Oregon legislative slowdown ends, paving way to a timely budget
Two Oregon Republicans split ranks with their GOP colleagues, ending a month-long stalling tactic that threatened a timely state budget.
Rep. Mike Nearman, R-Independence, and Rep. Bill Post, R-Keizer joined the majority House Democrats Wednesday in voting to suspend a rule that requires each bill be read in full.
“I was sent here to vote on bills and best represent my district,” Post said. “It’s time to move on and face the music of the supermajority.”
The vote ended a month-long effort by House Republicans that had House clerk Lacy Ramirez Gruss reading aloud the granular details of bills.
Full bill readings are typically suspended by lawmakers ahead of each session in favor of summary readings as a matter of course. But Republicans had the clerk reading bills as long as 62 pages in the hope of gaining leverage.
Some lawmakers had begun to wonder if the delaying tactic would result in a tardy budget. With a June 30 deadline, Rep. Barbara Smith Warner, D-Portland, said the state is now on track to pass a budget on time, particularly since many major budget items have already been approved.
She was pleased that Nearman and Post made the decision to end the stalling tactic.
Smith Warner characterized the full bill readings as frustrating, but added that the minority only has so many tools and that is one well within their rights to use.
“We are here to do a job even if that job means listening to the entirety of each bill,” Smith Warner said.
With a little more than four weeks left in session, the Republican duo conceded that House Democrats, who hold a 38-22 advantage, had already passed their main priorities including House Bill 3427, a business tax bill expected to raise close to $1 billion annually for education that was opposed by Republicans.
“Nearman and I are principled conservative Republicans and I think we’re all ready to vote and go home,” Post said.
Oregon Gov. Kate Brown signed HB 3427, which provides $1.6 billion in targeted investments to early education and K-12 schools in the 2019-21 biennium, on May 20.
"The Student Success Act provides a stable revenue source that allows us to expand opportunities in early education and make targeted investments in our K-12 schools so that all of our kids can graduate high school with a plan for the future and the tools to compete in a global economy,” Brown said in a statement.
Kate Gillem, communications director for the Oregon Senate Republican Caucus, called HB 3427 “a gross receipts tax disguised as an education bill."
The funding from the bill is not “dedicated” to education, because it lacks a constitutional amendment, Gillem said. Without the amendment, Republicans claim it will just be additional money funneled into the general fund for a variety of purposes including to solve the state’s pension crisis.
Smith Warner, who was on the Student Success Committee that crafted the education bill, called it a game changer for the state.
“We used to be known for having a high quality education system,” Smith Warner said. “Now that we finally passed a bill that provides a dedicated revenue stream that will go a long way toward getting us back to the Oregon we once were.”
In 1990, voters approved a ballot measure that shifted the burden for education by reducing the contribution from property taxes to one-third from two-thirds, with the state’s general fund making up the difference, Smith Warner said. The state was supposed to create a dedicated revenue stream for education, but that never happened, forcing education to compete with other needs, she said.
The legislation also found favor with Moody’s Investors Service, whose analysts said the corporate tax is credit positive for the state and its school districts.
“Growth in state support is credit positive for Oregon school districts, because it will increase resources as education costs continue to rise,” wrote Moody’s analysts Patrick Liberatore and Baye Larsen. “Besides generating more school funding, the tax is credit positive for the state because it will diversify its revenue sources, which are heavily reliant on volatile personal income taxes.”
The funding will be administered by the state through a Fund for Student Success with school districts required to support increased instructional time, smaller class sizes, improved student health and safety, and broader curriculums, according to Moody’s. The corporate activity tax on businesses will be $250 plus 0.57% on new commercial activity over $1 million and takes effect for the tax year starting January 1, 2020.
Brown’s budget also increased general state aid to $9 billion for the biennium, which Moody’s estimated would grow school funding 24% during the period to a record $10.2 billion. The increases follows 11% funding increases in each of the last two biennia, analysts said.
The corporate activity tax would also lessen the state’s reliance on personal income taxes and make it less vulnerable to economic swings, Smith Warner said.
“We have an unstable revenue system, because we don’t have sales tax and have limits on property tax,” said Smith Warner, who like Moody’s sees the bill as a means to lessen volatility as well as strengthen education.
Oregon’s April income tax collections surged 50% versus last year, Moody’s analysts wrote, calling that a sign of the tax’s volatility.
The state forecasts that 2017-19 biennial revenues will be $2 billion above the original budget, and $925 million above the March 2019 estimate. The state’s unique kicker law will return $1.4 billion of that money to taxpayers as a credit in the next biennium, if legislation doesn’t divert the money. Taxpayers are estimated to receive north of $600 in rebates, but Brown has proposed taking $100 of that to pay down the state’s massive pension liability.
Senate Republicans were not sold on the value of the legislation.
For Moody’s to say that added funding comes from a “dedicated state corporate activity tax” is misleading, because the funding is not dedicated to education without a constitutional amendment in place, Gillem said.
It is interesting that Moody’s analysts wrote “greater revenues will support programs and increases in teacher pay,” Gillem said, because messaging from the Democrats was that funds from this legislation would not go to teachers’ pay.
Moody’s noted that the average teacher salary in Oregon was 5% above the U.S. average in 2018, but escalating living costs are causing labor concerns for local districts, particularly in the state’s urban areas.
The parties have also been wrangling out the details of a pension bill. The bill would divert 1-2% of retirement contributions from public employees to help pay down the system’s $27 billion unfunded liability.
The bill passed the Senate May 23 on a 16-12 vote and had its first reading in the House Tuesday with a floor vote expected sometime this week.
Senate Minority leader Herman Baertschiger, Jr., R-Grants Pass, was among that bill's supporters.
“This bill is the first step to remedying the unfunded liability that has been a detriment to our state,” Baertschiger said in a statement the day the bill passed the Senate. “PERS debt is the monster lying in wait that makes it impossible to found our schools adequately.”