

Local Ferndale company is changing the way building is done.

27 CELEBRATING 100 YEARS

Peoples Bank continues long-time legacy of service to the community.

31 VACCINE MANDATES

Whether or not your business should, is based on the public policy choices of federal, state and local governments.

COLUMNS 35 Planning on business

Look for additional content online at businesspulse.com

growth means setting aside marketing dollars

39 The border is open, but the closure will affect our county for years to come

43 Information security has to be addressed in the entire organization

BUSINESSPULSE.COM | NOV/DEC 2021

46 Sales tax reform is

needed to help create jobs and spur economic growth

53 Radical ballot proposals in Western states would criminalize meat production

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NOV/DEC 2021 | BUSINESSPULSE.COM

BP UP FRONT

Despite all the challenges facing our community and the country, there are reasons for optimism This issue of Business Pulse is the last edition of 2021. It is almost unbelievable to say that. Wasn’t it just yesterday that we were celebrating the end of 2020? Though it has been different, this year has proven no less challenging than the last one. Labor shortages, supply chain issues, political strife and various public health mandates continue to challenge Whatcom County’s business community. Fortunately, there is every reason to believe 2022 will be an improvement. As of this writing, COVID-19 cases continue to decline locally and nationally. Though inflation and supply chain concerns are very real, both have resulted at least in part from an economy experiencing extraordinary demand across multiple industries. That is certainly an improvement from 2020. Despite all the challenges facing our community and the country, there are reasons for optimism. Some of those reasons are featured in this edition of Business Pulse. In this month’s issue, regular columnist Cheryl Stritzel McCarthy highlights the entrance of Southwest Airlines to Bellingham Airport — including the $160 million in new economic activity that is expected to flow

BUSINESSPULSE.COM | NOV/DEC 2021

A robust private

woes take toll on Whatcom County” on Page 14. Attorney Jeffrey Fairchild also helps employers better understand one of their most significant challenges with his piece “Should your business mandate COVID-19 vaccines?” on Page 31. You will love this issue, but I want to close this month’s publisher note with a genuine thank you to the readers, supporters and advertisers who make this magazine possible. The past two into the region during the airline’s first years have included significant chalyear of local operation. You won’t want lenges. The print publication business to miss “Southwest flights to pump is challenging enough without a panup economy” starting on Page 10. The demic and economic shutdowns. Forgood news isn’t just about big compa- tunately, we made it through. The supnies. Local innovators are continuing port of everyone who makes this issue to affect the Whatcom County econ- possible has been overwhelming, and omy. On Page 18, Lorraine Wilde the result is a local business magazine profiles biotechnology company Tidal that could stand toe-to-toe with any Vision in her piece “Revolutionizing national publication. Our success deindustry, protecting environment.” pends on a business environment that Don’t be surprised to hear a lot more prioritizes service and community. about Tidal Vision in the coming As of the time of this writing, the years. This issue also delivers practical fate of a series of ballot initiatives facmarketing advice, with expert marketing voters in the City of Bellingham is er Patti Goethals Rowlson answering unknown. Many of the proposed regher question “How much should you ulations on business are so drastic that spend on marketing in 2022?” starting even members of the ultra-progreson Page 35. sive Bellingham City Council oppose Of course, we can’t leave the world them. Even if passed, several specific behind. Dustin McKissen addresses provisions within the initiatives could one challenge local businesses and face daunting legal challenges. families face in his piece “Supply chain But specific initiatives come and go.

sector makes every major issue facing Whatcom

County better.

The far more troubling aspect of these proposals is that they make all private business an enemy. The assumption that the private sector exists solely to exploit workers has clearly taken hold of significant parts of Whatcom County’s political culture. Even worse, these initiatives seem to have been written under the presumption of guilt. It is the completely wrong approach. A robust private sector makes every major issue facing Whatcom County better. For example, housing prices in the county continue to skyrocket. Good-paying jobs are essential to any successful affordable housing strategy. Companies like Tidal Vision need the freedom to innovate — which requires being profitable — if we ever hope to heal and sustain our environment. Business needs to be seen and treated as a valued partner, not the boogeyman. Regardless of whether these initiatives pass, our community has to change the way it views business. The genuine tragedy is that, for the most part, these initiatives will harm tiny local companies that are integral to our prosperity and success. In Whatcom County, we are fortunate to have business leaders who prioritize the community and contribute to its long-term success. Not every county has that. On behalf of this publication, we are lucky to have you.

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NOV/DEC 2021 | BUSINESSPULSE.COM

BP NEWSMAKERS

Lydia Ahn

Jessica Waggoner

VSH CPAs and ATBA come together VSH CPAs and Ahn Tax & Business Advisors are joining forces, the two firms announced recently. Lydia Ahn’s success with ATBA, which she started in 2015, was a big reason for the combination, according to Jessica Waggoner, who became VSH’s CEO in January 2021. “Lydia really knows Northwest Washington,” said Waggoner. “She’s a leader, she’s built trusted relationships with her clients and, as we watched her practice grow, we knew we wanted her to grow with VSH.” The merger is also something of a homecoming for Ahn, who earlier spent 10 years at VSH. “There’s something special happening at VSH, something I wanted to be part of,” said Ahn, who will become a partner at VSH. “They’re making investments in talent and innovation, and they’re committed to their clients’ success. Combining our practices provides greater resources for clients and opportunities for our team members.” Founded in 1997, VSH is a full-service business advisory firm that offers an extensive array of tax, accounting and consulting services to a dynamic network of cross-border business enterprises and U.S.-based owner-operators and entrepreneurs. According to VSH, companies are increasingly looking for firms like theirs with a broader portfolio of services and resources, especially as business regulations and tax policies continue to change.

BUSINESSPULSE.COM | NOV/DEC 2021

Troy Muljat

Krista Jones

Ahn specializes in partnerships, real estate and development, professional services, cross-border business, foreign asset holdings and taxation of U.S. persons living abroad. At VSH, she’ll focus on strengthening the firm’s already robust international and cross-border technical capabilities, helping businesses manage their tax liability and exploring opportunities in stewardship of their cross-border investments, assets and operations. “Lydia is exactly what business leaders want in an adviser,” Waggoner said. “We couldn’t be happier to welcome her and her clients to the VSH community.” Go to: www.vshcpa.com

bp invests almost $300 million for projects and improvements bp has announced a $269 million investment in three projects aimed at improving the refinery’s efficiency, reducing its carbon dioxide emissions and increasing its renewable diesel production capability. These projects are expected to create more than 300 local jobs over the next three years. This includes more than 200 construction jobs, 25 engineering jobs and approximately 40 support roles. bp currently supports more than 36,600 jobs in Washington. The three projects are: Hydrocracker improvement: a $169 million investment that will improve efficiency and reduce periods

Kurt Kvamme

Ryan A. Martin

of planned maintenance, resulting in fewer unit shutdowns and associated flaring events. Cooling water infrastructure: a $55 million investment that will enhance cooling water infrastructure, allowing for increased utilization, better energy efficiency, and a related reduction in carbon dioxide emissions. Renewable diesel optimization: a $45 million investment that will more than double the refinery’s renewable diesel production capability. The investment is aligned with bp’s aims to be net zero across its operations by 2050 or sooner and to reduce the carbon intensity of the products it sells by 50% by 2050 or sooner. The hydrocracker improvement and cooling water infrastructure projects are together estimated to reduce carbon dioxide emissions from operations at Cherry Point by 160,000 tons per year, or 7%.The increased production capability from the renewable diesel optimization project is expected to reduce the carbon dioxide emissions resulting from the diesel produced by Cherry Point by approximately 400,000 to 600,000 tons per year.

Whatcom County homes selling quickly in Q3 New listings of homes for sale are being gobbled up in Whatcom County like snow melt before a nor’easter, according to a local real estate report. The average Whatcom County listing took only 21 days to sell in the

third quarter of 2021, according to Troy Muljat, owner and president of Bellingham-based Muljat Group Realtors. Muljat prepared a report based on data from the Northwest Washington Multiple Listing Service. The average number of days on the market for a home plunged 43.3% from a year ago and was almost a week quicker than the 27 days to sell in this year’s second quarter. The county’s shortest times on the market in the third quarter were in Sudden Valley (9 days), Nooksack Valley (12), Bellingham (13), Lynden (14) and Ferndale (15). Many homes are selling within a week of being on the market, Muljat said. Muljat said buyers not only are acting quickly but often are submitting bids above the listing price. The average sale in Bellingham was 5% above the listing price. The median sales price for a Whatcom County home in the third quarter was $556,000, up 23.6% from a year ago. Bellingham continues to lead the way with a median sales price of $645,000, up 17.3%. The highest percentage jumps in median sales prices were found in Lynden (31.8%) and Sudden Valley (31.5%). A major reason for the higher prices and short times on the market continues to be low inventory, Muljat said, which also is affecting the number of sales. The number of homes sold in the third quarter fell 3.1% countywide and 6.2% in Bellingham.

Peoples Bank announces new hires Krista Jones joined Peoples Bank as vice president and mortgage loan center manager serving Whatcom County-area customers at the Bellingham Real Estate Loan Center. Krista has more than two decades of experience in the financial services and

mortgage industries. “It is my privilege to help customers set a roadmap to achieve their dreams and goals of homeownership,” Jones said. “If a customer is not ready to buy a home today, we can work together to determine what it will take to make it a reality for them in the future.” Krista is committed to serving the community and has a passion for supporting veterans’ groups. She serves on an advisory group for regional U.S. Navy gold star families and volunteers for Veterans of Foreign Wars and other veteran organizations in Whatcom County. Kurt Kvamme joined Peoples Bank as a mortgage loan representative. With over a decade of experience in the financial services industry, Kurt will serve customers at the Lynden Financial Center. “I enjoy making the home buying and refinance process as effortless for the customer as possible,” Kvamme said. “I strive to build relationships that extend past the lending experience.” Born and raised in Whatcom County, Kurt graduated from Lynden Christian High School and earned a bachelor’s degree from Western Washington University. Go to: peoplesbank-wa.com

Market for commercial space stable in Q3 despite COVID-19 Demand for Bellingham commercial real estate remained stable across all sectors in the third quarter of 2021 despite a surge in COVID-19 cases, according to a report prepared by Ryan A. Martin, co-owner and broker at Pacific Continental Realty in Bellingham. The most surprising sector in Bellingham is retail, where the vacancy rate for 8.3 million square feet dropped slightly to 3.7% in the third quarter, compared to 3.9% the previous quarter, Martin said. The average

asking rate for retail space is $18.81 per square foot, up from $18.50 in the second quarter. Bellis Fair mall has suffered most from the closure of the U.S. land border with Canada to non-essential travel since March 2020. “Moving into the holiday season, we expect to see increases in retail occupancy as seasonal holiday stores begin to open their doors,” Martin said. Martin was a volunteer analyst for several years for the Whatcom Real Estate Research Report, which was discontinued in 2015. He compiled Bellingham commercial real estate data for a Pacific Continental Realty report on market conditions as of Sept. 30, the end of the third quarter. With many professional and information technology people still working from home due to COVID-19, the vacancy rate for Bellingham office space rose slightly, from 3.8% to 4.1%, in the third quarter, out of 4.4 million square feet. The primary factor in this sector was Bellingham Technical College leaving an 11,000-square-foot space on Railroad Avenue, Martin said. The average asking rate for office space ticked up from $19.48 per square foot in the second quarter to $19.60 in the second quarter. The vacancy rate for Bellingham industrial space declined for the third consecutive quarter, falling slightly to only 73,494 square feet, or 0.9% of the total in the city. The average asking rate dropped 4 cents to $0.69 per square foot. Martin said a small bright spot for businesses seeking industrial space is the recent vacancy of the former Mt. Baker Roofing building near the intersection of West Bakerview Road and Northwest Avenue. “Limited movement in Bellingham’s office and industrial market are expected through the end of 2021,” Martin said.

NOV/DEC 2021 | BUSINESSPULSE.COM

Southwest flights to lift up economy “Southwest Effect” launches in Whatcom County Cheryl Stritzel McCarthy

Above: Southwest Airlines’ entry into new markets has been known to stimulate sales for all airlines in that market. (photo courtesy of Southwest) Below: Bellingham International Airport (courtesy photo)

FEATURE BP

hoosh! Hear that? It’s describe the boost in air travel that western Mexico, and Hawaii. the sound of a new results from Southwest’s entry into “Las Vegas and Oakland each have airline’s flights taking new markets. The Southwest Effect 175 to 250 Southwest departures per off from Bellingham International is documented to have three parts: It day, depending on season,” Hawkins Airport, but it’s also the sound of ox- increases supply and lowers prices; it said. ygen being pumped into our region’s prompts incumbent airlines to lower Southwest offers nonstop flights to economy. their fares; and it stimulates sales for 35 destinations from Oakland and 66 Southwest Airlines’ new schedule of all airlines in that market. from Las Vegas. two daily flights from BLI to Oakland Unlike existing airlines at BLI that What about Canadians, eh? and one daily flight to Las Vegas is exserve Las Vegas and Oakland, SouthSouthwest’s business plan for BLI west intends service from BLI to be pected to generate $160 million in additional economic activity over its first full year (assuming “Following the reopening of the border reopening), Canadian border, we expect a return said Sunil Harman, of the value-minded travelers who director of aviation at BLI. That’s on already drive to this alternative airport top of the $471.4 to escape high fares and taxes.” million in total eco— Gary Kelly, Southwest Airlines CEO nomic value BLI generated for this region in 2019. “Conservatively, if Southwest Air- confirms the flight schedule through daily year-round, offering BLI cuslines were to add one additional flight April 24, 2022, with border uncertain- tomers a predictable service. each year, by 2025 the economic im- ty factored in. Brad Hawkins, SouthHarman cited Southwest’s 50-year pact will nearly double to close to a west’s spokesperson for this region, history of entering new markets, saysaid, “We’re coming to Bellingham ing Southwest will withstand a lonbillion dollars,” Harman said. But wait, there’s more: It’s likely that with an anticipation of the border re- ger-than-expected border closure by BLI will have one and possibly two opening but not with our hats hung serving new passengers on the U.S. new airlines starting service at BLI in solely on that tent pole.” side of the border. According to fedHawkins said the airline sees a local eral figures for 2018 and 2019, Souththe next two to three years, Harman appeal for Southwest. Initial service west carried the most passengers dosaid. “Additionally, airlines that currently to Oakland and Las Vegas will attract mestically of any U.S. airline. serve BLI will likely step up opera- Bellingham’s families, business folks, Southwest highlighted BLI’s proxacademics and tourists, with both tions, as they have in other markets,” imity to the metro Vancouver market destination cities giving Bellingham- of 2.6 million people when the comhe said. That’s called the “Southwest Ef- sters connections to Southwest’s full pany announced its entry into BLI fect.” The U.S. Department of Trans- network, including a dozen airports earlier this year, with CEO Gary Kelly portation coined the term in 1993 to in California, international travel to mentioning the airline’s appeal to cus-

“

NOV/DEC 2021 | BUSINESSPULSE.COM

“

Conservatively, if Southwest Airlines were to add one additional flight each year, by 2025 the economic impact will nearly double to close to a billion dollars.” — Sunil Harman, director of aviation at BLI

tomers in Canada. “Following the reopening of the Canadian border, we expect a return of the value-minded travelers who already drive to this alternative airport to escape high fares and taxes — and that’s very, very typical for Southwest destinations,” Kelly said at that time. BLI, like other northern border airports, got whacked in the knees by the extended border closure. BLI enplaned only 90,364 passengers this year through August, a 62% drop from the number recorded in August 2019. Harman credited federal support and economic assistance grants in helping BLI respond to the pandemic. Before the border closure, 65% of BLI’s customers came from Canada. BLI’s peak year was 2013, with 603,067 passenger enplanements, Harman said. What’s ahead? “If you’ll forgive the cliché,” Hawkins said, “if you fly us, we will come. We begin with a modest investment and look to see where and how customers are flying us into Bellingham, and, also, how you all are flying us from Bellingham.” When Southwest sees opportunity, he added, “we will add service to address the marketplace.” Southwest employees will be in BLI from day one, Hawkins said. “Our labor agreements have us first

BUSINESSPULSE.COM | NOV/DEC 2021

soliciting transfers, and then working through any hiring needs.” Positions open for employment are listed at https://careers.southwestair.com. Harman, in Bellingham, said he expects mostly transferred employees, with some local hiring. An anticipated remodel within the Bellingham airport, including manager’s office, ticket counters, and lockers for about 30 new employees, suggests expected future growth for Southwest at BLI. And behind ... Throughout the pandemic, with air travel knocked down, “a ‘new normal’ left us significantly overstaffed, with a surplus of aircraft,” Hawkins said. “So, we played offense, and with Bellingham (and Syracuse, New York, opening the following weekend) we will have added 21 cities to our route map since the start of 2020. These are places where the classic Southwest Effect stands to make the most difference. In (BLI’s) case, we’re aware of many people who’d prefer to fly from your area or Vancouver without having to get down I-5 to SeaTac.” In 2019, Southwest had 101 destinations in the U.S. and abroad. In 2020, the company added six more destinations, and through November 2021, the company will have added service to 14 more destinations, including to Bellingham on Nov. 7.

How does that happen during a pandemic? “We proudly maintained service at every U.S. airport we served in 2019, to ensure that the communities that have invested in us feel the same,” Hawkins said. “The pandemic presented an opportunity for us to ‘go down the list’ of places that have been in our plans, places where Southwest would arrive when our fleet grew to a size that would afford us the aircraft time to bring service,” Hawkins said. For example, during the pandemic, operating fewer departures per day between Los Angeles and Las Vegas, or Houston and Dallas, served the current market and freed up aircraft for new markets. What about capacity? Back in Bellingham, Harman said BLI is well prepared with airfield, terminal, roadways and parking to accommodate demand over the next 20 years — including 2 million annual enplanements, or 3% of the forecast regional demand of SeaTac and Vancouver airports’ catchment areas. “With the response I expect Southwest will receive from travelers in our region, the airline will drive economic growth at a much faster rate,” Harman said.

Concerted effort The team of Port of Bellingham commissioners Ken Bell, Bobby Briscoe and Michael Shepard and the Port’s executive director, Rob Fix, recognized a need to match other airports with incentives for current and new carriers in exchange for daily service, Harman said. BLI had already caught Southwest’s attention as the low-cost alternative to Vancouver and one of the lowest-cost-per-enplanement airports in the country, along with the nearly 1 million potential U.S. passengers in

SAVE THE DATE!

the area surrounding Bellingham. “Southwest had done a considerable amount of research and analysis of their own, and their team was pleasantly surprised when the revenue per passenger from BLI presented by the Port validated their analysis,” Harman said. Enriched incentives further improved their estimates, and on March 8, 2021, Southwest announced its intent to serve Bellingham.

Taking off soon Harman calls the economic and social benefit of Southwest coming to BLI tremendous, saying earlier that the boost was “akin to igniting the afterburner of a jet engine.” Local travelers are less metaphorical but equally pleased, with one regular traveler citing low fares, free checked bags, no change fees, loyalty program and credit card but emphasizing the big advantage of Southwest’s network in saving travelers money and time. ■

ECONOMIC FORECAST BREAKFAST Thursday, December 2 | 7:30-9:30am

Tickets available at whatcombusinessalliance.com/events

It Takes A Team

Over the past thirty-seven years, from their offices in Bellingham the lawyers of Chmelik Sitkin & Davis have quietly built a reputation for responsiveness, professionalism, and quality service for business and government clients throughout Washington. The firm looks back with great pride at the team of skilled lawyers that decided to call Bellingham home and the technological innovations it embraced that support a statewide practice. The firm looks forward with confidence as we transition to the next generation of principal attorneys and we continue to

add talented lawyers to meet the needs of our clients now and into the future. Recognizing that we thrive as a team, we congratulate two of our principals, Jon Sitkin and Frank Chmelik, who have been selected to the 2021 Washington Super Lawyers list and note that Frank has been selected every year since the list started, while Jon has been selected for the past fourteen years. Only five percent of all lawyers in Washington are selected to this prestigious list.

1500 Railroad Avenue, Bellingham, WA 98225

Phone: 360 671-1796

Fax: 360 671-3781

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NOV/DEC 2021 | BUSINESSPULSE.COM

BP FEATURE

Supply chain woes take toll on Whatcom County Dustin McKissen

rom labor to lumber, Whatcom County employers — like businesses across the nation — seem to be suffering from a shortage of just about everything. Increasingly, retail locations are posting signs warning customers about

BUSINESSPULSE.COM | NOV/DEC 2021

ongoing product shortages, and digital businesses are warning consumers that delivery could take far longer than expected. Unlike the shortages in March 2020, these latest ones aren’t reserved for staples like toilet paper or canned

food. Right now, America is running out of nearly everything — and the global supply chain snarl has the potential to have a disproportionate impact on highly trade dependent states and communities, like Washington and Whatcom County.

From labor to lumber, Whatcom County employers — like businesses across the nation — seem to be suffering from a shortage of just about everything. PHOTO: iStockphoto. com/primeimages

How did we get here? The pandemic is playing a huge role. The coronavirus and its variants have closed ports and factories across East Asia. The United States government has flooded consumers with multiple rounds of relief money and ongoing low interest rates, causing demand for large electronics and cars to bounce back far faster than most economists predicted. The combination of overheated demand and drastically reduced capacity is a huge contributor

to the shortages experienced in Whatcom County. “The issues happening right now are driven by what’s happening at the ports,” said Lex Ludtke, owner and partner of Ludtke Pacific Trucking Inc. in Bellingham. “Right now, there are lines and lines of ships miles deep waiting to be unloaded at major ports in the Pacific Northwest. The same is true for the rest of the country.” While the issues at the ports are playing a significant role in the shortages, breakdowns are also occurring in warehousing, container transportation, railroads, labor, and other significant components of the modern supply chain. It isn’t just fast food and retailers that are struggling to fill open vacancies. The same is true of just about every industry that touches the physical goods Americans and American businesses need. The result is an uneven and strange economic recovery that, more than anything else, is very fragile — at a time when fragility is especially worrisome. One long-term solution? Reshoring as much manufacturing capacity as possible back to the United States. Over the past several decades, American reliance on foreign supply chains has meant that much of what America consumes is manufactured in China and other developing nations. In the United States, imports have increased by 427 percent since 2001, when China was admitted to the World Trade Organization. The pandemic has showed the interconnectedness of our global economy. While globalization clearly has its benefits, supply chain leaders argue that we need to reinvigorate American

manufacturing as quickly as possible. However, despite recent increases in foreign labor costs, it remains cheaper to produce a significant percentage of the goods we use offshore. Technology and innovation can change that. Manufacturing experts believe that gains in productivity and efficiency could minimize the cost advantages associated with globalized supply chains. “New technology can help domestic manufacturers improve productivity and make American supply chains far more viable against their foreign competition,” said Duane Clement, founder and CEO of manufacturing technology company Data Inventions in Erie, Pennsylvania. “While this isn’t a short-term solution to our current challenges, pandemics and disruptive events happen. Our policymakers need to invest in improving American manufacturing capacity. That has to happen at a local, state and federal level through public policy that encourages investment in American manufacturing communities.” Manufacturing experts also note that the benefits of reshoring go far beyond just the economy. “Manufacturing in America is about more than just good jobs,” said Troy Nix, executive director of the Manufacturers Association for Plastics Processors, a national trade association serving small and mid-size plastics manufacturers. “By manufacturing critical items domestically, we position our country and our people to better handle the unexpected. Reshoring isn’t a criticism of any foreign nation or its people. It is simply a matter of improving our economic and physical safety.”

NOV/DEC 2021 | BUSINESSPULSE.COM

Reshoring isn’t a new concept. The term has been used for a decade or more to discuss the benefits that would come from making more of the things we consume right here in America. Along with having shelves stocked with enough food and supplies to accommodate basic demand — something most consumers took for granted prior to 2020 — manufacturing provides good jobs and community stability. Manufacturing can still be a path to a good income and a middle-class lifestyle for workers who did not earn a four-year degree. Most economists widely agree that manufacturing drove much of American middle-class upward mobility in the latter half of the twentieth century. Like the jobs created in the Cherry Point industrial zone, many of the roles on a manufacturing shop floor pay the type of wages that make living in a community like Whatcom County possible. “While the supply chain problems are not impacting the Port of Bellingham, we certainly recognize the impact this has on Whatcom County,” said Don Goldberg, director of economic development at the Port of Bellingham and Whatcom County. “Across the board, breakdowns in the supply chain are occurring as demand for goods heats up, which just makes the problem worse. From ports to ground transportation, nearly every facet of the supply chain has been impacted by the events of the last two years. Resolving this issue should be one of our highest priorities.” In the meantime, miles and miles of container ships are floating outside of major West Coast ports, waiting

BUSINESSPULSE.COM | NOV/DEC 2021

“Supply chains are a boring thing to talk about — until they aren’t.” - Lex Ludtke Ludtke Pacific Trucking Inc. to unload their goods. Plants in Asia and elsewhere remain closed, partially closed, or running well below their typical production capacity. For some businesses, the solution has required lowering prices and giving consumers or clients an experience or a product more in line with the money they spend and the wait they may endure. Customers are paying less for less. In other businesses, supply chain bottlenecks have required manufacturers to pay as much as 10 times the normal amount for container space. Those increased costs will be passed on to consumers in some form. Price increases fueled by a massive increase of the government’s role in the private sector have led to concerns about a return of aggressive inflation that could to lead to an economy that looks a lot like the late 1970s. “The pressure on ports due to a lack of labor is only going to make inflation worse,” said Ken Bell, District 2 commissioner at the Port of Bellingham. “For example, the shortage of truckers is a mystery. There are high-paying jobs out there. We don’t know why they aren’t being filled, but the upshot is that supply chain troubles are going to contribute to higher prices that hurt working families.” Housing prices — in Whatcom County and elsewhere — have experienced record-breaking increases

during the pandemic. An increase in the cost of raw goods has helped fuel housing price increases that have exceeded pre-Great Recession heights. Increases in lumber costs resulting from bottlenecks and trade policies that caused the price of lumber to increase by 200% from May 2020 to May 2021, leaving a growing number of potential buyers locked out of the market. America’s supply chain is a mess. The reasons are as complex and varied as the global supply chain. Families in Whatcom County already confronting pandemic-fueled economic challenges cannot weather double-digit-percentage price increases on basic goods. “Supply chains are a boring thing to talk about — until they aren’t,” said Ludtke. “If we don’t get these ports and the rest of the supply chain straightened out, people in Whatcom County are really going to suffer. The past two years have been challenging enough. People need to know why these shortages are happening, and we need to have a real dialogue with public officials on how we can fix this, before it causes another downturn.” For the past three decades, an increasingly global supply chain has delivered cheap consumer goods and other advantages to an American economy that rapidly transitioned from depending on building things to depending on consuming things. If these challenges spur a rebirth of American manufacturing, those long lines of ships may end up being worth the trouble. In the meantime, we still need to make sure we head into the winter with fully stocked shelves and confident consumers. ■

NOV/DEC 2021 | BUSINESSPULSE.COM

BP FEATURE

Revolutionizing industry, protecting environment Tidal Vision develops better method for chitosan production Lorraine Wilde

nnovative Whatcom County-based businesses are changing and improving industries across the country and around the world, without us ever knowing they are here. Tidal Vision is one fantastic example. With hard work and outside-thebox thinking, Tidal Vision has developed a more environmentally friendly method of creating a simple, low-cost product, chitosan. This new biopolymer is revolutionizing industries such as the water treatment, textile, food preservation and agriculture sectors across the U.S., all while making those processes better for people and the planet. Tidal Vision’s mission is to create positive systemic environmental change by making chitosan lower cost, more convenient, and better performing than synthetic chemicals.

BUSINESSPULSE.COM | NOV/DEC 2021

“The markets for chitosan are huge,” explains Tidal Vision co-founder and CEO, Craig Kasberg. “We have a lowcost input and extraction process that we are able to do on an industrial scale. Most of the chemicals we’re displacing are expensive heavy metals that need to be mined and refined or are sometimes derived from petroleum that has to be drilled, refined and shipped. Our formulas make it convenient for these industries to switch without added cost or development. Adoptions are growing rapidly.”

the second most abundant biopolymer in the world, after cellulose, the building block of plants. To truly appreciate how useful chistosan is, you might need to remember some high school biology and chemistry. The magic of chitosan is that the overall charge of the molecule is positive, making it a cation, or positively charged ion. “It’s the only natural material with a positive or cationic charge, so it can displace a lot of synthetic and often toxic chemicals in a lot of different industries,” Kasberg said. What is chitosan? Common cationic solutions used Chitosan, pronounced “kite-o-san,” in industry today include many heavy is a close relative of chitin, the com- metals — cadmium, copper, iron, lead, plex sugar and biopolymer that gives silver and zinc — that are toxic to hustrength to the cell walls of fungi mans and our oceans. and arthropods (including insect and “The challenge was how to extract it, shellfish exoskeletons or shells). It’s purify it and then convert that into a

BACKGROUND PHOTO: iStockphoto. com/Anna Rodionova

Tidal Vision co-founder Craig Kasberg and chemists Emma Good and Daniel Jackson.

thought there had to be a better way.” The seafood industry annually generates about 106 tons of waste, including a high percentage of chitin. But there are financial and environmental costs associated with its disposal. Tidal Vision’s other co-founder, CSO Zach Wilkinson, also worked in Alaska. “Zach was doing economic and technology development work, some of which overlapped with the seafood industry,” Kasberg said. Together, their skill sets meshed well for developing a greener extraction method to make chitosan affordably. “Zach and I started Tidal Vision in Juneau, Alaska, in 2015,” Kasberg said. “We spent a year with a Ph.D. chemist developing this unique chitosan exA foundation in the fishing traction process.” industry and culture In 2016, Tidal Vision relocated to Kasberg grew up working on com- its first warehouse in Kent, where Kasmercial fishing boats in Alaska, part of berg and Wilkinson built a pilot plant a crew at age 14. for this extraction process. Then came “When I was 19, I got a loan from Bellingham. the State of Alaska and began captain“Four years ago this month, we reloing my own commercial salmon fish- cated to Whatcom County, and we’ve ing vessel in the summers while going been headquartered here ever since,” to college,” Kasberg said. Kasberg said. “It just made sense to be “I got really passionate about find- here. It’s more affordable than King ing a purpose for all these byproducts County. There is room to expand in generated from the seafood industry,” commercial real estate development, Kasberg added. “There is still so much and it’s a great hub for the seafood indiscarded in the fishing industry. I just dustry, where our raw materials come finished liquid chitosan solution, because chitosan is not water soluble,” Kasberg said. “That’s where we’ve invested years of biochemistry development work.” The proprietary process is environmentally friendly. “It’s a zero-waste process,” Kasberg said. “We’re fully utilizing this raw material. After the chitosan is extracted from the biomass, the 80% of the crab, shrimp, lobster, crustacean shells that is not chitosan, we sell as a fertilizer. It’s this miracle biopolymer that occurs naturally in nature, and all we’ve done is figure out an environmentally friendly, low-cost way of extracting it, and, through another process, turning it into a finished product.”

PHOTOS: Sattva Photo

from.” After years of development, it was around 2018 that Tidal Vision was able to scale its extraction method and sell chitosan to various industries as a product. Now Tidal Vision has more than 84,000 square feet of production and warehouse space in two facilities in Bellingham, on Irongate Road and Valencia Street. “Our goal from the beginning, Zach and I, has always been to reduce waste to encourage sustainable fisheries by developing and commercializing technologies that turn waste into value,” Kasberg said. That effort has the potential to protect the livelihood of fishermen long-term. “Fishermen harvest live crab and bring them to very few locations for processing,” Kasberg said. “These shells are 40% calcium carbonate, which is basically limestone, so they are very slow to naturally biodegrade. Seafood processors are no longer allowed to dump the waste shells in the ocean anymore, so they were hauled to landfills or incinerated. We’re giving the seafood industry a useful use and income for what was traditionally waste biomass.” Tidal Vision is able to use waste from a variety of sources as an input

NOV/DEC 2021 | BUSINESSPULSE.COM

Tidal Vision chemists Emma Good, Daniel Jackson and Cyrus Anderson.

are discharging into the environment. So this has application on construction stormwater sites, for example. For wastewater, everything from power plants to manufacturers of almost any product generates wastewater that needs to be treated.” This alone represents hundreds of thousands of potential users across the U.S. “What’s really profound is the application rate,” Kasberg said. “What we’re displacing — non-biodegradable, aluNational and global minum-based coagulants, metal-based applications coagulants — what we’ve found is that This environmentally forward- we’re able to treat the same water with thinking, cationic solution seems to about a 1% chitosan solution that have almost limitless potential use in would typically require a 40% to 50% industrial processes across the U.S., an aluminum-based metal coagulant and eventually around the globe. solution. For perspective, about one “Our customers have not had a gallon of a 1% chitosan solution will, non-toxic, biodegradable alternative on average, treat about 10,000 galfor their processes before chitosan,” lons of wastewater. Here in Whatcom Kasberg said. “All of these indus- County, we can make up to 54 metric tries are under regulatory scrutiny to tons per day of liquid chitosan soluchange. Chitosan is a 100% biodegrad- tions, which can treat about 150 milable, biocompatible tool for them.” lion gallons of water, and that chitosan “In water treatment, the cationic displaces an incredible amount of alucharge of chitosan binds to a lot of pol- minum-based coagulant.” lutants in stormwater or wastewater, In textiles, chitosan has at least three so they can be filtered and removed,” uses. Kasberg explained. “The Department “One is as an anti-microbial and of Ecology here in Washington almost anti-fungal agent,” Kasberg said. “It requires you to use chitosan now if you doesn’t kill bacteria, it’s benign, but to the process. “We can process raw material from any crustacean shell,” Kasberg said. “We work with seafood processing companies that are supporting sustainable fisheries, that are harvesting with pots, not with bottom trawling gear. From shrimp shells to local Dungeness, to opilio or snow crab and king crab from Alaska, even lobster and other crustaceans from the East Coast.”

BUSINESSPULSE.COM | NOV/DEC 2021

PHOTOS: Sattva Photo

its positive charge sticks to them, and then they can’t replicate. It’s not a sanitizer, like bleach or alcohol, but if you treat a textile with it, then it inhibits the growth of microorganisms. Industries like GM, for example, need everything in their vehicles to be mold- and mildew-resistant without being toxic.” Chitosan is also an effective flame retardant. “Chitosan displaces a lot of halogenated chemicals like iodine, bromine and chlorine, which inhibit flames from spreading. That’s really important on furniture, mattresses and carpets. So we’re displacing a lot of toxic flame retardants with a natural biodegradable product.” A third use of chitosan in textiles is as a natural binder for organic dyes. “Chitosan is replacing heavy metals in the process that binds the dye to the yarn or fabric,” Kasberg said. “That industry is growing like crazy, and we’ve barely scratched the surface.” Tidal Vision recently built a liquid chitosan blending facility in South Carolina that hydrates dry chitosan from Whatcom County into finished formulas that are used by Leigh Fibers, a textile fiber recycler, and distributed to other textile companies in the region.

Those allergic to shellfish need not worry either. “Chitosan is hypoallergenic and doesn’t contain the proteins that elicit that response,” Kasberg said. “We’re testing every batch of all of our products to ensure there are no detectable levels of allergens, to set a high standard for the industry and to reassure our customers.” Chitosan also has a couple of applications in the agriculture industry. “The main value is that chitosan is an elicitor,” Kasberg said. “Remember chitin is in the exoskeleton of insects and the outer cell wall of fungi. When chitosan is sprayed onto a plant, it elicits a response as if the plant is being attacked by a fungus or an insect, and so it stimulates their defense pathways. When plants do that before a fungal outbreak or before an insect infestation, you give them that head start —

about 90% of those are here in Whatcom County,” Kasberg said. “We hope to be closer to 50 by the end of 2022. We’re planning to hire at least two positions a month across the board in sales, marketing communications, finance, QA/QC, and product testing in our laboratory team.” Although the business remains in the U.S. for the moment, Tidal Vision is poised to expand to international markets. “We’ll probably build a liquid blending plant internationally in 2022 or 2023,” Kasberg said. “There are other markets for chitosan that we aren’t pursuing because we’re focusing on the areas where we can make the biggest environmental impact. And not just because that sounds good or makes us feel good. We believe it’s just good business.” ■

it’s almost analogous to giving them a vaccine. So you avoid a big outbreak that then you have to treat with toxic pesticides.” Kasberg reports that more than 400 agriculture companies have reached out to Tidal Vision about potential chitosan applications. “That industry is so desperate for better options,” he said. “All these pesticides, insecticides and fungicides have growing resistance issues. That means they have to use more and more pesticides to get the desired effect. Chitosan has been shown not to contribute to that problem because of its natural mode of action.” The bright, brilliant future of chitosan and Tidal Vision Not surprisingly, Tidal Vision is growing and hiring. “Our team is now around 30, and



NOV/DEC 2021 | BUSINESSPULSE.COM

BY THE NUMBERS TOP 5 EMPLOYING SECTORS IN WASHINGTON STATE [ DURING 2020 ]

16.8%

8.3%

in Government

in Manufacturing

+ 0.3 from 16.5% during 2019 - 0.2 from 17% during 2016

- 0.1 from 8.4% during 2019 - 0.7 from 9% during 2016

11.7%

in Retail Trade + 0.5 from 11.2% during 2019 + 0.4 from 11.3% during 2016

13.1%

in Healthcare + 0.6 from 12.5% during 2019 + 0.7 from 12.4% during 2016

6.8%

in Accommodation & Food Services - 1.6 from 8.4% during 2019 - 1.5 from 8.3% during 2016

Source: Washington State Employment Security Department: Labor Market Report Library - Covered Employment, Quarterly Census of Employment and Wages (QCEW)

BUSINESSPULSE.COM | NOV/DEC 2021

FEATURE BP

“We like being a gainful employer in the community, offering living wages and benefit packages that help the community and the individual employees.” — Robert Walters, production manager

PHOTO: Sattva Photo

Simpler by design 360 Modular Building Systems is changing the way building is done Tony Moceri

umans can’t help but be creative. It’s sewn into the fabric of who we are, leading to innovations that change the way we live. This creativity is allowed to shine even brighter when society has a need that cannot be solved by doing things the way we always have. The building industry is in the midst of such a moment. The demand for new buildings, especially houses, is at an all-time high, and over the last decade, fewer and fewer people have chosen to enter the trades. This scenario has fostered an environment perfect for an innovative company like 360 Modular Building Systems. 360 Modular Building Systems is a new company in Ferndale that is changing the way building is done. With a focus on quality and in a controlled environment, the company can create buildings, large and small, that will be assembled later on-site. The company has systematized how it constructs buildings while leaving enough flexibility for

custom builds. “We work with each client individually,” said Robert Walters, the company’s production manager. “That’s the customer end of our business, making modular construction work for the needs of our clients.” It is this approach that company leaders feel sets 360 Modular Building Systems apart from other companies On the larger side of things, the company is currently working with a hotel chain — with buildings up to five stories — and is working on an animal shelter that will be shipped to Alaska. On the flip side, the company also builds small and can do so in an efficient manner. 360 Modular Building Systems recently constructed 50 tiny shelters for the City of Bellingham to be used as short- and long-term housing for the homeless. In the middle of these extremes lie the single-family and multifamily housing projects the company

NOV/DEC 2021 | BUSINESSPULSE.COM

PHOTOS: Sattva Photo

Modular systems in various building stages in Ferndale warehouse.

is building. It would be easy to confuse modular building with manufactured building. The processes and standards are different, with modular buildings constructed as if being built on-site but with the pieces assembled in a controlled environment. “We are modular, not manufactured, and so there’s a little bit of difference in our methods and our quality control issues,” Walters said. “Speaking from my background as an on-theground framer contractor for so long, the quality we put out is just as good, if not better. Everything’s built in a jig to be held square, straight and true. We’re required as a modular builder to be building at the same specs as you would be on the ground.” The process at 360 Modular Building Systems begins the same way it would with any construction project: with a plan. The company has inhouse designers but is happy to work with outside architects and designers as well. It is best for the company to be involved in the process early on, so that during the design phase, building the home in a modular fashion is taken into consideration. The company can adapt existing designs, but that does create an extra step that can be avoided. 360 Modular Building Systems is a custom builder, so each plan

BUSINESSPULSE.COM | NOV/DEC 2021

is designed specifically for the client’s needs and desired specifications. Construction of most of a building is done in the warehouse, where workers have the benefit of working in a controlled environment. “We have the effectiveness of framing and building on a flat warehouse floor or on our framing tables, so things are ergonomically up at waist level,” Walters said. “Our team shows up in the morning, and their tools are set up and ready to go. There are no slowdowns for weather; we have a nice, big, beautiful roof over the top of everything.” Once the pieces of the building are constructed, they are shipped to the construction site, where they are assembled on top of a traditional foundation with the help of a crane. Having the pieces prefabricated makes for a quick assembly once on site. In most cases, the roof of the structure is built on-site once the rest of the building is put together. The building process and the ability to ship pieces means that 360 Modular Building Systems can build for customers anywhere they can ship to. Currently, the company services the entire West Coast, from Alaska to California. The Ferndale location means the company is centrally located on the coast and close to shipping

ports. The long-term vision is both to have clients out of the area and to build locally. The combination would allow the company to grow and, in turn, support the Whatcom County community. “Our goal is to be a good corporate neighbor for everybody around us; we do as much business as possible and as local as possible, Walters said. “This morning, I was on the phone with several suppliers that are right here in Ferndale and in the Bellingham area.” In addition to sourcing locally, 360 Modular Building Systems does all it can to be as efficient with that material as possible. A system of upcycling within the facility limits the amount of scrap lumber that goes to waste. With the company assembling its own open web trusses for ceiling systems, workers can send many of the cutoffs elsewhere in the plant to be used. Because so much of the construction process happens in one place, the ability to work and use materials efficiently is maximized. The business, which started at the beginning of 2021, already is looking to grow — and at doing so locally. Company leaders have been working with local government, which was integral in them building the homeless shelters. They also have connected with the Lummi Tribe to discuss con-

structing buildings and hiring. Currently, the company has approximately 20 people, with 15 on the floor and five in the office. In the next three to six months, it is looking to bring on another 50 to 60 people. Many of these positions will not need construction experience, and all will have the ability for advancement, if desired. While having construction experience allows people to enter at a more advanced level, the way in which the building is done allows anyone to step in and quickly become a productive member of the team. Unlike at most construction jobs, working for 360 Modular Building Systems means working inside in a controlled environment, protected from wet Pacific Northwest winters. The building system lends itself to automation, but 360 Modular Building Systems is not interested in that, both for the quality aspect and the human factor. “We like being a gainful employer in the community, offering living wages and benefit packages that help the community and the individual employees,” Walters said. “We don’t just want an office with four or five engineers telling the computers on the floor what to do. We think having human hands helps with quality control.” To learn more about what 360 Modular Building Systems is doing, to discuss your next building project, or to learn about employment opportunities, please email info@360-modular.com or call (360) 505-0360. ■

KEEP OUR WORKING LANDS WORKING

Working agricultural and forestry lands in Whatcom County are increasingly being converted to other uses. Help us save working lands and be compensated for the value of your unused development rights.

Contact us today! www.whatcomcounty.us/573 Becky Snijder van Wissenkerke Program Administrator rsnijder@whatcomcounty.us | 360-778-5956

NOV/DEC 2021 | BUSINESSPULSE.COM

Whether you’re planning a corporate retreat, multi-day conference or grand celebration event, Hotel Bellwether offers a variety of premier waterfront lodging and meeting space for 10 to 550 guests. ‘Tis the season…to book your holiday party! We are here to assist in planning your company event for a truly festive, merry and bright celebration. Prime dates still available in November, December and January 2022. Company can’t gather this year? Give your employees a memorable gift of a VIP Experience at Hotel Bellwether with an overnight stay in a luxurious water view guestroom and dining experience at the Lighthouse Grill. Contact our sales office for more info.

Contact our Sales & Catering Department to reserve your event space or schedule a tour! (360) 392-3172 or catering@hotelbellwether.com hotelbellwether.com

SPECIAL FEATURE BP

100 C E L E B R A T I N G

Y E A R S

1 9 2 1 - 2 0 2 1

A bank for the people A century in, Peoples Bank stays true to its roots Mary Louise Van Dyke More than a century ago, on Jan. 7, 1921, Peoples Bank opened its first location — a temporary spot in a Lynden jewelry store. The new venture opened with $40,000 in stocks. Banking ledgers and writing instruments were ready for customer transactions, with P.J. Van Hemert, J.W. Stearns and Albert Kok prepared to answer questions about the new, locally owned bank’s services, according to the consolidated Pacific Pilot and Lynden Sun newspaper. “There was only one bank in town (at the time), and a group of investors thought there should be more,” said Bob Fraser, the senior vice president/commercial market leader for Peoples Bank. “In a way, we’ve shaped the community.” The bank moved into new quarters on Front Street, near 5th Street, in July 1921. An article from the Lynden Tribune described the bank’s interior as “conveying an air of dignity and solidity” fitting for its use as a financial institution. A “burglar-proof ” safe with thick, reinforced concrete walls was described as the first line of protection for the bank’s cash. Staff used check writing machines to notarize checks. But having a permanent location wasn’t enough to guarantee the bank would succeed — let alone celebrate a century of accomplishments. Peoples Bank ran advertisements in the Lynden Tribune

that encouraged residents to open savings accounts and use the bank’s safe deposit box for storing important financial documents. Children were invited to bring a dollar to the bank and open an account. Bank staff handed out free 40-page account books so farmers could better track their finances and expenditures. Numerous banks crashed and closed during the 1930s Great Depression. Peoples Bank persevered, with Irwin LeCocq Sr. buying a controlling interest and taking over as president in 1938. The bank had $40,000 in capital and a surplus of $10,000 at the time, according to a history page on the bank’s website. During Irwin Sr.’s years as president, he developed a philosophy of service that focused on honesty, integrity, respect and commitment, according to the bank’s website. Irwin Sr. would be remembered for his habit of selecting and Irwin LeCocq Sr., president from 1938lighting a cigar before making 1969, was known for important transactions, according his habit of selecting and lighting a cigar to information from the Peoples during important Bank exhibit at the Lynden Pio- business transactions. Photo credit: neer Museum. After preparing his peoplesbank-wa.com

NOV/DEC 2021 | BUSINESSPULSE.COM

The front page Lynden Tribune article detailed the new bank building opening in July 1921, replacing the temporary headquarters in a jewelry store. Photo credit: Newspapers.com

BUSINESSPULSE.COM | NOV/DEC 2021

cigar, he would snuff the match with a officer and chairman of the board. His flourish of his wrist and draw a series wife, MaryLee LeCocq, served on the of puffs while pondering his response bank’s board of directors for 25 years to the client’s request. Yes? No? before her passing in 2018. Paper ledgers and handwritten enThe Skagit County branch opened tries continued as the norm for bank- in 1996 as the first branch outside ing transactions through World War Whatcom County. As did the first II. Irwin LeCocq Jr. enlisted in the Lynden location, the new branch exU.S. Army Air Corps and fought in isted in less-than-optimal quarters — the South Pacific. He joined his fa- this time, a small trailer. ther, Irwin Sr., at Peoples State Bank “It was interesting to think we were in 1952 as the second generation of serving the community out of a conLeCocqs, according to his 2019 obitu- tainer box,” Compton said. ary. He took over as bank president in Peoples Bank has contributed fund1969, and his wife, Frances, joined the ing to organizations in Whatcom board in 1985. County, including a major donation in Peoples Bank continued to prosper. 2008 to the Campaign for the Arts in The bank’s 1956 annual report showed Bellingham’s downtown arts district. $2.4 million in assets, including loans, Ryan LeCocq joined the company bank premises and cash balances. By in 2018 as the fourth generation in 1974, the bank had $18.1 million in the family business. He was promoted total resources and three locations — to vice president of the Commercial two in Lynden and one in Everson. Banking Group in 2020. “We’ve weathered a lot of storms,” “Growing up, banking was the regusaid Mary Compton, the current vice lar topic of dinner table conversation,” president/district branch manager. Ryan LeCocq said. “I was usually lis“When I started with the bank in tening intently, even when they didn’t 1987, we didn’t have computers. Ev- think I was, so it’s not a surprise to erything was done manually.” think I chose a career in finance. I grew Couriers carried bank documents up in the bank, in a way, and it has a to the various sites where they were very familial culture.” needed. His memories include being taken During its first seven decades, the on trips to Dairy Queen by a longbank was known as Peoples State time employee when his mom and dad bank. In 1995, the name was changed (MaryLee and Charles) were attendto Peoples Bank. ing board meetings. Irwin Jr.’s 2019 obituary named the Ryan said his time at the bank inmany organizations he was part of. cludes hearing stories about his dad, It also mentioned his receiving the grandfather and great grandfather Whatcom County Lifetime Busi- from employees and customers alike. ness Achievement Award from this “That’s brought me closer to my magazine. roots and helps inform how I think Today, Charles LeCocq — the third about my role and what I can contribgeneration — serves as chief executive ute toand theGeneral bank’s future,” said. L to R, Owner Jesse Nelson Managerhe Luke Knudson

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crop loans. Charles LeCocq attributes the bank’s success to the success of the people it serves. Bank employees and board directors live and work in the communities they serve. Peoples Bank is a place where people can build their careers alongside longtime employees like Mary Compton and Bob Fraser, he said. “We’re invested in helping individuals, families and business prosper and thrive,” he said. As for the future, Charles LeCocq said his expectation is that “as we continue to grow and expand our footprint, we stay true to our legacy of service to the community by building long-term, personal relationships and doing what is right at every step.” ■ .19 80 .3 60

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During the COVID-19 pandemic, Peoples Bank officers and staff revamped how they handle business. Drive-thrus served as the norm for most teller-related transactions, and face-to-face appointments required scheduling in advance. Peoples Bank donated money to local United Ways for COVID-19 relief efforts. Employees assisted numerous small businesses in obtaining $219 million in Paycheck Protection Program loans, according to the bank’s website. The bank celebrated its anniversary in August with the dedication of a permanent Peoples Bank exhibit at Lynden Pioneer Museum. “When people hear that we’ve been around for a hundred years, they think we’re a little dusty,” Fraser said. Not so, he said. The old 40-page farm accounting books and handwritten ledgers are gathering dust in attics, replaced with technology allowing for mobile and online banking services and products unheard of in the 1920s. The bank operates 23 branches —

Members of the LeCocq family in 2018 (left to right): Ryan LeCocq (Commercial Banking Officer), Irwin LeCocq, Jr. (Chairman of the Board Emeritus), and Charles LeCocq (Chairman of the Board and Chief Executive Officer). Couresty photo.

in Whatcom, Skagit, King, Chelan, Douglas, Island and Snohomish counties — and one loan production office. The three principal business units are business banking; with a broad portfolio in commercial services and lending; retail banking; and home lending, according to the website. Peoples Bank received a superior rating of five stars from BauerFinancial bank research firm’s most recent rating. The full-service bank has over $2.6 billion in assets as of 2021. The original emphasis on agriculture continues as a strong part of Peoples Bank’s services, with financing and loans geared at the agricultural industry and farmers, Fraser said. These features range from farm operating lines of credit to financing livestock purchases, agriculture real estate, and

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EMPLOYMENT LAW BP

Should your business mandate COVID-19 vaccines? Vaccines, mandates and exemptions make for tricky navigation Jeffrey Fairchild We have now devoted 20 fun-filled months to helping Washington employers navigate the COVID-19 morass, and one point is beyond dispute: Your HR department deserves an extended beach vacation. Conflicting regulations. Inconsistent guidance. A gaping cultural divide. The works. Yet, at least on the discrete topic of vaccines, the legal world is coming into focus (like it or not) based on the public policy choices of federal, state and local governments. So let’s take a quick look at what is currently required on vaccines, what choices remain for certain employers, and the consequences of noncompliance using a fictitious local business as an example (see chart on Page 32).

Why not call it Fawlty Towers, after the fictional hotel of British sitcom lore? Fawlty Towers must first determine whether its operations are subject to the current gauntlet of federal, state and local mandates. Although rules continue to evolve, here are the basics: Federal contractors. The White House and federal guidance define “federal contractors” as entities that perform significant work on federal contracts or “contract-like” documents, and this category is broader than one might expect. Fawlty Towers — if it is a “federal contractor” — must require employees to be “fully vaccinated” by Dec. 8, subject to employees requesting a medical or religious exemption. Large employers. The White House requires employers with 100 or more employees to mandate vaccines or require

NOV/DEC 2021 | BUSINESSPULSE.COM

Current requirements on vaccines, what choices remain for certain employers, and the consequences of noncompliance using a fictitious local business as an example.

weekly testing, without regard to any medical or religious exemption. The employee may either get vaccinated or be tested. A non-complying employer faces significant fines, currently projected at $14,000 per violation. Industry-specific cases. Washington also imposed mandates that are

industry specific — think health care and education — with more involved requirements but that also include limited exemptions. State/local contractors. Washington and Bellingham (for example) require vaccines for contractors working at government sites and certain other

At least on the discrete topic of vaccines, the legal world is coming into focus (like it or not) based on the public policy choices of federal, state and local governments. 32

BUSINESSPULSE.COM | NOV/DEC 2021

settings subject to medical and religious exemptions, with the next deadline of Dec. 3. Fawlty Towers will either fall within or outside the mandates, but in either case, it must make a series of important decisions that bear on its fundamental legal obligation to provide a safe workplace. For example, if Fawlty Towers fits within most mandates, the company needs to commit to a principled and consistent approach for evaluating exemption requests, and (spoiler alert) the conversation will quickly turn to its willingness, eagerness and ability to “accommodate” the inevitable applicants. Washington’s convoluted paid leave and wage and hour requirements inevitably become part of this analysis. On the other hand, if it is outside the mandates, Fawlty Towers must decide what role — if any — COVID-19

vaccines should play in its safety planning. Of course, all this needs to be translated into well-worded policies and communications. Be warned. These internal debates can be spirited. Feelings may be hurt. Teeth may gnash. That seems to be a general pattern with these discussions. We live in exciting times, and although details continue to emerge from Near Washington and Far Washington — and although the rules are quite more involved than summarized — from our legal perspective, there is a light at the end of the tunnel, and this time it may not be a train. ■ Jeff Fairchild has assisted regional and local businesses on the full spectrum of employment issues for 30 years as a partner with Adelstein, Sharpe & Serka – from preventative counseling to policy advice to litigation. Jeff spent his formative years performing as a large dancing mouse, studied primate behavior at Duke, and worked with Davis Wright Tremaine in Seattle before arriving in Bellingham. Jeff knows every college’s nickname.

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MARKETING BP

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How much should you spend on marketing in 2022? Planning for growth means setting aside money for marketing Patti Goethals Rowlson Life offers many opportunities to revisit a business plan. It could be a major business change, like bringing a new employee on board or launching a new product. Or it could be a recurring event, such as flipping the calendar to a new year. No matter the inspiration, it’s good business practice to set goals, make plans and revise budgets periodically. During this budget revisiting process, one question always seems to come up: How much should my small business spend to promote our products and services? Or, put another way: How much should I set aside for marketing? Something is better than nothing. Whether your company is marketing business-to-business services or business-to-consumer products, a basic

marketing plan is critical — and in establishing a plan, you also should fund it, setting aside money for marketing-related expenses. Having a marketing plan and budget helps business owners make measured and informed (rather than impulsive and hasty) spending decisions throughout the year. When you must make a decision about buying advertisements, sponsoring events, ramping up networking activities or outsourcing services like copywriting or graphic design, you can review these documents to help guide your thought process. So, how much should you spend on marketing and advertising? To be honest, industry experts are all over the board when it comes to how much a small business should spend on marketing. Percentages range from 2% to more than 20% of gross revenues depending on the industry, size of the

NOV/DEC 2021 | BUSINESSPULSE.COM

company and whether it’s a startup or established business. The Small Business Administration suggests that established companies earning less than $5 million per year should allocate 7% to 8% of revenues toward marketing. That percentage increases if a business is in the startup phase, if it wants to launch new products or services, or if it is marketing in business-to-consumer industries such as restaurants or retail. Remember that money spent on marketing is an investment in your business, and if done well it can lead to measured growth. What expenses are included in a marketing budget? Depending on target markets and what products and services are being promoted, marketing budgets may include the following expenses: digital

and print advertising, radio advertising, participating in events and trade shows, networking group memberships, outsourced social media management, professional photography, graphic design, video production, website maintenance, SEO or copywriting services, vehicle branding, print materials (flyers and brochures), promotional items and even branded clothing items. Ready to put together a marketing budget for 2022? The first step is to obtain a detailed report that shows all marketing-related expenses from your company during the past three years. You should be able to get this info from your bookkeeper. Review those expenses carefully so you understand exactly where the money has been going. Once you know how much was

spent — and what it was spent on — you can start setting a 2022 marketing budget that is based on a percentage of projected revenues and your business goals for the new year. Keep in mind that if you want to grow your business or expand into a new market, you’ll need to consider increasing the percentage spent on marketing. Next, think about your marketing plan and target market. Did last year’s marketing expenses help reach those consumers? If items on your expense report stand out as having (or having not) produced results, adjust the budget and reallocate funds accordingly. Move unproductive dollars to new efforts or increase the money set aside for plans that have worked well. Lastly, as you’re going through the process of setting up a marketing budget, try not to get stuck in the “that’s how we’ve always done it, and I don’t know what else to do” trap. New marketing and advertising options pop up nearly every day, and many are worth exploring. If you are unsure what direction to take, look at what competitors are doing successfully or feel free to reach out to Bellingham PR & Communications or another trusted local adviser for guidance. ■ Patti Goethals Rowlson is the founder and communications director at Bellingham PR & Communications in Bellingham. Since 2009, she has helped small businesses and large corporations manage public relations and communications for a variety of stakeholders. Patti has been recognized for her work in the community by being named Most Valuable Player, Small Business of the Year finalist and Professional Woman of the Year finalist. She currently serves on the board of the Whatcom Business Alliance. Visit https://bellinghampr.com.

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BORDER POLICY BP

PHOTO: iStockphoto. com/njpPhoto

Has the border changed forever? COVID-19’s lasting impacts on border traffic Laurie Trautman Whatcom’s economy vary by both location and sector. The Border Policy Research Institute at Western Washington University estimates that Canadian visitors account for nearly 12% of Whatcom County’s taxable retail sales and over half of fuel tax revenues in the small cities along the border. The restrictions resulted in a loss in the range of $169 million to $202 million annually. While the bulk of retail shopping occurs in Bellingham, most online shopping/mail order purchases are made in Blaine and Sumas. connections. The pandemic border restrictions, which have been in It is likely that Canadians make up over 85% of online retail place since March 2020, put an abrupt end to this pattern sales in Blaine and Sumas. Canadians also have a considerable impact on fuel tax revenues in Blaine, Sumas and Point and will affect our county for years to come. Roberts. Prior to the restrictions, Canadians purchasing gas Impacts accounted for up to 73% of the fuel tax revenue in Blaine The border restrictions reduced cross-border travel by and up to 60% of the fuel tax revenue in Sumas. roughly 97%. From 2019 to 2020, Whatcom County saw a decline of 6.8 million Canadian trips. The vast majority of Advocacy and engagement Local stakeholders and government agencies continualCanadian visits to Whatcom County are for discretionary purposes such as shopping, vacation and recreation, all of ly have been engaged in advocating for Whatcom Counwhich are considered nonessential and thus prohibited by ty businesses adversely affected by the border restrictions. the border restrictions. The impacts of the restrictions on Dozens of letters have been sent to the Canadian and In a typical year, more than 6 million trips are made by Canadians across the border from British Columbia into Whatcom County. Canadian tourists, shoppers and homeowners have shaped numerous aspects of our economy, and many families and friends rely on border crossings to maintain intimate

NOV/DEC 2021 | BUSINESSPULSE.COM

U.S. federal governments, and ongoing outreach efforts continue to draw attention to the impacts of the border restrictions. Grant programs and funding support include Washington Gov. Jay Inslee’s direct financial support for the sole grocery store in Point Roberts and the Washington State Department of Commerce Border Business Relief Program for businesses impacted by the border restrictions. Looking ahead In July 2021, Canada eased restrictions to allow fully vaccinated U.S. travelers with a negative PCR test to enter, regardless of trip purpose. At the time of this writing, the U.S. has yet to develop a plan for easing restrictions at the land border. Regardless of what approach the U.S. takes, crossing the Canada-U.S. border will be more

confusing, costly and time-consuming, which will hinder a return to pre-pandemic travel volumes. In the short term, businesses that have catered to Canadians, particularly in communities adjacent to the border, will continue to be impacted disproportionally. Families, friends and property owners who once enjoyed a quick and seamless border crossing experience will continue to face anxiety and uncertainty. In the long term, it is highly possible that the border restrictions have altered Canadians consumer behavior away from cross-border shopping trips towards more domestic habits. However, pandemics work in mysterious ways. Tourism in Whatcom County is already back to pre-pandemic levels, and the growing popularity of our little corner of the U.S. is tangible.

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While our location adjacent to the Canadian border will continue to influence our community and economy, that influence will be different coming out of the COVID-19 pandemic than it was prior to it. ■ Laurie Trautman is the director of the Border Policy Research Institute at Western Washington University. She engages in a range of research activities focused on the Washington–British Columbia region of the Canada-U.S. border. In addition to working with faculty and students, she collaborates with the private sector and government agencies to advance policy solutions and promote cross-border collaboration. Trautman participates in numerous working groups that are actively engaged in the U.S.-Canada relationship, and she is a member of the steering committee for the Cascadia Innovation Corridor. She also serves as a Global Fellow with the Woodrow Wilson Center and a Fellow with the Canadian Global Affairs Institute.

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CYBERSECURITY BP

Information security isn’t just an IT issue — it’s an issue that needs to be addressed throughout your entire organization. PHOTO: iStockphoto. com/Chainarong Prasertthai

How security governance can help protect you from cyberthreats Cybersecurity controls can help fend off attackers Troy Hawes, CISSP, CISM, CISA, PCI QSA, CCSFP, CHQP Protecting the life cycle of data is critical to your organization’s success. Hackers, malicious insiders, vendors and employees are threats to data security. As such, organizations are getting asked by regulators, auditors, customers and consumers how data is processed, stored, transmitted, secured and protected. Organizations often rely on their information technology departments to have proper controls in place, but information security isn’t just an IT issue — it’s an issue that needs to be addressed throughout your entire organization. As your executive management explores the need for stronger effective controls, information security governance should be part of the conversation. What is information security governance? Information security governance is defined by the Information Systems Audit and Control Association as “a subset of enterprise governance that provides strategic direction, ensures that objectives are achieved, manages risk appropriately, uses organizational resources responsibly, and monitors the success or failure of the enterprise security program.”

Why do you need an information security governance framework? While the definition sounds complex, it can be simplified. An information security governance framework helps you prepare for risks or events before they occur by forcing you to continually reevaluate critical IT and business functions through: • integrated risk management functions; • threat and vulnerability analysis; • data governance and threat protection; and • the alignment of business strategy with IT strategy. Reactive versus proactive Information security governance also helps an organization move from a reactive approach to cybersecurity to a proactive approach. It allows you to: • categorize and mitigate risks and threats; • prepare an organization for identifying, remediating and recovering from a cyberattack or breach; • provide a method for executive leadership to understand their risk posture and maturity levels; and • outline a risk-based approach to the people, systems and technology that are used every day.

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What are the main components of information security governance? There are four main components to the information security governance framework: strategy, implementation, operation and monitoring. Strategy: Information security should align with business objectives. IT strategic plans need to satisfy current and future business requirements. The goal of information security governance is to align business and IT strategies with organizational objectives. Implementation: Information security governance requires commitment, resources, the assignment of responsibilities and the implementation of policies and procedures that address controls within a chosen framework. Buy-in from senior management and

above is critical to the implementation of the program. Operation: It’s important that adequate resources are in place, that projects that align with your overall strategy are deployed and that operational and technology risks are addressed and mitigated to appropriate levels. Monitoring: Metrics and monitoring can help document the effectiveness of the program, provide information to aid management in making decisions, address any compliance issues and establish information security controls with a more proactive approach. Framework alignment Aligning your organization’s information security governance framework with an IT security and governance framework such as the NIST Cy-

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bersecurity Framework, ISO 27001, COBIT Internal Control Framework, Federal Information Security Management Act or HITRUST CSF helps identify the necessary controls that need to be implemented and managed for IT security. Information security governance works in conjunction with these frameworks to enhance the current security posture. Once aligned with an information security framework or standard, an organization can fully develop the controls needed to adequately protect sensitive data and systems. Frameworks establish and maintain models that provide organizations with standardized structures that are comprehensive and that continually improve information security. Conclusion Given modern dependence on information and technology, the presence of threats from attackers and malicious insiders makes it more important than ever to gain insight into the cybersecurity controls that can be employed to protect your organization’s assets. Implementing an information security governance framework can help the management and board of directors at your organization make well-informed decisions on your overall information security strategy. ■ Troy Hawes has been providing IT consulting services since 2001. He has extensive experience managing and leading technology security and compliance assessments using several different security frameworks. He can be reached at 206-302-6529 or troy. hawes@mossadams.com. Assurance, tax, and consulting offered through Moss Adams LLP. Investment advisory services offered through Moss Adams Wealth Advisors LLC.

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BP SMALL BUSINESS POLICY BRIEF

The need for sales tax reform Streamlining Washington’s sales tax system would increase fairness and free small business owners to create jobs, services and economic growth Mark Harmsworth Most states collect sales taxes. There are only five states that do not collect a sales tax at the state level; Alaska, Delaware, Montana, New Hampshire and Oregon. The sales tax rates imposed by the other 45 states vary from the lowest, at 4% in Alabama, to the highest, 7.5% in California. Washington’s sales tax rate is 6.5%, but local district, county and city sales taxes can push the rate people actually pay to over 10%. For example, the city of Lynnwood has a sales tax rate of 10.5% and is ranked 34th highest in the United States. The sales tax in Seattle is 10.25%. Over the last several decades, the collection of sales taxes by state governments has become increasingly complex with the popularity of out-of-state mail order businesses, the expansion of local municipal sales tax authority and the explosion of online internet sales. In 1999, the National Governors Association and the National Conference of State Legislatures, frustrated by the inability to collect sales tax from sales made to their residents in other states, created the Streamlined Sales and Use Tax Agreement. The agreement requires the 24 member states to calculate sales tax rates based on the shipping destination and for businesses to collect the tax for remittance. The result over time, however, is that the combination of local municipal tax rates, sales tax exemptions and interstate tax collection rules, has made the sales tax processes overly complex. In the effort to collect more sales tax revenue and to standardize the tax collection process, the SSUTA has created a costly administrative process and a time-consuming effort for business and consumers.

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Key U.S. Supreme Court ruling On June 21, 2018, the United States Supreme Court ruled in favor of the State of South Dakota in the case South Dakota v. Wayfair, Inc. The ruling removed the need for a physical presence in a state when conducting business to determine whether a seller is required to collect sales tax. This permitted state officials, including those in states that were not members of the SSUTA, to require sellers in other states to collect sales tax based on the buyer’s state sales tax rate, irrespective of the seller location, and negated some of the original reason the SSUTA was created back in 1999. Currently, there are no federal laws passed by Congress governing sales tax collection across state lines, though there are several proposals that have been introduced, including Senate Bill 698 and House Bill 2775. The state of Washington is a certified member of SSUTA and applies the SSUTA (sometimes referred to as destination sales tax) rules within state borders to municipalities and political jurisdictions, requiring sales tax to be collected at the location of the sale or service. This calculation and collection of destination sales tax raises no revenue but creates a significant amount of work for all businesses, proportionately negatively affecting small business the most. Management of the SSUTA agreement The SSUTA is an agreement among member states that does not supersede state law. It requires member states to follow a set of 22 general principles to maintain membership (or certificate of compliance) in the SSUTA. It is possible for a state to leave SSUTA, but so far no state has decided to leave. The SSUTA is maintained by a governing body, led by an

is invisible. The sales tax rate applied to a product or service is applied as an aggregate total of the local and state sales taxes and is not easily calculated at the point of sale. This is illustrated by the fact that the Washington Department of Revenue has actually designed a phone app and website to help with the calculation of local and state sales tax rates. The government sales tax app is used by sellers; The additional cost of staff most consumers have no and accounting systems idea how much in sales to handle the coplexity of tax they pay. tracking sale locations and For a service business attempting to assess the rates raises no money for the correct sales tax rate for government and provides no its services, the problem services to the customer. is compounded by the definition of a service and While SSUTA was created primari- whether sales tax needs to be assessed. ly to address interstate sales tax collec- A service provider must determine, tion, the agreement requires member for each location a service is provided, states to follow similar rules within po- whether the service is subject to sales litical subdivisions inside state borders, tax and then calculate the rate for that which has led Washington to create a location. The tax collection reporting to the Department of Revenue, comdestination-based sales tax. pleted monthly or quarterly, takes a Washington imposes considerable amount of time to comthousands of sales tax rates plete and to calculate the sales tax that Washington state law allows munici- needs to be remitted by location. palities and political jurisdictions to asPrior to the implementation of dessess sales taxes on activities within their tination sales taxes in Washington, a jurisdictional boundaries, independent business applied a sales tax rate based of sales taxes assessed by the state. This on the location where the business was creates differing sales tax rates based on registered, irrespective of the location a where business activity occurs. There product or service was delivered. are thousands of sales tax rates, based Retail products and services tax on location, in Washington. The con- collection are simpler given the fixed nection between the business activity location of most businesses, but the and location is referred to as economic underlying issue remains. A fixed locanexus. tion, such as a retail store has one rate For a consumer, much of the com- to apply to local sales, at the store locaplexity of the sales tax rate calculation tion. For a mobile retailer or a retailer executive director and a board consisting of up to four delegates from each of the representative states. For Washington state, the delegates are typically appointed employees from within the executive branch of state government. Each of the member states has one vote.

that ships products to different locations, the calculation of the local sales tax is based on the destination and is a laborious and time-consuming effort. Larger companies that provide products and services in multiple locations are forced to hire staff and build or buy accounting systems at significant cost to handle the complexity of tracking each sale location, rate and collected sales tax. The additional cost of staff and accounting systems raises no money for the government and provides no services to the customer. For small businesses and individual business owners, operating in multiple locations, the reporting requirement and collection of the sales tax based on location requires a significant amount of work. Hiring staff or buying accounting systems is not an economically viable solution. The reporting requirement is made worse if services are billed on an hourly basis, and a determination must be made whether a specific hour of work was subject to sales tax. Additionally, Washington state requires that if a service is subject to sales tax, all services performed at that location at the same time are also subject to sales tax, regardless of whether the service actually qualifies as a sales taxable service or not. With the advent of cloud technologies that are remotely hosted, it is quite possible for a service to be provided to a customer where the service provider, customer and cloud hosted server are all in separate physical locations. Consider the following business situation. If a technical software company provides a customer with a regular software patch, sales tax must be collected, but it’s not clear whether this

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is still the case if the software patch is applied remotely. If the work is performed remotely, sales taxes may not apply, since there is no nexus with the customer’s physical location. If the work is performed on a cloud-hosting server, the applicable sales tax rate at the server’s physical location does not have a physical nexus

Apply this single example to 50 customers in 30 different locations and the reporting requirement for one service company increases exponentially in complexity. A small business that bills hourly, must record each hour, by location and type of work, and then bill the customer based on the activity and send the calculated sales tax money to the state. The remittance to the state is not based on the customer, but on the location, Simplification of sales tax so additional work is required to summarize the tax amounts collection would mean that into separate jurisdictions. small businesses would see The business activities suba significant reduction in ject to sales tax need to be the amount of complexity, better defined, but still, the cost and effort required to underlying problem of the remit the correct sales tax amount of work required to track these events and when amounts to the state. and where the work was perwith the service provider either. In formed, does not change. many cases, the provider may not even know where the cloud server is located. Policy recommendation Simplification of sales tax collection In fact, the relevant data center could by small businesses is badly needed. be located outside the United States. Additionally, if a software change is The complexity lawmakers have imnot considered regular, it is not subject posed provides no benefit to the public, and directly punishes business owners to sales tax. To make the sales tax calculation who create jobs, services, and economic even more complex, if the service growth. The following reform would solve provider provides a regular patch plus some custom changes at the same many of the harmful effects lawmakers time, sales tax is collected on both. If now impose on the public. Businesses with less than $25,000 the work for the custom changes is performed at a different time, only one in annual sales tax collections should activity is subject to sales tax and not be required to pay a flat sales rate for the other. There may be several (based all services and products that are subon state and local taxes) different sales ject to sales tax. The flat rate would be taxes rates that a business owner may based on the state sales tax rate plus the have to consider when calculating the average of the municipal tax rates from taxes to be applied to the transaction, the entire state. The business would be required to report the municipal or possibly none at all.

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locations where products and services are provided. The state would then apportion the sales taxes collected under the flat rate to municipalities provided by these businesses, based on the local, municipal tax rates. Filing under the existing sales tax structure should also remain as an option for small businesses who are under the threshold. As an example, a business providing services in Seattle, Everett and Spokane collecting sales taxes on $50,000 in sales annually based on a flat sales tax rate of 9.5% (a state rate of 6.5% plus an assumed averaged statewide municipal rate of 3%), would generate $3,250 in sales tax revenue for the state and $1,500 in sales tax revenue for the municipal distribution. The municipalities would be paid amounts at the state the local sales tax rates that have been imposed under statute. In this example, Seattle would receive $582 (3.7%), Everett $524 (3.33%) and Spokane $394 (2.5%). Assuming the sales volume were split evenly among Seattle, Everett, and Spokane, the same $50,000 in sales, under current law would generate $3,250 (6.5%) in sales tax for the state and for the municipalities a total of $1,584. Seattle would receive $617 (3.7%), Everett $550 (3.33%) and Spokane $417 (2.5%).13 A $25,000 sales tax threshold would result in no change in collected sales tax for the state and only minor differences to municipalities. In our example, there is only an $84 difference in annual tax revenue split among the three municipalities, for an average of just $28 for each city per year. Given the total number of small

businesses paying sales taxes, a change to a flat rate tax would sometimes generate slightly less revenue for a municipality, and sometimes more. Given the lower overall sales taxes typically paid by small business, municipalities would see a negligible impact on general sales tax revenue. Some municipalities would actually see an increase in revenue, depending on the final rate adopted as the statewide average sales tax rate. Additionally, a small business owner would be free to use the time and money saved from filing complex tax reports to generate additional business income, jobs and sales. The result would be increased economic activity and higher state and local sales tax revenues. It would also make the tax system fairer, save on enforcement costs and would increase voluntary compliance. Charging a flat rate to small business but continuing to use the municipal sales tax rate for payments to the municipalities, does not violate the SSUTA rules and arguably increases compliance with the SSUTA requirement to simplify tax remittances and returns. Small business, however, would see a significant reduction in the amount of complexity, cost and effort required to remit the correct sales tax amounts to the state. A small business should be able to continue to use the existing destination sales tax system if the business owner so chooses.

makers have not enacted a sales tax cut in living memory; they have only added to the cost and complexity of the system. The current sales tax collection system modeled on the SSUTA is overly complex and needs to be simplified for small businesses which spend a larger portion of their revenue on sales tax calculation and preparation than a larger business. Thresholds for sales tax dispersal should be implemented as an option for businesses that are under either defined sales tax amounts or business activity levels. Small business owners, with the reduction in the amount of complexity and effort required to remit the correct sales tax amounts, would then be free to create more jobs and products and

services and, significantly, generate more overall sales tax revenue for the state, counties, and cities. ■ To read this article with footnotes and links to additional information, visit www.washingtonpolicy.org. Mark Harmsworth joined WPC in 2019 and became WPC’s Center for Small Business director in January 2020. He was elected in 2014 to the Washington State House of Representatives, where he served two terms. His focus was on transportation and technology, including serving as the ranking member on the House Transportation Committee. Prior to the Legislature, Mark served two terms on the Mill Creek City Council and was elected mayor pro-tem in his last year. Mark works in the technology industry and is an owner of a small business after completing a long career at Microsoft and Amazon.

Conclusion Simplification of sales tax collection from small business is needed. It has never been overhauled, and state law-

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Radical ballot proposals in Western states would criminalize meat production Criminalizing activities that are already prohibited under state law only hurts the people who are already following the law Pam Lewison Meat is central to many family meals and is a cornerstone for some of the biggest holiday observances in the United States. Fourth of July barbecues, turkey with a Thanksgiving feast, and beef during winter holidays are all examples of the relationship people have with meat. Not only does meat provide essential nutrients that are harder to find in vegetarian or vegan diets, but it also provides an inexpensive protein source for low-income families. Meat is a core contributor to human health. Meat is a good source of iron, which provides hemoglobin and enables oxygen circulation throughout the body. Meat provides essential minerals and vitamins during pregnancy, promoting healthy brain, organ and muscle development. Meat provides zinc, omega-3 fatty acids, and selenium, which support tissue connection and a strong cardiovascular system.

Meat is a natural source of vitamin B-12, which is essential to the body’s ability to absorb nutrients. A diet moderate in meat helps the body store vitamin D and promotes bone strength, growth, and density. Meat is a key source of protein, promoting muscle development, physical mobility and healthy skin, the body’s primary barrier against disease. The raising and harvesting of meat often are a generational experiential learning opportunity. Hunting in the autumnal months usually includes parents and children scouting the land for game; a tradition with its roots in Native American and Western pioneer cultures. In many cases, hunting is still observed as a rite of passage for children by bringing them closer to where their food comes from. Similarly, the raising of livestock by families is often a generational endeavor that emphasizes conscious animal husbandry and gratitude for the food the livestock provide. Livestock raised for meat spend the first seven to 12 months of their lives on the ranches where they are born. Approximately 96% of farms and ranches in the United

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Criminalizing the harvesting of meat would make adults involved in States are owned by families, meaning most livestock raised for meat spends up to the first year of its life in the care of a family. Modern, humane practices and changes in cultural attitudes have consistently improved the treatment of animals raised for food. Activism ballot measures Some activists, however, want to reduce the availability of meat as a healthy source of nutrition. Two recent ballot measures in Western states have emerged that would alter the way in which families engage in generational activities and lead to an increase in the cost of meat production and purchase. In Colorado, the “Protect Animals from Unnecessary Suffering and Exploitation” or PAUSE Act was proposed as a ballot initiative to revise animal rights laws in the state. The ballot initiative would have prohibited the harvesting of animals before “one quarter of their lifespan based on species, breed, and type of animal” had been lived. It also would have criminalized common breeding practices often used on farms and ranches. The initiative was struck down by the Colorado State Supreme Court before making it to the ballot for a violation of the state’s single-subject legislation rule, with a unanimous vote of the justices recognizing the harvesting of livestock for meat and their breeding are not connected. A similar ballot measure has been introduced in Oregon: IP-13, called the “Abuse, Neglect, and Assault Ex-

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homesteading, hunting, fishing, 4-H, and FFA guilty of providing experiential learning for youth and a misdemeanor. emption Modification and Improvement Act.” It seeks to make artificial insemination of livestock a felony; would ban hunting, fishing and rodent control; and would redefine “animal abuse” misdemeanor classifications by removing “otherwise authorized by law” and replacing it with “necessary to defend him or herself against apparent threat of immediate violence.” Oregon’s IP-13 was approved by the Oregon Secretary of State for circulation July 15. Initiative sponsors have until July 2022 to gather just over 112,000 certified signatures to get the initiative on the ballot for November 2022. Ramifications of activist legislation State ballot initiatives like those filed in Colorado and Oregon have a singular agenda at their core: to criminalize the consumption of meat by making its production and harvesting a criminal act. The Colorado ballot initiative was not struck down by the Colorado Supreme Court for its content but rather because it tried to make a connection between breeding practices and the harvesting of livestock for meat. The Oregon ballot initiative would go further by applying criminalization of virtually any activity in which livestock, game, or domestic

animals may be involved. The Oregon ballot initiative would potentially criminalize the use of animals in rodeos and in scientific research, criminalize rodent and pest control, mark anyone who ever mercifully euthanized a dying animal as a criminal, and potentially ban the use of safe and accepted breeding practices for farmers and ranchers throughout the state. The overreaching nature of the ballot initiative highlights the disconnection between the authors of the initiative and communities that regularly interact with wild game and livestock. Modern homesteading has taken root in various places around the United States, including Oregon. With no exact count of the number of people homesteading — or living off-grid — and raising their own livestock for food, it is difficult to quantify how many people would be affected by the meat harvest portion of the ballot initiative. Anecdotally, the appeal of homesteading is that it is an answer to the rising costs of food, power, and other resources. Homesteading is a family endeavor and includes the raising of livestock for their ability to provide fertilizer, eggs, milk, and meat for their owners. However, the harvesting of livestock for meat is a part of homesteading that also often involves

children. Under the ballot initiative, any parent who harvests livestock in front of a minor would be committing a misdemeanor and risk fines, jail time, or both. Homesteaders are not the only adults who would potentially be subject to criminal charges under the Oregon ballot initiative. Adults who act as 4-H leaders or FFA advisers would also be subject to criminal charges for supervising learning activities including artificial insemination of livestock or harvesting of meat. The initiative could effectively cut off the generational learning experiences of children from adults involved in farming and ranching. Other generational practices would not be spared under the ballot initiative: hunting, fishing and trapping would also be considered criminal acts. Oregon does not currently require a fishing license for children under age 11 if they are accompanied by an adult. By criminalizing the ability of adults to harvest meat, including fish, the ballot initiative would render the handing down of generational traditions like fishing obsolete because teaching a child how to properly kill a caught fish or game animal would be a crime. Initiative efforts in Washington There are no current proposals for ballot initiatives broaching the subject in Washington state. However, the effect of such an initiative in Washington would have the potential to affect approximately 36,000 farms and ranches

not to mention numerous families who hunt, fish, and raise small livestock at their homes. Slightly less than 10% of Washington state’s residents lived below the federal poverty line in 2019, making access to nutrient-dense and affordable food of extreme importance

to those residents. Ballot initiatives like those in Colorado and Oregon put the most poverty-stricken in Washington state and other Western states at the greatest risk of not being able to afford to feed their families nutritious meals.

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Conclusion Narrow-minded views of communities different from one’s own should be the genesis for discussion and a desire for a better understanding of a different way of life. In fact, in an era in which everyone is purportedly encouraged to walk in the shoes of another, ballot initiatives that seek to terminate ways of life different from one’s own shed light on agendas rather than a desire from the petitioner to effect lasting, meaningful change for everyone. A myopic focus upon the effective criminalization of hunting, fishing and meat production and consumption ensures a situation in which all communities lose. The hunting and harvesting of game protects natural habitats from over-

population. The artificial insemination of livestock protects the female of some species from aggressive males. The raising and harvesting of meat provides families with an inexpensive and nutrient-dense protein source. Criminalizing activities that are already prohibited under state law only hurts the people who are already following the law. Hunters, fishermen, farmers and ranchers are the people who will likely be put in jeopardy by ballot initiatives like the PAUSE Act and IP-13 because it will be their traditions and livelihoods put at risk. Broad ballot initiatives proposed by people who have not interacted with members of the community whose activities they wish to change create unintended consequences from the

uninitiated. These regressive ballot efforts seek to deprive all people of access to a safe, affordable source of protein, minerals and vitamins. Activist efforts deny easy access to a balanced diet that promotes daily nutrition for children and adults and contributes to disease resistance and to the broader public health of the community. ■ To read this article with footnotes and links to additional information, visit www.washingtonpolicy.org. Pam Lewison is a fourth-generation farmer from Eastern Washington and the agriculture research director for Washington Policy Center. She has a master’s degree in agricultural leadership, education, and communications from Texas A&M University and completed her undergraduate studies at Washington State University.

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