HOUSE BILL REPORT

HB 598

BYRepresentatives Basich, Fisch, McMullen, Betrozoff, Hine, Holm, Belcher, Kremen, Hargrove, Cooper, Walker, C. Smith, Sprenkle, K. Wilson, Brough, Rust, Haugen, Winsley, Cole, Sayan, Rayburn, P. King and Rasmussen

Establishing a Washington marketplace program.

House Committe on Trade & Economic Development

Majority Report:     Do pass with amendments.  (12)

     Signed by Representatives Vekich, Chair; Wineberry, Vice Chair; Belcher, Cantwell, Grant, Hargrove, Holm, Kremen, McMullen, Moyer, Rasmussen and J. Williams.

Minority Report:     Do not pass.  (4)

     Signed by Representatives Amondson, Beck, Doty and Schoon.

House Staff:Stephen Hodes (786-7092)

AS REPORTED BY COMMITTEE ON TRADE & ECONOMIC DEVELOPMENT

FEBRUARY 25, 1987

BACKGROUND:

In recent years, a new generation of state and local economic development programs has been developed which builds on the tendency of economies to replace or substitute imports with locally produced goods.  This tendency, known as import replacement, often results in former supply firms ultimately exporting those goods they have successfully learned to produce in a local economy.  One of the most successful of this new generation of programs is the Buy Oregon program.  The Buy Oregon program establishes a local clearinghouse network that matches local manufacturers with local suppliers.

The network consists of local offices that contact Oregon businesses to identify which goods and services they are buying out of state and determines which of these could be purchased on competitive terms within the state.  If a particular business is willing to consider contract agreements on such goods and services, these are advertised through the local office. Potential suppliers put in a bid and the office tabulates them according to the criteria agreed upon in advance with the prospective purchasing business.  This prioritized list is then sent to the business for final selection.  Purchasing businesses are not required to accept any of the bids.  A major aspect of the program is its use of local non-profit groups to contact local manufacturers and supply firms, and to carry out the program at the local level.  These local offices consist of a wide range of groups, such as economic development councils, community development corporations, and business associations.

The program was modeled after a pilot project in Lane County, Oregon.  The Lane County project was designed to reduce the information costs for new local firms.  The high cost of information cause new firms to pay higher prices than the market might otherwise allow for input purchases.  The pilot project was successful in matching local suppliers with local purchasers. The result was savings in direct costs, as well as in freight and storage charges and in delivery delays.  As local suppliers gained new contracts, funds which formerly left the local economy to purchase inputs imported from other areas were retained in the local economy.  As a result, more of the multiplier effect resulting from manufactures was felt in the local economy, strengthening it in the long term.

Such programs are designed to increase the health of local supply firms in a sustainable way, as supply firms increase their scale of production, and ultimately export the items they initially supply to local manufacturers.  A similar program has been established in Idaho, has completed its pilot phase, and is about to be established on a statewide basis.  Other states have experimented with other new import replacement programs, one of the most notable being Arizona's statewide import substitution inventory.

SUMMARY:

SUBSTITUTE BILL:  The bill creates a Washington Marketplace program within the Department of Trade & Economic Development. The bill establishes a pilot effort, directing the department to contract with three local non-profit organizations to implement the program at the local level.  The non-profit organizations are to consist of local organizations with an economic development or community development focus, with preference given to organizations representing a broad spectrum of community support.  The appropriate scale for the local areas served by the program would vary, to ensure that there would be adequate business activity in the local area to permit the program to succeed.

The local contractors are to inventory local businesses to identify goods and services currently purchased from out-of-state firms which they would be willing to consider purchasing on competitive terms within the state.  The contractors would advertise these market opportunities and receive bids from local suppliers, which are then forwarded to prospective purchasing businesses.  The contractors would be able to charge fees for businesses that profit as a result of participation in the program, to offset a portion of the costs of the program.

The Department of Trade & Economic Development would provide coordination, outreach, and management and technical assistance to the local contractors, and would assist local communities interested in developing import replacement programs.  The program would expire at the end of the 1987-89 biennium unless extended by the legislature, and would be funded by a $250,000 general fund appropriation.

SUBSTITUTE BILL COMPARED TO ORIGINAL:  The program would be managed by the Department of Trade and Economic Development rather than the Department of Community Development.  The appropriation to fund the program would be to the Department of Trade and Economic Development.

Appropriation:  $250,000 to the Department of Trade & Economic Development.

Fiscal Note:    Requested February 25, 1987.

House Committee ‑ Testified For:     Representative Bob Basich; Meg Van Schoerl, Department of Community Development;  Jack Lawson, Grays Harbor Economic Development Council; Lars Hennum, State Pharmacy Association; and Ray Nelson, Tokeland, Washington consumer.

House Committee - Testified Against: None Presented.

House Committee - Testimony For:     There is a need to focus on existing businesses and identify new markets.  This program would plug the information gap. Participation in the program would be voluntary and would be carried out by local organizations. Business retention and expansion should be priorities for state policy.  This type of clearinghouse service was proposed by Washington State University ten years ago, and remains a good idea now.

House Committee - Testimony Against: None Presented.