Legislative Report for May 25, 2018
The legislative interim in Oregon is often marked by a mad dash of committee hearings for three days only four times each year. These hearings are often packed with briefings on recently enacted legislation, program updates from state agencies, and previews of some of the larger issues coming further down the road. While these activities are typical for legislative activity during the interim, they more or less took a side seat this week because of the one-day special session and the revenue forecast.
It is fair to say now the legislature has finally departed from the 2018 session, especially since the last remaining issue with any amount of life (the special session tax issue) has finally come to an end for now. With that said, the activity is not expected to slow down by any stretch of the imagination. Lawmakers and candidates are now shifting gears to their election bids for the fall, and the blitz of campaign attacks will soon be in full force. Simultaneously, lawmakers are beginning to plan for the next legislative session beginning in January and have a laundry list of issues they wish to bring up. The list of issues already spans far and wide. The most controversial include: gun control, imposing a tax on carbon emissions, medical malpractice reform, tax reform and, of course, the budget.
The budget is anticipated to remain the underpinning of every policy debate. Oregon’s structural budget deficit is continuing to grow larger as the amount previous legislatures have committed to spend outweighs the amount of revenue coming into the state. This is despite a strong economy and revenue growth for the state. In fact, the revenue forecast on Wednesday suggests there will be $2.01 billion in additional revenue in the state’s general fund—a 10.3 percent increase—from the previous budget cycle. Despite this growth, it still will not be enough without recalibrating the state’s spending priorities or revenue reform (i.e., tax increases). Adding stress to the budget situation is the projected personal income tax “kicker” being triggered from tax returns coming in very strong. It is too soon to tell if the 2019 session will be any different from previous sessions in deferring the difficult decisions for future years. Make no mistake, the budget and the road to fixing it will be the target of Democrats and Republicans alike throughout the campaign season, and the outcome of the election will determine who holds the keys.
Cap and Trade discussed in new special committee
On Tuesday, May 22, the Joint Committee on Carbon Reduction met for the first of seven meetings. This committee comes from work by Sen. Michael Dembrow (D-Portland) and Rep. Ken Helm (D-Washington County) during the previous sessions and was created after a failed attempt in the 2018 short session to pass what was dubbed the “Clean Energy Jobs Bill.”
Oregon began working on a package to reduce greenhouse gases after the passage of HB 3293 in 1997. Over the last decade, there have been many failed attempts to pass a cap and trade program. Democratic leaders and environmental groups believe that 2019 will be the year to pass a complete cap and trade package.
The committee heard informational testimony from three invited guests. The first was Dr. Phil Mote, director of the Oregon Climate Change Research Institute, which is part of the National Oceanic and Atmospheric Administration. Dr. Mote presented on global warming from fossil fuels using climate models. He emphasized that warming is responsible for many of Oregon’s recent wildfires, including the Eagle Creek Fire last year that came close to impacting the Columbia River watershed. He also touched on climate change in relationship to agriculture and the effects on water, diseases, and pests. When asked by Rep. Karin Power (D-Milwaukie) what the overall cost to the U.S. economy was, Director Mote said he has not seen any studies quantifying the overall economic costs. He said one can look at the overall effects of hurricanes, storms, and tourism, but those tend to be more assumptions than fact.
Next, Richard Whitman, director of the Oregon Department of Environmental Quality (DEQ), spoke about the history, trends, and what Oregon is currently doing to reduce greenhouse gases. It is noteworthy that if it passes, DEQ would be the regulating agency for the cap and trade program.
Director Whitman explained that most of the carbon reporting began in Oregon after 2010. Oregon had seen a per capita reduction of greenhouse gases, as well as a reduction during the recession from 2007 – 2009. It has remained flat since 2010, outside of a small 2015 increase. Director Whitman explained that the reporting to the state is done by sector, and all sectors have remained even despite increased transportation. Rep. Rich Vial (R-Scholls) and Sen. Alan Olsen (R-Canby) held his feet to the fire, asking pointed questions on how the assessments are given in relationship to the California standards. Sen. Michael Dembrow (D-Portland) said we need to be sure that the state is not double counted. Director Whitman replied that the DEQ uses a sectoral and consumption-based inventory, so when the state is making policy decisions, it needs to be decided to what degree the state is responsible for the greenhouse emissions that come from the goods that Oregonians consume.
Director Whitman testified that although Oregonians are driving less, the population has grown in the Portland metro region. Given this population growth, the emissions per capita will need to fall substantially to make a difference. Director Whitman said the goal would be to improve mileage, reduce miles traveled, and reduce carbon intensity.
Opponents of a cap and trade system argue that the price of gas at the pump, natural gas in homes, and products shipped to rural areas will place the burden on low-income families in rural areas where there is not public transportation and where consumers rely on trucking to bring them goods. They argue it will be an unfair tax unless the revenues go to programs that will ease the responsibility of rural and low-income Oregonians. In the previous Clean Energy Jobs bill, the revenues were earmarked to go to the State Highway Fund and the Climate Investment Fund.
Dallas Burtraw with Resources for the Future in Washington, D.C. concluded the hearing with information on carbon reducing options for the future. He told the committee that all eyes are on Oregon and added that most economists agree that carbon pricing is the most effective way to go. He said cap and trade is a predominant approach that reaches climate goals, is cost effective, and will expand the size of the market. He said cap and trade can be regressive if you do not have a set plan for the generated revenues.
With this being a new committee, it was obvious that many members are facing a learning curve on a complex subject that is dry by nature and that has a long history in Oregon. This decades-long debate might culminate in a cap and trade package 2019. Stay tuned.
Additional meetings will be held:
June 26, 2018, 1:00 – 4:00 p.m.
July 24, 2018, 1:00 – 4:00 p.m.
August 28, 2018, 1:00 – 4:00 p.m.
September 24 – 26, 2018 (date and time TBA)
November 8, 2018, 1:00 – 4:00 p.m.
December 12 – 14, 2018 (date and time TBA)
Economic Growth, Tax Reform Contribute to Booming State Revenues; Kicker Expected
State economists released their latest economic forecast on Wednesday 5/23/18, and the forecast came in strong—really strong. The combination of a strong economy, booming financial markets, and the state impact of the new federal tax law are contributing to more than a billion dollars in new revenues coming into the state that were not anticipated at the end of the last long session a year ago. The large increase in state tax collections means there will almost certainly be an income tax kicker refund issued to personal income taxpayers in 2019. We will not know the exact amount until the budget cycle reaches its end, but the current forecast estimates the state will return $555 million to taxpayers. This will be the first time in recent history the state experiences three consecutive refunds.
Much of the growth in state tax collections can be attributed to the recently enacted federal tax law. The overhaul of the tax code lowered federal income tax rates but offset some of the costs of the rate reduction by eliminating deductions and exemptions. Many states, including Oregon, rely on the federal tax code for the rules and definitions for the starting point of their own tax codes but use their own rates. Since states use the rules, but not he rates, many states will automatically see an increase in state tax collections without a vote of the legislature.
Earlier this year, the legislature decided to accept many of the changes made in federal tax law but also went a step further in denying some of the new federal tax rules that provide tax relief to targeted groups. The legislature proactively denied a new deduction made available for owners of businesses who file their taxes on their owner’s personal income tax return (often referred to as “pass-through” businesses). Additionally, the legislature modified state tax law to require multinational corporations to pay a new one-time tax on foreign profits previously withheld from taxes. Since this tax only occurs once, the legislature rightly set this money aside from the normal pool of money in the budget and will instead use the money to pay down the pension liability. Despite all the recent tax activity in Oregon regarding the new federal tax law, the legislature deferred much of its decisions for the 2019 tax year until the 2019 session.
Economists see a very low probability for a recession in the near future. However, the national economy is now nearly a decade into an economic expansion, and historical trends suggest the economy is nearing a shift in the business cycle. The economic indicators show no signs of the shift coming during the current or upcoming budget cycle, for that matter, but remains a cautionary reminder. Oregon is seeing growth in nearly all sectors and geographic areas, and rural communities have finally regained employment losses from the recession. With that said, Oregon is continuing to experience a declining birth rate and has reached the point that deaths are surpassing births. This means Oregon is relying on migration into the state to maintain its labor force and tax base and must continue enticing outsiders to move and work in Oregon to maintain economic conditions and money coming into the state.
The state budget will continue to be a dividing factor in Oregon politics as we approach the 2019 session. The state is predicting a structural budget shortfall exceeding $2 billion for the 2019-21 budget cycle. It is a structural budget shortfall because much of the deficit can be attributed to short-term Medicaid taxes approved in 2017 that expire in 2019. The legislature opted for a short-term package as a bridge to finding a permanent funding solution during the 2019 session. Assuming the legislature enacts either similar taxes or makes them permanent, or some combination of both, much of the budget deficit will be dissolved because of both these actions and continued increases in collections coming into the state. However, the state is still anticipating a deficit if it maintains its current level of government services.
The recent attention on taxes, both locally and nationally, appears to be driving more robust conversations in the legislature regarding changes that can be made to the state tax system. The governor and legislature have expressed interest in opening up Oregon’s property tax system and income tax system for potential reforms. The specific details of these policies remain to be seen, but they will likely exacerbate some of the tension that has become all too familiar in our politics these days.
Legislature concludes one-day special session with minimal flare
The Oregon Legislature convened in special session today to consider a legislative proposal introduced by Gov. Kate Brown. During the regular session earlier this year, the governor and legislative leadership struggled to find a political balance between public employee interest groups and the business community over the state’s use of a new federal tax deduction for pass-through businesses. These are businesses who file their taxes on their owners’ or shareholders’ personal returns rather than separately as a corporation. Oregon relies on federal tax law as the starting point for the state tax code, and, if the legislature had allowed it, the new deduction would have applied to state taxes in addition to federal taxes. Eventually, the legislature voted mostly along party lines to disallow the deduction. Despite the general agreement from others in her party, Gov. Brown struggled in her decision but ultimately signed it into law.
The story of this tax deduction is about much more than simply taxes. It is about the politics of taxes, which are completely different arenas. Complicating these deliberations further is the timing of the election cycle and the wave of progressive politics that has been arriving in states for the primary elections. These political factors are applying even more pressure on Democratic politicians in blue states to do “something.” The legislature’s response was the denial of that new deduction, but the governor has found herself in need of positioning herself for the general election against an opponent who has spent nearly all of his political career preparing for this campaign.
Rather than letting the progressive wave decide her own political fate, the governor decided to call the legislature into special session to consider a different deduction benefitting small businesses in the state. The proposal was to allow sole proprietors, businesses who are not organized as a limited liability company, to be eligible for Oregon’s reduced tax rates for pass-through businesses. The reduced rates were created as part of a compromise among legislators in a special session in 2013 but have long been criticized by the liberal factions of the Democratic Party as too favorable to business. In fact, the legislature has gone to considerable length to repeal the rates in previous sessions.
The proposal to include sole proprietors in the reduced rates had been resisted by legislators in both political parties. Democrats continued to argue the rates were a mistake made by the legislature and advocated for using the special session as a vehicle to finally abolish them. Republicans argued the legislature was called into special session for political purposes rather than an emergency, which the Oregon Constitution requires. Members of both parties introduced their own counterproposals, including a repeal of the bill passed earlier this year and various proposals to eliminate the tax benefit of the lower rates for most businesses.
A special committee of the legislature convened today for a hearing on the governor’s legislation. In an unusual flare of special session politics, both parties questioned the merits of the bill and espoused deep frustration. After a long debate over the bill, the committee passed the governor’s legislation without any amendments and the chambers convened in the afternoon to approve the legislation. Despite all the partisan theater, the legislature approved the measure with bipartisan support, but the vote is not indicative of the tempers in the building. In the end, the vote reflects the difficulty of Democrats voting against their party’s leader and Republicans not willing to vote against tax cuts, no matter their size.
In reality, the special session legislation will have an insignificant effect on most Oregonians. An analysis prepared by legislative economists suggests no more than 12,000 taxpayers will benefit from the legislation, and the cost is projected to be only $11.3 million in 2018. Compared to the state’s General Fund, the cost of the legislation is not even a rounding error on the balance sheets of the state’s $20 billion General Fund budget. The cost of the legislation does little to change the budget negotiations for the 2019 session and will likely be forgotten in the annals of legislative history.
Politically, the special session has been an interesting case of bully pulpit politics. Republicans have long criticized the governor as failing to lead the state and the legislative process. These criticisms may be tuned out because of the special session. Republicans had the opportunity to rely on procedural motions and rules to delay the special session and force it to run several days, which would have exposed the dysfunction they frequently talk about. Instead, however, they elected to a quick special session that prevented a political bloodbath. Will Republicans be rewarded by the governor not gaining favor from headlines day-after-day, or will the governor be seen as a leader capable of navigating the legislative process against the partisan wishes of both sides of the political aisle? Nobody knows the answers to these questions, but the voters and both gubernatorial candidates will certainly be on the campaign trail trying to use the special session as a talking point proving their point against the other.
Now, with the special session done and over, the attention of the political community will finally shift to the future. Lawmakers and candidates will begin to focus on their election bids. In the few truly contested races, candidates will likely focus not on the policy of the special session but the politics the session tried to work around. That is, tax increases or reform. The attention on the state budget and tax issues is only expected to intensify moving forward. These issues are among the most potent in state politics and will continue to become more potent in the days, weeks, and months ahead.
Is a Blue Wave Coming?
The Primary Election was expected to be anti-climactic; most incumbent legislators were running unopposed, and gubernatorial primaries had clear frontrunners in each party. However, that all changed in the weeks leading up to the election, as various factions within each party began fighting more ferociously for their chosen candidates. Oregon’s Primary Election results included several surprises, but the biggest takeaway from the results is that in most cases, candidates positioned as moderates lost. In nearly all contested Democratic races, voters turned out in greater numbers for candidates positioning themselves against President Trump.
Republican Rep. Knute Buehler won the Republican primary, becoming his party’s nominee to challenge Gov. Kate Brown in her re-election bid. The race is a rematch of the hard-fought and expensive campaign for Secretary of State in 2012, which Brown won by only 8 percentage points. At that time, Buehler had no government experience and was campaigning as an outsider trying to shake up state government. Since his loss, he ran for the legislature representing his home community of Bend and spent much of the time positioning himself as a moderate. The matchup between the two contenders for the gubernatorial race has been anticipated for several years, and he has carefully articulated every action in the legislature for his presumed run.
While Buehler emerged as the victor of the Republican gubernatorial primary, he did not do so without some scratches. One of his strongest abilities has been fundraising. So far this cycle, Buehler has raised a campaign war chest of nearly $3.4 million. Despite his clear fundraising advantage and strong identification among Republican voters, Buehler had to defend himself against attacks of not being a true Republican and spent nearly all of the money he had raised. With that said, Buehler has shown he is capable of raising large amounts of money from both traditional and nontraditional donors and will undoubtedly see more money headed his direction as the Republican candidate for governor.
Gov. Brown sailed through the Democratic primary without real opposition from her own party. Like Buehler, Brown is expected to raise a significant amount of funds from both in-state and out-of-state donors, making this race potentially one of the most expensive campaigns in state history. Only a few times in the past several decades has a Democrat faced a credible challenger in his or her run for governor, and the upcoming General Election will certainly be one of them. Each candidate is expected to have substantial institutional support, with unions and social interests supporting Brown and business interests supporting Buehler. Needless to say, this race will be one of the most active races for governor in a long time.
Commissioner of the Bureau of Labor and Industries
In the race for Labor Commissioner, Democrat Val Hoyle prevailed over Republican Lou Ogden in a photo finish that nearly led to a November runoff. While the position is technically nonpartisan, the race became a flashpoint for partisan interests and essentially a proxy fight for hot-button issues like gun control and the Jordan Cove energy project.
Labor Commissioner is a nonpartisan race, which means if either candidate receives more than 50 percent of the vote, he/she wins outright. Otherwise, the top two finishers would head into a runoff election this November.
For months leading up to the filing deadline, it appeared Hoyle, who previously served as State Representative from Eugene and Junction City and as House Majority Leader, was headed for a coronation. That changed in the eleventh hour when Ogden, the longtime mayor of Tualatin, tossed his hat into the ring.
Ogden collected early campaign cash and quickly booted up his campaign apparatus, selecting Republican Julie Parrish as his campaign consultant. While Parrish may seem like an interesting choice, Parrish claims credit for the 2016 election of Dennis Richardson, the first Republican to win statewide office in decades. Given the contested gubernatorial primary on the Republican side, some Democrats feared turnout of Republican voters would be enough to propel Ogden to victory.
Ultimately, Hoyle prevailed with 52 percent of the vote. Ogden came in second with 35.4 percent. A third candidate, Union County Commissioner Jack Howard, did not actively campaign and was not seen as a serious contender. Notwithstanding, Howard managed to capture just over 12 percent of the vote. Hoyle will be sworn in next January.
In Portland, Sen. Rod Monroe, a longtime member of the legislature who championed the nation’s first seatbelt law in the 1980s, faced a tough primary challenge. Monroe had positioned himself throughout the year as a moderate member, regularly advocating against some of the most stringent liberal policies that emerged in the legislature. These positions enraged many of the liberal power brokers because his votes often precluded the legislature from moving forward on their policies. These groups recruited former state Rep. Shemia Fagan to challenge him in the Democratic primary. Fagan, a trial lawyer, had often championed policies in the Oregon House that were sidelined because of Monroe’s position. Most consequentially, Monroe blocked a rent control measure passed by the House in 2017. Monroe, a landlord, argued that rent control policies do nothing to address the market problem of affordable housing and suggested the legislature address the issue differently. His decision to oppose the rent control legislation ultimately became the top issue of the primary campaign, and the forces aligned with the power brokers used it to insinuate the senator aligned with Trump and Republican interests over those of the voters in his district. The strategy proved to be successful, as Fagan won the race by a nearly 40-point margin. This was by far the most expensive legislative battleground. Virtually evenly split, the two spent a combined total upwards of $600K.
In Southern Oregon, Democrats and Republicans campaigned amongst themselves to see which faction of the party would compete for a chance to represent the open Senate seat following the retirement of Sen. Alan DeBoer. The district is home to one of the closest voter registration edges in the state, making it one of the last competitive seats in the chamber. The Democratic primary featured three candidates—Jeff Golden, a former county commissioner and TV show host; Athena Goldberg, a behavioral health specialist; and, Kevin Stine, a city councilor in Medford. Despite the district being a mix of urban and rural interests, the Democratic primary was fought over which candidate would best represent the liberal values of the party and advance party priorities in the legislature. Democratic voters elected Jeff Golden by nearly a 15-point margin. For Republicans in the district, the primary race featured Jessica Gomez, a self-described moderate and the owner of a semiconductor plant in Medford, against Curt Ankerberg, a local conservative activist and tax accountant. The primary seemed to become competitive after the Senate Republican Caucus sent out a mailer attacking Ankerberg for tax fraud. The mailer, which did not disclose the sender, was subject to a great deal of public scrutiny in the final days of the election. Many believed Gomez would easily emerge the victor of the primary, but the results came back much closer than many anticipated, with Gomez winning by less than five percent of the vote.
In another contested primary in Hillsboro, Republicans campaigned for the opportunity to challenge Sen. Chuck Riley in the General Election. Like the Senate primary in Portland, many had watched this primary for its spectacular infighting. Several months ago, the Senate Republican Caucus had fielded Alexander Flores, an advocate of Latino causes, to run in the race, but not before former Sen. Bruce Starr and Rep. Julie Parrish had recruited Monte Akers, a former school board member. The campaign often featured pointed attacks from both candidates and their supporters, resulting in several media stories about the infighting. Ultimately, Alexander Flores emerged as the victor of the race, winning by nearly five percent of the vote.
In the Eugene area, Democrats competed to fill the seat retiring Rep. Phil Barnhart, who held the seat for nearly two decades. While the district contains both urban and rural areas, the Democratic registration edge means that whoever won the Democratic Primary was likely to become the next State Representative. Marty Wilde, executive director of the Lane County Medical Society and a part-time Air National Guard colonel, defeated Kimberly Koops, a law student, by a margin of just seven points. Although Wilde campaigned as a progressive, he is seen as more pragmatic than idealistic. Wilde will face off against Republican Mark Herbert, a management consultant and former executive at Oregon Community Credit Union, in the General Election this November.
On the North Coast, Democrat Tiffiny Mitchell defeated attorney John Orr and Tillamook County Commissioner Tim Josi to become the Democratic nominee. Mitchell works as a case management coordinator for the Oregon Department of Human Services. Despite being somewhat new to the State of Oregon, Mitchell was recruited by Portland Democratic legislators and supported by the public employee unions. She ran on a decidedly anti-Trump platform, casting her Democratic opponents as too conservative for the district despite its relatively moderate character. Mitchell will now compete against Republican Vineeta Lower and Independent Party nominee Brian Halvorsen. Lower is a grade school teacher who immigrated from India and Halvorsen describes himself as a community organizer with a background in sales.
If the Primary Election is a precursor to the General Election, then it appears a wave is coming, and potentially a big one. Democrats who pledged to be part of the Trump resistance or were able to draw a comparison between President Trump and their Democratic opponent tended to emerge victorious. This type of positioning is expected in urban areas like Portland and Eugene, but this tactic proved successful in the rural areas too. Some may say that this is simply internal party politics and Democratic infighting. But the nonpartisan Labor Commissioner race, which was the only statewide showdown between a Democrat and a Republican, could foreshadow the potentially devastating impact Republican candidates will face from having President Trump as their party’s leader. Hoyle successfully painted her opponent, Lou Ogden, as a Trumper, and even though Republicans turned out in higher percentages than Democrats, Hoyle trounced Ogden by 17 percentage points—otherwise known as a landslide. Republicans should heed these results as a warning for their General Election prospects.
Given the effectiveness of this strategy in the primary, the odds are more than likely that Democrats will continue to employ this strategy in the general with potentially devastating consequences for Republicans. Unless Republicans are able to develop a savvy way to distance themselves from President Trump, the odds are that Democrats will gain additional seats in the state legislature and potential supermajority control in either or both chambers.
Oregon lawmakers began their legislative session with an ambitious policy agenda. Democrats, who have controlled the state legislature for nearly a decade, introduced policy proposals that would have instituted a cap-and trade program, Medicaid and campaign finance reforms, and a constitutional amendment mandating universal healthcare. Despite the ambitious agenda, the legislature was in a race against the clock to meet the deadlines of session.
Lawmakers began convening in even-numbered years only recently. Voters approved the so-called “short sessions” to allow the legislature to address the immediate needs of the state without needing to meet in special session, as had become custom. The first several short sessions held high-profile and controversial debates regarding land use, raising the minimum wage and a moratorium on coal-powered energy. None of those debates addressed an issue of statewide emergency; instead, these debates were all politics for the campaign cycle.
After a series of policy mishaps in previous short sessions, the Senate instituted a rule of one bill per member. The House followed suit, but with a limit of two bills per member. These limits significantly reduced the amount of legislation flowing through the process but still resulted in an overabundance of legislation in the House Chamber, continuing the heavy-handed nature of campaign-style politics. Multiple times this session, leadership found itself trading rather innocuous measures to appease their constituencies. For instance, a proposal to clarify the players of the Portland Winterhawks hockey team were amateur athletes and not employees was trounced by leadership to appease teachers unions who had lost support for an unrelated measure incorporating class sizes into contract negotiations. These trades became frequent in the waning days of session and resulted in the demise of many active negotiations.
Among the more controversial measures approved by the legislature is the state’s response to the recently enacted federal tax reform. Oregon relies on the rules found in federal tax law for the starting point of its own tax system to simplify compliance. The federal reform included a new provision allowing businesses that pay taxes on their owner’s personal tax filing to deduct 20 percent of their total income. Oregon’s tie to federal tax law would have automatically included this deduction for state taxes unless the legislature actively “disconnected” from the provision. Democrats, citing budget concerns, elected to disallow the deduction without a single Republican vote. The controversial nature of the vote, and taxes in general, has resulted in threats of lawsuits from Republicans and affected businesses. There may be one more twist in this saga, however, as the governor has indicated she is mulling a potential veto of the measure out of concerns over the measure’s impact on small businesses.
Despite the ambitious agenda set out at the beginning of session, by and large, most controversial measures were stopped by Senate leadership. Rather than create party fights, the Senate leaders produced rational compromises to gain bipartisan support when possible. Most controversial measures were pushed off to an interim process to sort out the details in advance of the 2019 session.
As session waned and the most contentious bills were tabled, the attention of the legislature appeared to shift toward the intended purpose of the short sessions: rebalancing the budget and dealing with pressing issues. Economists had originally forecasted a $300 million decline in revenues, but the surging stock market and an unanticipated windfall in the lottery program more than balanced the projected deficit. This provided significant ease for the lawmakers responsible for balancing the budget and even allowed them to make modest investments in public facilities and services.
Notwithstanding the expected campaign-style politics, it appears the legislature is beginning to learn how to run itself during short sessions. Many political insiders anticipated the session would run until the last possible minute before the required adjournment. Instead, the legislature ended eight days early while leaving many of the unresolved issues for a future session.
Legislative Report for March 7
HB 4068—Slow Pay/No Pay Contracts for all Seeds (Passed both chambers)
The bill was referred to as the “Slow pay/No pay bill” after an earlier grass seed bill. It established requirements for production contracts and purchase contracts for seed other than agricultural seed.
Anna Scharf, Amity farmer; Jenny Dressler, Oregon Farm Bureau, and Roger Beyer, Oregon Seed Council testified in favor of the bill. Anna Scharf testified, explaining the history of the bill and the lawsuit brought by the bank against growers of proprietary seeds seeking seed as collateral on a defaulted loan. She testified that a bill brought to protect grass seeds in 2011, HB 2159, established financial assurance for grass seed growers in statute but did not include specialty seeds.
Jenny Dressler, Oregon Farm Bureau, testified that an interim work group, including the Oregon Farm Bureau, Oregon Seed Council, Oregon Seed Association and others, had worked through the logistics of the bill.
It went to the Floor with a unanimous vote from the House Ag Committee.
HB 4001—Cap and Trade (Died in Committee; will most definitely be back in 2019)
HB 4001 and SB 1507 were sister bills dubbed “Clean Energy Jobs Bills.” In previous sessions, they had been called “Cap and Trade” and sought to cap green house emissions. Although they continued to be worked in hopes of moving the ball forward before 2019, both bills were considered dead from the start by leadership offices on both sides of the building.
HB 4002—Air Quality Program (Died in Rules Committee)
Unfortunately, there were not a lot of detail about which industries this bill would have affected because the bill did not provide those details. DEQ issues classifications for air quality by rule, so any changes to classifications would have happened by rule. This bill simply allowed them to establish a fee based on a complicated national algorithm to assess on certain industries – to be determined through rule.
The bill was complex and was subsequently sent to the Rules committee where it died but we may see it again in amended form in 2019
HB 4126—Household Fertilizers as Hazardous Waste (Died in Ways and Means)
We were monitoring this for its affect on fertilizers, but the bill remained specific to household products, not industrial use.
Legislative Report for March 2, 2018
After weeks of warring over the contentious fights of session, legislative leadership from both parties have reached an agreement for adjournment. The Ways & Means Committee is moving forward on its final budget bills. There will be a lull in activity while staff prepares the final budget paperwork for the bills to be voted on the floor. Meanwhile, the floors of both chambers are expected to be active all day today and tomorrow to pass the final bills of session. Among these bills is the controversial proposal to disallow a new income tax deduction created by the federal government during the recent overhaul. The proposal to “disconnect” from this proposal has become one of the most contentious political battles of session and the governor has hinted she may consider vetoing the proposal if it reaches her desk. We will have a more thorough report for you covering all the legislative activity next week.
Legislative Report for February 16, 2018
Today, state economists released their latest economic forecast before a joint meeting of the legislative revenue committees. These meeting are frequently coveted as a turning point in the legislative session because they are the only time state lawmakers are briefed on the current condition of the economy and the tax projections for the budget cycle. The report today comes with added emphasis because of the sweeping changes recently made to the federal tax code by President Trump and Congress, rewriting the rules that affect all individuals and businesses in all industries. States rely, to varying degrees, on these federal rules for defining the starting points of their own tax systems; therefore, changes in the rules generally have a direct impact on state tax collections. Oregon is among the few states relying on nearly all these rules, meaning most changes will have a disproportionate impact on tax collections compared to your average state.
As many anticipated, Oregon will see a decline in tax collections as a result of the new federal tax law. State economists are reporting tax collections will decline by $217 million for the current biennium. There is important context behind this figure to keep in mind. The revenue forecast is based on current law, meaning that any changes currently under consideration in the legislature are not included in the forecast. The revenue committees are considering proposals to address quirks in the state tax treatment of the multinational businesses being taxed on money being brought back to the U.S. (“repatriation”), and the change is estimated to turn a loss in collections into a net gain by approximately $100 million. Additionally, the legislative revenue committees are considering changes to the state tax treatment of business income tax paid on an owner or shareholder’s personal tax filing (also called “pass-through” income). These changes would significantly change the overall budget impact of the new federal tax law by effectively raising state taxes on those groups.
Overall, state economists are expecting the economy to continue firing on all cylinders. Many of the provisions in the new federal tax law will have a stimulating effect on the economy. In particular, the changes to a business’s ability to deduct new investments in equipment and machinery are expected to immediately incentivize local economic growth. These provisions, commonly referred to as “expensing,” are among the highly acclaimed changes made in the law according to most economists. There are some legislators who have raised concerns about the benefits of the tax relief provisions being used primarily for dividends to shareholders and stock buybacks. State economists acknowledged such activity is likely to a degree but also asserted it would create taxable wealth in the economy.
Lawmakers have been anticipating the negative impact on state tax collections from the new federal tax law and have been hard at work during the first two weeks of the legislative sessions devising their response. Thus far, only the proposal addressing the technical quirk concerning the new repatriation tax has progressed in the legislative process. Now, with the information released today, lawmakers will begin the heavy lifting of adopting changes to the state tax code to address the new federal tax system.
Besides the economic forecast, the biggest development in the building this week was the passage of the first official deadline of session. Bills that have not moved out of the committees in which they were introduced by close of business today will no longer be considered “alive” in the legislative process. The deadlines are self-imposed by the legislature in order to focus on passable priorities. With that said, there are a number of ways leadership can postpone the deadline for specific items of legislation by moving measures to the budget or rules committees, and such “life support” has come in abundance this session.
The controversial cap-and-trade measures introduced at the beginning of the session were approved by their respective policy committees. However, the measures were referred (moved) to the rules committee rather than moving through the traditional legislative process. Democrats asserted the policy framework was incomplete and needed additional guardrails before it could become law. If previous sessions portend the future of this policy, the rules committee may be less “life support” and more of a graveyard for these proposals. Nevertheless, the proposal will remain in play for the remainder of the session and may return if Democrats are able to muster the votes needed from their caucuses. Applying pressure to this one issue will all but surely come at a political cost for the issues the legislature needs to address before adjournment, such as updating the tax code and passing a budget.
These “short” sessions were presented to voters as an opportunity for their legislature to convene to address immediate issues without requiring a special session, which typically demand either great political pressure or an emergency. The primary issue the legislature said it would use these sessions for is to recalibrate the state budget to improve budget accuracy and prevent unanticipated deficits. Oddly enough, the legislature has focused nearly all of its attention on partisan campaign priorities and very little on the state budget. This will change in the coming week, but the hyper-partisan proposals moving through the legislative process are anticipated to create a rapid-pace and high-stakes confrontation over party priorities and the will of the voters.
Although the state economists reported there will be a decline in tax collections of $217 million from individuals and corporate income taxes, the lower collections are projected to be offset by unanticipated growth in the state lottery program and a larger carryover balance from the previous budget cycle. Altogether, there is said to be an additional $255.4 million in total budget capacity.
Slow Pay No Pay voted off the House floor and headed for the Senate
HB 4068 was voted out of the House Chamber on Tuesday, February 13, with no votes in opposition. Rep. Bill Post (R-Keizer) carried the bill on the floor, giving a brief speech on how successful the program has been for grass seed farmers. No one else spoke on the floor and the bill passed with 59 yes votes, with Rep. Bill Kennemer (R-Oregon City) excused. The bill has been scheduled for a public hearing and possible work session on Monday, February 19, in the Senate Business and Transportation Committee.
Cap and Trade—Senate and House bills sent to Rules Committees
On Monday, February 12, the Senate Committee on Environment and Natural Resources held a hearing on the cap-and-trade bill, now referred to as the “Clean Energy Jobs Bill.” Deputy Legislative Counsel Maureen McGee gave testimony on the -4 amendments to SB 1507.
Several committee members questioned Deputy McGee regarding the labor and workforce section, which states participants must have an apprenticeship training program and must comply with the Construction Contractors Board, Workers’ Compensation Division and Occupational Safety and Health Division of the Department of Consumer and Business Services. It also adds compliance with Oregon Building Codes Division and states contractors must demonstrate a history of compliance with federal and state wage and hour laws. Sen. Herman Baertschiger (R-Grants Pass) questioned what would happen if a new contractor bids and if it would preclude nonunion entities. Deputy McGee said she would research the nonunion aspect and look into statutes to be sure the language would not preclude new entities.
Sen. Cliff Bentz (R-Ontario) raised concerns that the bill could bring undue impacts to the recently passed transportation package. Chair Michael Dembrow (D-Portland) reminded the committee that the emergency clause was removed so the bill could potentially be referred to the voters. When pressed on how much the bill would cost, Chair Dembrow said the cost will be known more after the revenue forecast.
Senator Floyd Prozanski (D-Lane and Douglas Counties) moved to adopt the -4 amendments, with support from Sen. Arnie Roblan (D-Coos Bay). Sen. Bentz said he would not support the amendments due to the parallel situation with the 2017 transportation bill. The transportation bill was passed after a bipartisan group met around the state for six months. Support of the public was received for the transportation bill even with an increase in the state gas tax. Sen. Bentz said this bill has not been presented to nor has the support of the people. Chair Dembrow disagreed, adding that over the last year, a very public process had taken place.
Co-Chair Alan Olsen (R-Canby) said he cannot support any bill that will mean job losses from businesses that the state considers good employers, even though the highest polluters have started reducing their pollution. Sen. Roblan reminded the committee that they were voting on the -4 amendments and not the bill.
The -4 amendments were adopted along party lines, with the Republicans voting no. The bill is expected to have a work session this week.
On Wednesday, February 14, Sen. Roblan moved to send the bill to the Senate Rules Committee for policy changes, with a subsequent referral to Ways and Means.
As with SB 1507, the House version of the cap-and-trade bill was also sent to its corresponding Rules Committee this week. On Wednesday, February 14, the House Committee on Energy and Environment held a work session on HB 4001, the sister bill to SB 1507. Chair Ken Helm (D-Washington County) decided to move the bill forward without adoption of the amendments. Rep. Karin Power (D-Milwaukie) made a motion to send HB 4001 to the House Rules Committee with a do-pass recommendation and a subsequent referral to Ways and Means. The bill moved on a party-line vote.
Industrial Air Toxics Program sent to Rules for further discussion
HB 4002 received a public hearing on Monday, February 12, before being sent to the Rules Committee on a party-line vote. The House Energy and Environment Committee heard testimony on the program from the Department of Environmental Quality director, Richard Whitman, who explained that the proposal would require companies that are over certain health risk levels to install best available toxic control technology. This would necessitate an analysis across the country of the best emission control strategies, which businesses would be required to install. The committee also received a multitude of testimony from concerned residents and environmental advocates.
Product Stewardship Program moves out of first committee
HB 4126 is a simplified version of last year’s product stewardship program legislation. Last year’s bill died in Ways and Means, and the proponents hope that this version of the program will gain more support. The bill affects about 17,000 products that could be flammable, covering everything from aerosol spray cans to bags of fertilizer. It is specific to household products. The bill was scheduled late Tuesday night and received less than 30 minutes of testimony. HB 4126 received support from several environmental interest groups and local governments, and opposition from Oregon Business and Industry (OBI). It was voted out of committee less than 24 hours from its posting on almost a party-line vote, receiving support from one Republican, Rep. Daniel Bonham (R-Hood River) and moving to the Ways and Means Committee for further deliberation.
Aurora airport expansion on land zoned farmland moves to Rules
HB 4092 had a public hearing and a work session this week in the House Committee on Transportation Policy. The bill establishes standards for expansion of a state airport on land zoned for exclusive farm use. The bill specifically focuses on the expansion of the runway at the Aurora Airport. There has been much debate over the state allowing the expansion without environmental impact statements. Many legislators are in bi-partisan support of the bill, as are surrounding cities of Aurora, yet some residents feel they have been left out of the process.
Rep. Rick Lewis (D-Silverton) a former mayor of Silverton and sponsor of HB 4092, says the bill would allow for federal funding while leaving the land adjacent to the expansion as farmland. There have been some issues raised regarding access and if the land adjacent would be usable as farmland.
The -4 amendments were posted on the Oregon Legislative Information System (OLIS) on the evening prior to the work session. Chair Susan McClain (D-Hillsboro) told the committee that because there was no time to review what they were voting on and because the committee did not have the fiscal and revenue statements, she recommended adopting the -4 amendments and move the bill to the Rules Committee. Vice Chair Meek (D-Clackamas County) made the motion to adopt the -4 amendments, suspend the rules and move the bill to the floor without recommendation and with a referral to Rules. The bill moved to Rules unopposed.
Legislative Report for February 9, 2018
The Oregon Legislature has officially begun its fourth official “short” session. Since the move to annual sessions, we have told our clients these sessions would become nothing but a stage for campaigns to be launched. This could not be truer for the current session.
Gov. Kate Brown gave her State of the State address before a joint meeting of the legislative chambers. These speeches are traditionally used as an opportunity for a governor to outline the parameters of session and establish the priorities for her party. Instead of sticking to the norm, however, the governor focused on a longer-term vision for the state and outlined her priorities for her second full term. She talked about enhancing state workforce training programs and made a commitment to fight for game-changing increases in the public school system. To many, the speech stood out not for its content, but for the items that were excluded, such as identifying the funding sources to make these investments. Make no mistake, Oregon will be in another “budget crunch” session in 2019, and any significant investments will need to have dedicated funding sources. Comments like these should be followed closely because, between the lines, there is a conversation brewing for the next session that will almost certainly include tax increases.
Some of the major policy priorities in the Democratic agenda for this session include a new cap-and-trade program and a transparency requirement for pharmaceutical companies to justify increases in the costs of their drugs. Both of these measures are supported by well-funded advocacy groups who have dedicated six-figure budgets for advocacy. On the airwaves and across social media, Oregonians are seeing campaign-style advocacy (and, to varying degrees, opposition) advertising putting pressure on lawmakers to vote in a particular way. This type of politics is common in states such as California and New York but stand out in a small state like Oregon.
The biggest news of the week, however, is undoubtedly the announced retirement of Sen. Jeff Kruse (R-Roseburg). An independent investigator released a report earlier in the week detailing accounts from women accusing the senator of sexual misconduct of colleagues, staffers and lobbyists in the building. The senator denied and continues to deny the allegations but announced his resignation before an official conduct committee could meet to formally sanction him. For those of us in the Capitol, the announcement had appeared inevitable. However, many were surprised to learn that his resignation would not be effective until March 15, several days after session. The delayed resignation means the senator will remain in office through the candidate filing deadline, and county commissioners will likely appoint his replacement from the pool of candidates. The district is a very safe conservative district, and the appointee would run for reelection technically as an incumbent. This means the commissioners will likely decide this election—not the voters.
The first major deadline of session occurs at close of business today. If a bill has not been scheduled for a work session (vote) by the end of the day, the bill will effectively die in committee. By the end of next week, bills that have not been voted out of their committees will also become effectively dead. This means the number of active bills in the legislature will be significantly reduced in a matter of days.
There is another major event scheduled for next week. On Friday, February 16, state economists will release the all-important revenue forecast. This will be the only opportunity this session for lawmakers to learn the most up-to-date estimates of the amount of funds available for the state budget. Another reason the forecast will be particularly interesting is that it will be the first time lawmakers receive a formal account of the impact of the recent changes to federal tax law and the inevitable increase borne by taxpayers in the state.
Slow Pay No Pay conceptual contract rules mirrored for all seeds in Oregon
HB 4068 was adopted from HB 2169 commonly known as the “slow pay, no pay” bill established during the 2011 Legislative Session specifically for the grass seed industry. HB 4068 aims to extend the seed production and purchase contracts to the entire seed industry. This bill was negotiated and agreed upon during a 2017 work group that included growers, member associations, seed companies and the Oregon Dept. of Ag.
HB 4068 will establish requirements for seed production contracts and seed purchase contracts for commercially-grown seed or seed mixtures. It specifies payment and payment schedules to the producer under a seed production contract and authorizes the Dept. of Ag to adopt rules and set fees.
Testifying on Tuesday in the House Committee on Ag and Natural Resources was Rep. Post (R-25) chief sponsor of the bill, Jenny Dressler with the Oregon Farm Bureau, Roger Beyer, Executive Director of the Oregon Seed Council and Anna Scharf, Scharf Farms.
Anna Scharf testified that the concept of the bill was adopted from the 2011 grass seed bill, and came as a result of a lawsuit filed against growers in 2014. Jenny Dressler added that the grass seed industry had acknowledged the bill could mirror HB 2169, but asked that specialty seeds not be inserted into the original grass seed statute. Roger Beyer urged the committee to move HB 4068, adding that the Oregon Seed Council represents the seed industry in Oregon as the umbrella group.
On Thursday, February 8, Chair Clem (D-21) held a work session on HB 4068. Vice Chair McClain (D-29) made a motion to move HB 4068 to the floor. The motion passed without objection. Rep. Post (R-25) will carry the bill on the floor.
Cap-and-Trade receives a lot of attention in the first week
The House and Senate held joint public hearings on HB 4001 and SB 1507. Although the issue was expected to dominate the short session, legislators on both sides of aisle now believe there is not enough time for the complex issue to be completed this year. Both bills are scheduled for a work session on Monday, February 12, at which point they could be sent to Ways and Means in order to stay alive.
The cap and invest proposal would place a limit on carbon emissions and then charge those companies for “allowances” to exceed the limit, which can be sold or traded on the open market. The cap would gradually be reduced over time, and the money raised by the program would be placed in funding pools for climate-friendly state initiatives, such as renewable energy development. Oregon’s proposal would take effect in 2021 and require companies that emit more than 25,000 metric tons of carbon annually to purchase allowances.
Supporters of the legislation argued about the immediate need for action to address the effects of climate change. Opponents included a broad spectrum of business, but agriculture groups were represented by the Oregon Farm Bureau, Oregon Cattlemen’s Association and Northwest Food Processors Association, all of which testified to their concerns that the bill would raise the cost of food and electricity. Some proponents argued that agriculture could benefit from the bill because a portion of revenue collected by cap-and-invest would go into a climate investment fund, which could provide grants to help farmers increase carbon sequestration.
Air Contamination and Household Hazardous Waste bills will receive hearings this week
• HB 4002 is scheduled for a public hearing and possible work session on Monday, February 12.
• HB 4126 is scheduled for a public hearing and possible work session on Wednesday, February 14.
• HB 4021 – DEAD.
Legislative Report for February 5, 2018: State of the State Address
The February session kicked off today with all the pageantry that goes along with typical opening day ceremonies. In a Joint Session of the Oregon House of Representatives and Senate, Gov. Kate Brown delivered her State of the State speech.
Traditionally, State of the State speeches run the gamut of issues facing the state from the ten-thousand-foot view. Gov. Brown broke with tradition and focused nearly the entirety of her speech on the issue of income inequality. She highlighted Oregon’s low unemployment rate, but she said too many people are forced to work more than one job and still live in poverty. Gov. Brown said, “Oregon’s rising tide should be lifting all boats.”
Gov. Brown announced a new campaign she is launching called Future-Ready Oregon, which seeks to address income inequality through a vast expansion of career and technical educational (CTE) opportunities. Gov. Brown explained that highly technical skills are needed in our workforce. She asserted that state government needs to do a better job preparing high school graduates for jobs in the vocational trades. By better aligning high school graduate skills with the workforce needs of employers, we will give our state an economic advantage by attracting high-wage jobs to Oregon.
She pledged to increase funding for CTE to a total investment of $300 million, which she says will ensure that every high school is providing vocational opportunities for their students. This commitment is similar to Ballot Measure 98 (2016), which mandated priority funding for career and technical education. Oregon voters adopted Measure 98 with 65 percent approval in 2016.
Elements of Future-Ready Oregon Campaign:
1. Equitable State Investments—urban and rural, communities of color, tribes
2. Next-Generation Apprenticeships—improve coordination between growth industries and educational curriculum
3. Turn Wage Earners into Job Creators—rural contractor incentives will create jobs in rural Oregon
4. Affordable Housing—Regional Solutions Team will develop pilot projects for affordable housing in rural Oregon
5. Healthcare Jobs—Provide pathways for healthcare professionals such as home care workers to expand their skillsets
Gov. Brown says this plan will ensure economic prosperity reaches every corner of the state.
Legislative Report for January 12, 2018
State lawmakers in Oregon convened for their final round of interim hearings before the 2018 legislative session. By design, legislative sessions are limited to 35 days in even-numbered years. Originally, this limitation was intended to constrain the natural tendency of lawmakers to pursue significant policy reforms during an election year. We have learned in the eight years since voters approved annual legislative sessions, the time constraints have not prevented lawmakers from pursuing an ambitious policy agenda; in fact, the annual sessions may even encourage it.
One of the main policy priorities of the governor and some majority-party legislators is to create a new cap-and-trade program designed to reduce carbon emissions from various industries. The program would essentially allow carbon emissions under a certain amount (currently designated as 25,000 metric tons of carbon per year) and require businesses with higher emissions to purchase carbon offsets from the state. The proceeds from these offsets would be reinvested in renewable energy and environmentally-friendly projects. The program, a long-time priority of the renewable energy lobby, is expected to receive significant opposition from the business community, Republicans and even some moderate Democratic legislators, arguing the time constraints of the session will not provide the legislature enough time to thoroughly evaluate and modify the proposal.
Public pensions are a perennial issue in the Oregon legislature. The legislature enacted pension reforms in 2001 that limited the growing volatility of pension debt, but the courts have ruled the state cannot retroactively skirt its responsibilities for payments promised to current retirees. The attention of the governor and the legislature has shifted from how to further reform the pension system to how the legislature can enact policies to pay off the growing liability. On Thursday, the governor’s office presented a slate of options to leverage (sell) state assets to pay off a portion of the unfunded liability. These proposals include selling unclaimed property, enhancing debt collection practices and dedicating excess state revenues to the pension fund. Collectively, these proposals would reduce the unfunded liability by about $500 million. Unfortunately, the current liability exceeds $25 billion, and meaningful reductions will likely demand a new fiscal paradigm predicated on serious spending constraints and revenue.
State economists released their preliminary analysis of the new federal tax law and its impact on state revenues. The new federal tax law includes significant income tax rate reductions that are partially offset by eliminating specific provisions in the tax code (e.g., exemptions, deductions and credits). Oregon generally relies on the federal tax base as the starting point for its own tax code, and any expansion of the federal tax base (from eliminating some of those provisions) trickles down to the state tax base. The new law is expected to broaden the amount of income on which the state can impose its taxes. But there are also new provisions greatly reducing the federal tax base, especially for businesses that pay their taxes on their owner or shareholder’s personal tax return. Oregon’s reliance on the personal income tax makes some of these changes increasingly complicated, and state economists are continuing to examine the impact of the changes on Oregon. Generally, however, they have suggested the changes could result in a revenue loss for the state in the current biennium but eventually increase state revenues later in the decade as additional federal offsets (increases) take effect. State economists are expected to release a detailed report in the coming weeks.
There are three weeks remaining before the legislative session officially begins, but, before lawmakers can convene on their ambitious policy agenda, voters will first need to decide the outcome of a high-profile Medicaid funding ballot measure. In 2017, the legislature passed an enhanced assessment on hospitals, insurers and Medicaid providers to balance a $1 billion budget deficit for the program. These funding mechanisms are being challenged by a contingent of anti-tax lawmakers and advocacy groups that could undermine the balanced budget passed by the legislature last year. If the measure is rejected by voters, the legislature will need to focus much of its attention on devising a new strategy for balancing the budget.