Legislative Report for May 19, 2017
Rhetoric has been at an all-time high in the legislature this session. Public funding advocates and leadership have been pleading for additional revenue to avert substantial spending cuts to state programs. Business groups have acknowledged a willingness to accept tax increases but have demanded the legislature first express a seriousness towards spending reform to ensure new money is not being used to solve old problems. The health care industry had even rallied behind a proposal to tax itself to balance the Medicaid budget shortfall. It was beginning to feel as if all the warring factions were beginning to find common ground, accepting that any resolution would require a give-and-take. It all seemed too good to be true, and then it all came crashing down to earth.
On Wednesday, Secretary of State Dennis Richardson released an “audit alert” alleging the Oregon Health Authority had wrongfully provided Medicaid assistance to thousands of Oregonians with no idea if they were qualified for the program. The information was not news to anyone in the legislature but became newsworthy after the release. Rumors have been circulating the building suggesting some stakeholders are considering abandoning their support for the health care revenue package, which had been scheduled for release on Thursday. These rumors, regardless of their validity, were strong enough for the budget committee to cancel its deliberations for the day. If the workgroup agreement on the package dissolves, it could send the negotiation into a tailspin.
Oddly enough, the best news of the week was the revenue forecast. Many had dreaded the revenue forecast after rumors of the state’s unique personal income tax “kicker” refund being triggered. If the refunds were required and revenue was otherwise down for the next budget cycle, the deficit would only worsen. The release of the forecast suggested tax filings are coming in faster and higher than expected, anticipating refunds would be required. Unless there is a significant change in tax collections before the end of the biennium, the state will issue up to $408 million in refunds during the next tax filing season. The good news, however, was that projected revenues for the upcoming budget cycle were higher. The additional revenue should offset the refund and reduce the deficit from $1.6 billion to $1.4 billion.
Today marks the next major milestone of session. If a bill is not scheduled for a work session in its policy committee by the end of the day today, it will be considered dead. Like the previous deadline, the rule does not apply to bills in the rules, revenue or budget-writing committees. The policy committees will need to approve these bills by Friday, June 2 for the bills to continue moving forward in the process. Once these deadlines have passed, the rules, revenue and budget-writing committees will become the only relevant committees in the legislature.
Legislative Report for May 16, 2017
State economists released their final revenue forecast before the legislature adjourns in early summer. The forecast is among the most significant events during the legislative session because it is the last time lawmakers will receive updated revenue projections before they must enact a budget. The revenue projections wield a significant importance this year as legislators seek to identify ways of balancing the state’s budget.
The forecast indicates tax collections are coming in faster and higher than previous projections. The amplified collections should relieve some of the pressure building over the budget deficit; however, rapidly increasing revenue is not always a good thing in Oregon. The state constitution requires the state issue a refund to personal income taxpayers if collections exceed two percent of the amount forecasted at the beginning of the budget cycle. The economists announced today they anticipate tax collections will exceed the threshold and refunds will be issued to taxpayers to the tune of $408 million.
The refund will reduce the amount of revenue in the beginning balance carried over from the current budget cycle. The economists also projected a greater amount of revenue to be collected during the upcoming biennium, which more than offsets the costs of the refund. Early estimates of the impact of the revenue forecast will reduce the budget shortfall to $1.4 billion compared to the current level of government services.
Overall, the revenue forecast should bring a brief sigh of relief for lawmakers. A rapidly growing economy is continuing to pay dividends for government services, but such growth cannot be expected to last in perpetuity. Economists suggest we are at the height of the business cycle and anticipate the growth will occur at a slower pace over the next several years as full employment puts the economy on an inflationary treadmill. The economy will eventually correct itself, and legislators would be wise to budget conservatively because the current rate of spending cannot be sustained during periods of weak revenue growth. Nevertheless, according to state budget-writers, legislators continue advancing new programs and new spending requirements without sufficient financing.
The release of the revenue forecast will ignite a new urgency for lawmakers to negotiate a compromise on the budget. The remaining eight weeks of session will be dominated by budget considerations and tax reform. Neither of these conversations are going to be pleasant. It is politically unlikely the budget would be balanced through spending cuts or tax increases exclusively. Democratic leadership has acknowledged, albeit reluctantly, a compromise on the budget must include spending reforms predicated on containing the growing long-term costs of governments services, such as public pensions and employee benefits. The budget will not be balanced without some form of additional revenue. The special tax reform committee is continuing to consider the policy and political feasibility of a low-rate, broad-base gross receipts tax. A ballot measure is no place for tax reform, as we all learned from Measure 97, but if the legislature finds tax reform too difficult to achieve before the next election, we will be faced with an all-too-familiar ballot measure fight.
Legislative Report for May 12, 2017
The season of heavy lifting is upon us in the Oregon legislature. The session has so far been less rowdy than in previous years because the budget has dominated the minds of lawmakers and lobbyists. The temperature in the building has quickly changed over the past several weeks as the focus has shifted from policy bills to balancing the budget. The goodwill referenced in previous weeks has vanished as Democratic leadership begins to rush difficult votes on contentious policy priorities and taxes.
This week, a bipartisan group of lawmakers released a framework for a robust transportation package. The framework calls for increasing transportation-related taxes and fees to spend $8 billion on upgrading the state’s bridges, highways and roads. The new revenues include an increase of the gas tax, raising vehicle registration fees, a sales tax on new bicycles and cars, and a statewide employee payroll tax. Most of the revenues associated with the package would be phased-in over the next decade. The proposed payroll tax, a 0.1 percent payroll tax on all workers, will likely be the most controversial funding component and has already drawn the ire of concerned businesses.
The State Land Board, consisting of the three statewide officeholders, reversed course on its decision to sell the Elliott State Forest. The board is required by law to manage the lands in a trust to fund public schools; however, the sale of the forest has featured a clash between school boards and environmentalists. Environmental interests prevailed this week with the reversal, but the state is required to generate revenue for schools regardless of the ownership of the forest. The state will need to find a way to pay the Common School Fund for the sale of the land from the public trust. There have been several suggested paths for the state to finance the transfer from the trust to the school fund, including borrowing the money through bonds to pay for the land or a transfer of lands with the federal government to sell an alternative for timber harvest. The board is attempting to find a cost-effective method of transferring the land; if they cannot accomplish cost neutrality, however, the legislature may be required to add it to the list of unfunded budget items.
As the legislative workgroups attempt to build consensus on issues such as cost containment, spending cuts, taxes and a transportation package, we are beginning to see committee hearings canceled to allow for negotiations and extended floor sessions. The lull in the regular schedule naturally leads to creative ideas and games by legislators that are not always productive. For example, the Speaker cancelled a planned floor session over concerns the Republicans would refuse to suspend a procedural motion to read only the bill summary instead of the full text. Republicans had not planned to require the reading but did play a prank of sorts on the Speaker by delaying the motion. The delay led the Speaker to believe the rules were not going to be suspended and, to avoid a political bloodbath on the floor, she canceled the proceedings for the day. The incident is by no means meaningful for the direction of the legislature but may be a microcosm of where temperaments in the building are or, better yet, where they are going.
State unveils transportation package
The highly-anticipated state transportation package had its grand unveiling this week. Sen. Lee Beyer (D-Springfield) and Sen. Brian Boquist (R-Dallas) gave an overview on Monday night at an informational hearing of the full committee. Chair Caddy McKeown (D-Coos Bay) explained to a packed hearing room that the proposal was a culmination of the committee’s work across the state along with recommendations from the Oregon Transportation Commission (OTC) and the Governor’s Visioning Groups. Sen. Beyer explained that over the last year, the committee had taken to the road and held 11 public meetings around the state. He said the resounding messages they heard in rural and urban areas were: take care of congestion, protect the public investment and keep Oregon’s economy moving. Sen. Beyer told the committee that Oregon is an exporting state, and many times, people forget that.
The plan, which is set to raise $8.2 billion over the next decade, would raise revenue through various taxes and fees with a ten-year phase in. The new revenues include an increase of the gas tax, raising vehicle registration fees, a sales tax on new bicycles and cars, and a statewide employee payroll tax. The formula set forth is currently a 50-30-20 split. Fifty percent of the new revenue would go to the state, 30 percent to the counties and 20 percent to cities. This is the same formula used in previous transportation packages. The counties and cities would, however, appropriate their monies a bit differently in that counties would have their own appropriations and cities would have a five-person committee staffed by the Oregon Department of Transportation (ODOT) that would review project requests. Approximately $5 million would go to smaller cities and would be absorbed between the state, counties and cities. The first $10 million would go to safer routes to schools.
The proposal concentrates on congestion and freight routes. Sen. Boquist stressed to the committee that Oregon cannot build or tax its way out of congestion. The proposed phase-in revenue, he said, would be approximately $5.9 billion over ten years and would have the same shared formula as the revenue appropriations of 50-30-20. He also noted the proposal for public transit will not include light rail. Sen. Beyer told the committee that even in the rural coastal areas, public transportation was a concern. The plan also aims to move to a user-fee system and will include a five percent tax for bicycles that will go toward the one percent state funding for bike lanes and sidewalks that the law requires. This will be a new tax, he added, that will help offset the cost for off-road commuter routes within cities.
In the next three or four meetings, the committee will break down those recommendations and work toward a consensus so the bill drafters can begin drafting a bill that will be about 400 pages.
On Wednesday, Sen. Boquist gave a breakdown on the first of the recommendations from
the work group on Highway Maintenance and Preservation. Sen. Beyer told the committee that what is needed is a consensus on what will be drafted in the bill; this will not lock members into supporting any specific detail of the bill. He stressed that time was running out and the goal is to have a package in bill form on the House floor by early- to mid-June.
Sen. Boquist went over the 50-30-20 split to show the committee that by having this formula, the state will be starting with half of the budget and that will go very quickly. He told the committee they needed to decide if they wanted to keep this formula and if they wanted to write a package that looks at long-term funding with a dedicated source or continue funding like the state has in the past, coming back each session to pass budgets.
Rep. Andy Olson (R-Albany) said he believed they should “go big or go home.” Not all of the members shared that sentiment. Sen. Fred Girod (R-Stayton) said he liked “biting off smaller pieces of the apple” and he thought the current proposals, specifically looking at a gas tax, would have to go to voters if it exceeded four cents a gallon. He proposed they raise the gas tax three cents per year for four years rather than the current proposal to start off with a six-cent hike. Sen. Beyer noted that in a decade, you would be at the same place, but you would just get there by piecemealing the budget year after year. Rep. Greg Smith (R-Heppner) agreed with Sen. Girod, adding that for those in rural Oregon, “some of this is a stretch” (referring to the .1 percent tax for public transit). Sen. Girod said in his district, they call that “Portland money.”
Rep. Barbara Smith Warner (D-Portland) voiced her concerns about funding for the Low Carbon Fuel program that she said is working well as an economic development tool for Oregon. Rep. Cliff Bentz (R-Ontario) replied that the committee could not overlook the 19 cents per gallon that program will cost. He told Rep. Smith Warner that passing a transportation package is “light years more important.”
Stay tuned as we bring you more overviews of the work groups as they unfold. _______________________________________________________________________________
Legislative Report for May 5, 2017
The general outline of a budget compromise has been clear since the very beginning. Democrats have been arguing that balancing the budget exclusively on budget cuts would be devastating for state services, especially for public education and the state-managed Medicaid program. Therefore, tax increases have become almost a certainty before the legislature adjourns in July. The specifics of a budget compromise remain unknown, but the frontlines of the budget battle were drawn this week.
Underlying the current budget shortfall is a long-term, structural budget imbalance where the inbound revenues simply cannot keep up with the growing cost of government-provided services, which increase at a rate far greater than traditional inflation. A bipartisan legislative workgroup tasked with identifying ways to contain the growing cost of services without eliminating programs outright has released a list of recommendations. The group suggests the legislature require public employees contribute to the pension account, combine the health insurance programs for teachers and state workers into a centralized program and limit collective bargaining expenses to the funds allocated by the legislature. Budget writers have not assigned targeted savings from these changes but they are currently scoring and evaluating proposals.
Another bipartisan workgroup has been working to define a health care revenue package funded by the industry. The shortfall in the Medicaid budget, the single largest agency hole, approaches $1 billion. Leaders in the legislature and the health care industry have stepped up and are looking at a variety of approaches to bridge the budget gap to continue fully funding health care for the state’s most disadvantaged populations. These negotiations remain ongoing, but the workgroup has made significant progress in the past couple of weeks.
Legislative leadership has appointed a 14-member special committee to examine options for reforming the state tax system. The effort follows a two-year endeavor in the Senate to evaluate the current revenue structure and evaluate opportunities to enhance revenue stability. Oregon, one of only five states in the nation without a sales tax, relies heavily on the personal income tax. These taxes are considerably volatile based on the health of the economy. In times of strong economic growth and business investment, such as today, personal income runs high and generates strong revenues to fund state services. During times of slow economic growth or a recession, however, those revenues slip well below the national average. Sen. Mark Hass (D-Beaverton), chair of the Senate Finance and Revenue Committee, has long sought to address this volatility by reforming the structure for taxing business activity in the state.
On Tuesday, a third bipartisan workgroup released a blueprint for restructuring the business tax system, calling for an elimination of the corporate income tax and replacing it with a low-rate, broad-base gross receipts tax modeled after a reform used in Ohio. The term “gross receipts tax” may strike a chord for anyone familiar with the Measure 97 campaign from last fall. The ballot measure was a high-rate, narrow-base gross receipts tax. Oregonians rightfully rejected the ballot measure because of the harmful economic consequences of the poorly conceived proposal. We said all throughout the campaign that a ballot measure was no place for tax reform. Reforming the tax code is no simple task and requires collaboration and compromise, none of which are an option on the ballot as they are in the legislature.
It did not take long for the reform deliberations to reach their first obstacle. On Thursday, House Democrats released an overly ambitious and politically reckless tax proposal. The monolithic proposal—a high-rate, narrow-base gross receipts tax—effectively stands as the reincarnation of Measure 97. The tax would be assessed at a rate of 0.95 percent on businesses’ sales in Oregon if the sales exceed $5 million. It is said to generate an additional $2.5 billion in revenue. The proposal is in direct competition with the tax reform blueprint released by the bipartisan workgroup and jeopardizes ongoing budget negotiations. Tax reform would be a delicate negotiation it its own right, but, given the severity of the budget challenge, there are limitations to the extent the legislature can reform its way to new revenue. Some in the business community have been meeting with the drafters of the reform blueprint to identify a pathway forward, but the self-serving and overtly political release of the ambitious revenue package threatens the opportunity for a real reform to materialize.
There may be another wrinkle in the ongoing saga to balance the state budget. State economists and the Department of Revenue have warned lawmakers of an increasing possibility for state revenues to far exceed earlier projections. The state constitution requires the legislature to return excess personal income tax revenues if the amount collected exceeds two percent of the estimated amount at the beginning of the budget cycle. Previous forecasts concluded a kicker would not be likely for the current budget cycle; however, tax collections during the first four months of this year have come in much stronger than expected. State economists will release their final revenue forecast of the budget cycle on May 16, which will indicate if the high collections will trigger the tax refund. If the kicker refund is triggered, lawmakers should expect to see an additional $400 million or more added to the current budget shortfall.
There are nine weeks separating today and adjournment, and a resolution for balancing the budget continues to feel out of reach. Lawmakers may be tempted to use the budget crisis as an opportunity for political posturing. Doing so, however, only jeopardizes opportunities to find a viable solution.
Legislative Report for April 28, 2017
We are currently in the calm before the storm in the Oregon legislature. The demise of roughly two-thirds of the bills has created a lull in activity. Lawmakers are spending much of their time in the procedural motions as bills move from one chamber to the next. The high volume of bills passed out of committee in the final days before the chamber of origin deadline has led to long hours on the chamber floors as lawmakers must discuss and vote on each bill, individually. The procedural motions create a lag for committees to move forward on the bills already in their committee. When lobbyists have fewer targets, it frees up time to oppose more bills that had previously been lower priorities.
The few remaining contentious issues, besides the budget, are being postponed while attention shifts to the strenuous task of balancing the state budget. Newspaper accounts of the legislature have focused on recent budget developments, such as the list of budget cuts and a cost-containment report from budget leaders, but there has been minimal progress in defining the pathway forward. These developments are more a political tactic to drive attention towards the revenue debate than they are about addressing the $1.6 billion shortfall.
Leadership has formed a special committee on tax reform to consider options for restructuring the state tax system. Oregon’s revenue stream is highly volatile because of its reliance on the personal income tax. Lawmakers are interested in finding ways to reduce the volatility and, potentially, raise revenues in the process. The committee is expected to focus on a proposal crafted by a bipartisan group of legislators that would eliminate the corporate income tax and replace it with a low-rate, broad-base gross receipts tax. Legislators from the workgroup argue the new proposal presents an alternative to the gross receipts tax proposed in Measure 97 because it is a low rate assessed across most or all businesses, instead of a high rate assessed on a narrow group of businesses.
There are already some factions in the business community, primarily retailers and out-of-state businesses who are not currently taxed in Oregon but would under the proposal, who are reviving the opposition campaign from Measure 97. The committee will begin meeting next week. However, it may be too late for the state to reform its way to new revenue. Tax reform is a delicate and time-consuming process that usually takes years, not weeks, and our state legislators simply do not have enough time.
In the continuing saga on budget proposals, Gov. Kate Brown announced a series of cost-reduction strategies she will deploy using executive orders. Thus far, the governor has announced an executive branch hiring freeze, time restrictions for state employee collective bargaining and a task force to identify cost reductions in the public pension system. These budget announcements, similar to those in the legislature, are mostly political. The business community has committed itself to a conversation on business tax increases if the legislature acknowledges it has a spending problem. The efforts of the legislature and the governor to suggest spending reductions are an effort to appease the business community and demand their presence at the negotiation table.
The continued release of budget proposals and tax increases will surely raise the level of tension in the building. There will be more scare tactics that will be a tough pill to swallow for some. It is important to remember the nature of the legislature is to collaborate and compromise to find a middle ground. There will be a middle ground, but there will also be winners and losers.
Legislative Report for April 21, 2017
The chamber of origin deadline marked the halfway point of our legislative session. On Tuesday, the official deadline, many bills were laid to rest in their committees after never receiving a “work session” or vote. There were more than 2,600 bills introduced in the legislature. Of those, approximately 400 were approved by policy committees. The volume of bills moving through the process is noticeably lower than in recent sessions, a possible signal of the tumultuous times ahead over the budget.
It may be halftime in the legislature, but there will be no break for lawmakers. Normally, the chamber of origin deadline is the big news of the week during regular session. We are by no means in a normal session because of the budget challenges. On Monday, the Co-Chairs of the Ways and Means Committee released their “working budget,” an itemized list of spending cuts to balance the multi-billion-dollar budget shortfall. Among the proposed cuts are a significant reduction of funding for public schools ($212 million), the elimination of Medicaid expansion under the Affordable Care Act ($256 million), significant cuts to health-related services for the state-managed Medicaid program ($131 million) and other reductions across state government, totaling $1.77 billion.
Ideas on immediate relief to the budget shortfall are running rampant around the building. On Thursday, Republicans called for a two-year hiring freeze for state agencies in an effort to reduce spending by $790 million, according to their estimates. Several hours later, Gov. Kate Brown announced her own hiring freeze of two-months to reduce new expenses while the legislature defines a path forward on the budget. Both plans are politicking at its worst. Republicans announced their proposal in advance of the governor’s announcement. The governor’s announcement, similarly, was an effort to appease the business community and budget hawks, suggesting the state would take spending reform seriously. Ultimately, the hiring freeze includes several exemptions for essential personnel and there is no evidence a hiring freeze could be implemented in the manner either party has suggested.
Moving forward, the budget discussion will dominate the legislature. Policy bills will become a second tier as lawmakers begin to understand the options and the ramifications of potential budget solutions. Legislative workgroups will begin releasing reform packages for containing the increasing costs of essential government services and new sources of revenue dedicated to specific programs, including a series of health care taxes and the possible return of a business gross receipts tax. In the end, spending and revenue reforms are expected to be limited as the clock to adjournment begins to count down.
We are now past the chamber of origin deadline and the basic framework for a transportation package has not been released. A joint legislative committee has spent a significant amount of time considering financing and investment options for a robust transportation package. The package was expected to be released this week, but backroom deliberations continue. The delay could prove to be a problem for transportation leaders as the larger budget deliberations become the primary focus. If leadership cannot get the timing right on a package, there will be an increasing probability the transportation package fails to move forward before adjournment and becomes part of a special session.
It is tempting to become hopeful given the high-stakes negotiations occurring in the legislature. These special committees and workgroups need time and collaboration to be fully fleshed out before they are released into the wild. The limited amount of time remaining in our legislative session will surely limit the volume of proposals allowed to move forward, especially given the budgeting challenges. As a result, the probability of a special session later this year is becoming increasingly likely.
Liability for patent holders of genetically engineered technology (HB 2739)
The House Judiciary Committee moved the bill creating a cause of action against patent holders of genetically engineered technology to the House Rules Committee. The Rules Committee is not bound by the chamber of origin deadline. Speaker Tina Kotek (D-Portland) has said she wants to see something done to allow harmed growers to seek damages for unintentional drift, but there is no consensus or real starting point for an alternative. The bill will likely remain in the Rules Committee unless leadership decides to entertain amendments.
Legislative Report for April 14, 2017
The moderate speed of the legislature fundamentally changed this week as legislative committees worked tirelessly to approve bills in anticipation of the looming chamber of origin deadline. Temperaments among legislators and lobbyists alike are running exceptionally high as rumors circulate the building about bills dying or bad bills coming back from the grave.
Attention will soon shift away from policy issues and onto budget and revenue deliberations as the number of bills remaining in play decreases. The discussions around a balanced budget continue to occur in backrooms, but the foundation of the debate is beginning to form. The budget-writing committee is expected to use the co-chairs’ “framework” budget as a starting point. The framework, released in January, balances the budget assuming there will be no additional revenue. A budget along these lines would be predicated on draconian cuts to vital state programs and incite condemnation from virtually all constituencies. There will then be an unofficial list of funding priorities if there is a pathway for new revenue. The culmination of these budget cuts and a tangible list of programs that could be funded will motivate lawmakers to find consensus on the budget.
The revenue discussion has been off to a slow start. The failure of Measure 97 and the uncertainty of funding priorities places the goalposts too far away to seem achievable. Revenue committee members believe there needs to be a determined funding goal before digging into the pockets of the business community. Unfortunately, the slow start to the budget writing process leaves them with no alternative but to wait idly until the pieces of the puzzle begin to fall into place. There is also a growing doubt the legislature will gain substantial ground in addressing the structural budget shortfall this session. The biggest obstacle facing a solution on the budget is timing. Lawmakers are required to adjourn by July 10 and, if they have not reached a balanced budget, there will be no choice but to enact monstrous cuts.
In other news, the season of politicking is also upon us. The Democratic Party of Oregon issued a press release condemning Rep. Knute Buehler (R-Bend), a likely candidate in the upcoming gubernatorial election, of failing to disclose speaking fees paid by the health care and pharmaceutical industries. The accusations appear to have backfired, however, as the representative had cleared the engagements with state ethics officials. While the claim appeared in newspapers throughout the state, the real news is the behind-the-scenes politicking more than 19-months in advance of the election, a sign of the contentious political battles in the weeks and months ahead.
There will be a cooling down period in the building after Tuesday, April 18, the chamber of origin deadline, as we recover from the stampede of bill activity. Traditionally, the deadline leads to nearly half of all introduced bills being removed from the process. The number of bills removed by the deadline could be higher, however, as the sluggish speed caused by uncertain funding prevented many bills from moving forward.
Bill to allow local control on GE crops dies
This week, the Senate Committee on Environment and Natural Resources held a public hearing on SB 1037, which would allow local governments and counties to create their own regulations or bans on genetically engineered (GE) crops. This bill is a companion bill to HB 2469, meaning that the bills are identical, and were introduced in both chambers. Your OSA lobbyist Sabrina Riggs and several board members testified at public hearings on both versions of the bill.
Many proponents of these bills traveled from Josephine County and testified that coexistence is an impossible feat for anti-GMO farmers who are located near farms that cultivate GE crops. Opponents of the bill refuted this point, and also testified that a system of patchwork regulations would be nearly impossible to comply with.
Both versions of the bill are now dead, and are not scheduled for any further action this session. However, Chair Michael Dembrow (D-Portland) told his committee that he intends to hold an informational hearing on the process of coexistence to review if there are that the state can take to strengthen coexistence and avoid “contamination.” This informational hearing will occur after the first chamber deadline, and OSA should plan to testify. Stay tuned.
Legislative Report for April 7, 2017
Today marks the first major deadline of session. By tonight at midnight, all bills that have not yet passed their originating chamber must be scheduled for a committee vote or they are considered dead. The emotional turmoil caused by the deadline has already driven divisions between and within the caucuses as beloved priority bills are pronounced dead. Legislators usually veil their frustrations from the public, but many have been wearing their grievances as the totality of the budget and divisive policy battles begin to consume the building.
The groups leading the yes and no campaigns on Measure 97 (2016), the gross receipts tax proposal soundly rejected by voters, have rekindled their campaigns as a similar fight begins in the legislature. On Monday, Our Oregon held a press conference outlining their argument for the legislature to increase revenues to appropriately fund essential services and avoid draconian budget cuts as the budget-writing committee begins to balance the state budget. Similarly, a spinoff business group announced an advertising campaign urging voters to contact their legislators asking them to oppose any gross receipts tax, using the slogan “It’s Just a Sales Tax.” Oddly enough, there remain no details on a potential revenue package. Several placeholder bills have been introduced to ensure a vehicle is available if a conversation materializes, but the lack of details stages the announcements as nothing but a preemptive strike. The declarations from both emphasize the divisive battle the legislature will endure if negotiations between business and labor groups do not produce a budget compromise.
Political positioning is at an all-time high right now, and that will quickly become a problem for collaboration in the legislature. Several prominent members of the legislature are considering a run for higher office. The positioning is driving divisive votes on high-profile policy issues that deviate attention away from the necessities, such as balancing the structural budget shortfall. Ultimately, Oregonians elected their legislators to do the heavy policy lifting needed to solve these serious challenges facing the state. The partisan wrangling over peripheral issues will only impede their ability to find consensus and steer the ship to calmer waters.
Legislative Report for March 31, 2017
The honeymoon is over in the Oregon legislature. The first two months of session featured an odd sense of bipartisan cooperation with virtually no contested legislation appearing on the floor of either chamber. The camaraderie is coming to an end as the chamber of origin deadline nears and members face the reality that many of their policy initiatives will not move past the first major milestone of session. The deadline also represents a changing of temperaments as more divisive and partisan issues begin to take center stage.
The governor surprisingly fired three members of the Environmental Quality Commission on Wednesday. The announcement of their dismissal was buried in a press release that named their replacements. Less than 24 hours later, the former members have publicly condemned their dismissal as political retribution for their appointment of the governor’s former policy advisor against her wishes. Complicating the situation further will be the potential partisan backlash in the legislature over the decision to replace the only member of the commission from rural Oregon. Senate Republicans, who will almost certainly apply pressure on the confirmation process in the chamber, will try to capitalize on the unusual firing.
The first controversial bill moved through the Oregon House this week. The bill itself, a proposal to increase civil penalties on employers for pay disparities for women and minorities, was not the controversy. In fact, Republicans attempted to amend the bill on the floor to include veteran status as a punishable discrimination. Prior to the vote, rumors circled throughout the building the bill would be pulled to consider an amendment containing elements of the Republican proposal.
Our Oregon, an advocacy group for several public employee unions, sent an email accusing Republicans of obstructionism in the hours preceding the floor vote. Republicans moved forward with their attempt to amend the bill on the floor because of the email. This dragged the floor debate along for several hours and required leadership to cancel some committee hearings. The chamber ultimately passed the majority’s iteration of the bill, but the charade was more politics than it was policy.
Although the discourse in the building has been largely cordial up until this week, the weight of the looming partisan fights ahead on the budget, revenue and other divisive policy fights are difficult to miss among legislators. The unfortunate reality is the heavy lifting has not yet begun. We are no closer to a budget compromise than we were at the beginning of session, and a revenue package, no matter the size and scope, will demand a thorough vetting and negotiation if it has any chance of moving forward.
The tensions on display now are nothing compared to the bitter partisan warfare we expect to see later in session as more contentious issues take on new life. Traditionally, the chamber of origin deadline marks the demise of roughly half of all introduced legislation. The failure of a policy proposal to move forward in the process can often create a unique bitterness for a legislator, only adding fire to the tumultuous nature of our politics. It can be easy for lawmakers to immerse themselves in the divisive politicking of the state legislature, but they will need to set aside their differences and move beyond partisanship to address the serious challenges facing the state, its budget and its people.
The Senate Environment and Natural Resources Committee held public hearings on two bills relating to the use and labeling of neonicotinoid insecticides on Monday.
SB 928 requires labeling of pesticide products containing neonicotinoids be placed on the front label of shelf products and goes further to require labeling of agricultural seed, flower seed, mixed seed or vegetable seed containing or coated with neonicotinoid. It also requires labeling of raw and agricultural or horticultural commodities treated with neonicotinoid during any part of its life cycle.
SB 929 would require Oregon’s Department of Agriculture to classify neonicotinoids as a restricted-use pesticide. This was the second attempt at this classification since 2014.
Scott Dahlman with Oregonians for Food and Shelter gave historical background. Labeling of neonicotinoids is already in place, he said. He explained the “bee box” that alerts consumers that the use of neonicotinoids can cause harm to bees. Mr. Dahlman said that in the 2014 session, a similar bill, HB 4139, had been introduced to classify neonicotinoids for restricted use only. The bill failed to move, but a task force was formed to study the complex issues surrounding bee health.
The task force came back with recommendations based on a general agreement that improper consumer application is a key problem. Most of the task force recommendations have been implemented, such as a strong educational outreach program, a pollinator health research plan and a bee health diagnostic facility at Oregon State University. Dahlman told the committee that there are already federal labeling laws in place and that there is concern these bills would be preempted by federal law that prohibits states from enacting different labeling regulations.
Jeff Stone, executive director of Oregon Nurseries, testified that he too had been on the task force and that he believes the state needs to allow scientists to render their findings. He told the committee that everyone agrees that improper use of neonicotinoids will harm bees, but he added that the varrora mite is a major contributor to the decline of bee colonies worldwide. He urged the state to allow the U.S. Environmental Protection Agency and the Oregon Department of Agriculture to be the regulators of neonicotinoids—not the legislature.
Several industry farmers and seed growers testified that if these labeling laws were implemented, they would have an unfair disadvantage in the marketplace as this is not required in any other state.
Emotional testimony was given by backyard pollinators who came from all corners of the state. Dressed in costumes, they told stories and read poems. While this type of visual aide testimony is always interesting, it can detract from the seriousness of the testimony.
The most insightful and informative testimony was presented by Dr. Paul Jepson, the integrated pest management coordinator at Oregon State University who has been involved in national and international pesticide regulation. He lamented that because SB 928 and SB 929 seek to regulate an entire class of pesticide, instead of compounds within the class. Dr. Jepson said he has never seen this type regulatory process and he fears it will have the unintended consequence of “throwing the baby out with the bath water.” Dr. Jepson told the committee that SB 928 and SB 929 both fail to weigh the risks versus the benefits and that effective regulations must be a balance that builds from a solid foundation of education to consumers.
Legislative Report for March 24, 2017
The legislature has entered its “hurry up and wait” phase as we near the first major milestone of session: the chamber of origin deadline. If a bill has not been scheduled for a work session in the chamber in which it was introduced by Friday, April 7, the bill would be considered effectively dead. There is a lull in activity while leadership and power brokers hammer out policy negotiations.
Negotiations on a budget framework are ongoing, but there is still a public standoff between members of the budget and revenue committees. Legislators on the budget-writing committee are frequently referencing their desire for the revenue committee to define a framework for a tax package before any balancing occurs. The negotiations on a potential revenue package will last throughout session, and we should not expect any clarity until the final days before sine die. In a perfect world, the revenue committees would use a budget framework to determine the amount of money needed to balance the budget priorities. The absence of activity on either side of the equation only perpetuates the budget stalemate. Eventually, the budget-writing process will move forward and identify the needs to guide the revenue discussion. The lackluster pace of defining a budget plan is concerning, however, because the number of weeks remaining in session is limited.
All eyes were on the drama unfolding in Washington, D.C. this week as congressional leadership canceled two votes on the much-discussed plan to repeal and replace the Affordable Care Act. The plan would significantly defund and reprogram the health care reform, changing the pillars of the healthcare system for states and the industry. Besides the individual policy considerations, Republican leaders have boxed themselves into a proposal seen by moderates as too conservative and by conservatives as not conservative enough. Speaker Paul Ryan, a self-professed policy wonk, and his leadership team have advanced a policy proposal they believe to be the right response to the current system created under a liberal administration. However, the policy has fractured the caucus’ coalition in the chamber and is requiring leadership to fight a policy war on two fronts. Regardless of one’s personal opinions of Obamacare or the plan to replace the program, the repeal conversation has created strong uncertainty for state governments as they draft their operating budgets.
Speaker Ryan held a press conference earlier this afternoon to brief reporters on his discussion with his leadership team and the administration that resulted in abandoning the current effort. He referred to the failure and ultimate demise of the proposal as “growing pains” for Republicans given their newfound control over the federal government. Speaker Ryan said the conversation regarding changes to Obamacare will continue but, for now, the conversation has ended and congressional leadership will shift its attention to the equally challenging task of federal tax reform.
Closing the chapter on repealing the Affordable Care Act may bring additional certainty to state governments and their Medicaid budgets, but the proposals to reform the federal tax code also pose a significant challenge for states crafting their operating budgets. The congressional blueprint for tax reform, called the “Better Way” agenda, calls for the largest rewrite of the tax code since the Reagan-era reforms. The blueprint calls for significant tax cuts funded by a broadening of the tax base and elimination of tax breaks for individuals. Depending on the specific details of tax reform, state legislatures could be faced with either a windfall of new revenue or budget shortfalls further collapsing. Before anyone reacts to the possibility of federal tax reform, we need to remember how healthcare unfolded and realize that talk about reform is very different from reform itself.
Legislative Report for March 17, 2017
The meat grinding of the legislative process is underway as lawmakers work to clean up their bills before the first major deadline in April. We are seeing some of this work playing out in the policy committees, but many proposals, such as a proposed transportation package, are being negotiated behind closed doors. Only minimal progress has been made on balancing the state budget—budget and tax measures are not bound by the same deadlines—as there are new rumors of partial funding packages spreading around the capitol daily. These rumors are not indicative of an immediate announcement of a budget solution, but rather illustrate the heavy lifting of the negotiations as stakeholders work to find an agreement. We are still several weeks, if not months, from a comprehensive funding package being released and there is still a possibility there will not be an accord on significant tax measures until later in the year or the short session in 2018.
Deliberations in Congress to reshape the Affordable Care Act are finally beginning to trickle down to the states. On Thursday, Gov. Kate Brown released an analysis on the American Health Care Act, the replacement legislation introduced in the U.S. House of Representatives, and its impact on Oregon’s health care system. The report concluded the proposed reforms would reduce the number of insured Oregonians by 465,000, increase costs to the state budget by $2.6 billion and 23,300 jobs would be lost from the health care industry. Politically, the release of the report is the beginning of a national effort by governors of pushing back on efforts to eliminate some or all of the expansions of the Medicaid program. Locally, the advocacy is noteworthy because the governor has publicly advocated on only a limited number of issues. Since the election, however, she has been very active in combatting efforts of the new administration.
The debate over genetically modified organisms (GMOs) has reemerged in the legislature. As part of the 2013 special session, the legislature passed a bill prohibiting city and county governments from regulating the industry to allow for a statewide policy to move forward. After a special task force commissioned by the governor determined co-existence was the best policy, the legislature decided not to enact a regulatory structure on the industry. Voters narrowly rejected a ballot measure requiring the labeling of GMO foods in 2014, and tensions have continued to run high ever since. Opponents of GMOs have heavily lobbied the legislature to repeal the prohibition and allow cities and counties to set their own regulations, which could result in a patchwork of regulations across the state. A legislative committee held a public hearing to listen to arguments for repealing the prohibition this week; however, it is unclear if these groups have support in the legislature to change the law while there are other issues demanding their full attention.
Ideas for new tax proposals continue to run wild in the legislature. The latest proposal this week was to create a one-percent payroll tax to support a new fund for paid family leave. The legislature has already mandated employers provide paid sick leave and increase the minimum wage and will now venture to address paid time for personal purposes. Under the proposal, an employee would be guaranteed 12 weeks of paid time off (receiving 90 percent of their normal pay) without the threat of retaliation by their employer. The funds would be paid for by a half-percent tax on both employers and employees. For example, if someone is paid an annual salary of $60,000, the employee would pay $25 per month or $300 per year into the fund.
There is certainly no shortage of new tax proposals in the legislature. Lawmakers will need to be cautious over the proposals they wish to move forward, because every new tax proposal hinders their ability to secure the support they need to raise taxes to balance the budget. If tax proposals continue to run rampant in Salem, there is a significant possibility the legislature will become tax-fatigued before the more contentious fights take center stage.
Legal standing to sue patent owners of genetically engineered crops
On Thursday, the House Judiciary Committee held a hearing on HB 2739, a bill granting cause of action against the patent owner of a genetically engineered organism. The measure would allow farmers to sue patent owners for economic damages if crosspollination occurs and the farmer suffers an economic loss. Additionally, the legislation would allow any individual to sue a patent owner if there is evidence of crosspollination on publicly owned land and the governing body of the land does not sue the patent owner. The legislation creates a significant legal liability for owners of patented biotechnologies and would establish a statutory prejudice against patent owners and farmers growing crops using the technology.
Friends of Family Farmers and the Center for Food Safety introduced the measure to address concerns about the state’s policy of coexistence, using the recent media over the escape of a creeping bentgrass trial in central and eastern Oregon to leverage a need for legislative action on the industry. Several advocates pointed to the inaction of the legislature following the governor’s task force on the subject as a reason for the legal authority. Advocates of the measure argue that if the legislature will not regulate the industry then they will self-regulate through litigation.
Jerry Erstrom, a Mahleur County farmer and local weed board chairman, testified in support of the measure, saying there needs to be a way for farmers to seek damages if their crops can no longer be sold on the market because of contamination. Erstrom, who has been critical of the escaped bentgrass and a recent decision by the United States Department of Agriculture to deregulate the crop, argued the legislation would be necessary if an escaped crop ever infiltrated the highly-coveted Willamette Valley specialty seed industry.
A commonly asked question by members of the committee was who should be held responsible for the unwanted release of a crop into the environment? If a farmer is growing a genetically engineered crop and his or her actions result in the escape of the crop to a neighbor’s farm, why should the patent holder be held responsible for the contamination?
Steve Strauss, a professor and researcher at Oregon State University, testified in opposition to the bill, saying genetic modification is the basis of modern civilization and there is very little difference between modifications created in a lab and those created out in the field, besides that modern technology allows lab-created agriculture to be significantly more efficient. Strauss said patents are frequently owned by individuals and not corporations, especially for researchers at public universities. Strauss left the committee with some very pointed questions, such as asking why the state should be creating a legal prejudice against the use of science in agriculture and do we want to further stigmatize and penalize the scientific advances.
Greg Loberg testified, saying he is concerned about the use of the term “deliberate action” in the bill. The ambiguities in the legislation enable lawsuits for virtually anything. He also said the federal government was reexamining the definition of genetic engineering and was concerned the legislature would be codifying a definition into statute (something that has never been done before). Sabrina Riggs, testifying for the Oregon Seed Association, said they are opposed to the notion of making patent owners responsible for actions that are entirely out of their control.
Dan Anderson, a farmer from Ontario, briefed the committee on the local efforts to eradicate the bentgrass referenced by advocates for the measure. He said Scotts Miracle Gro, the company conducting the field trail where the escape occurred, is seeking a 24-C exemption for glyphosonate to continue eradicating plants along irrigation ditches. Anderson said the proponents of the measure have overstated the significance of the situation and made the release seem to be much larger than in reality. The release of the plant, once estimated to be approximately 10,000 in Malheur County, has been reduced to approximately 500 and covers an area smaller than the Senate floor. He said he did not want to be a cheerleader for the company but believes the issue is a local problem and is being resolved accordingly.
Oregonians for Food and Shelter and the Oregon Farm Bureau also testified on the measure, underscoring the value of voluntary coexistence.
The committee did not hold a work session and there is no additional activity scheduled.
Debate over state preemption on GE crops
Yesterday morning, the House Committee on Agriculture and Natural Resources heard two hours of public testimony on HB 2469, which would eliminate the state preemption on genetically engineered (GE) agriculture. The bill would allow cities and counties to establish their own regulations—including anything from outright prohibitions and control areas to labeling requirements and a localized pin-and-mapping system—creating a patchwork of regulations across the state.
Advocates of the measure, primarily organic farmers, argued they need mandated coexistence to protect themselves from pollen drift that could potentially result in them being out-of-compliance with their customer contracts. Opponents of the group include a broad-based coalition of the agricultural industry, arguing it would be virtually impossible to comply with a patchwork of regulations, especially for farmers who own land in multiple cities or counties. Additionally, they argued that local governments are ill-equipped with the expertise needed to create meaningful regulations for the complex industry. Opponents of the measure also pointed to the success stories of voluntary coexistence between neighbors in the Willamette Valley, arguing that promoting voluntary coexistence is much more effective than creating a prejudice against an industry.
Due to the overwhelming number of testifiers, the committee members opted to limit their questions and comments during testimony. Additionally, the committee did not take any action to move the bill out of committee. At this time, the bill is not scheduled for any additional hearings or work sessions.
Legislative Report for March 10, 2017
There is a missing sense of urgency in the capitol in light of the challenge facing Oregon’s structural budget shortfall. In the first six weeks of session, legislative committees have met only ten times on Fridays. In comparison, committees held 34 hearings in the same span of time during the 2015 legislative session.
The absence of activity in the building is strange given the heightened awareness of the state budget. All bills, including those with minimal costs, are at risk for greater scrutiny because of the shortfall. If there is any concern a bill would increase costs for state government, it will be sent to the budget-writing committee for additional review, only increasing the opportunities for a bill to die. In some cases, that is a good thing.
Agencies have assumed a more powerful role in the legislative process as a result of the budget situation. Traditionally, the governor and legislative leadership were largely the only barriers to a bill moving forward. This year, however, agencies have a newfound ability to kill any proposal simply by suggesting the bill cannot be implemented without increasing resources.
Lawmakers are continuing to search for solutions to the structural deficit in the state pension system. Recently, a bipartisan group of legislators had been considering a change to the way the state pays into the retirement accounts for current employees. Currently, the state directs six percent of an employee’s pay to their individual retirement accounts—similar to a 401(k)—as part of their benefit. A proposal on the table would have redirected the money—approximately $1.2 billion—to the general pension fund to offset costs for the increasing liabilities to the system. However, legal opinions from both sides of the table concluded the state could not redirect the money without dedicating an equal amount to employees because of the contracts signed with the state. Therefore, the opportunities for reforming the pension system have been stalled as lawmakers look for alternatives. The reality is that options for reforming the current obligations are increasingly limited, and the only solution for addressing the current liability may be for the state to pay its debts.
The pursuit for additional revenue has grown increasingly more creative in the past several weeks. On Tuesday, a committee in the Oregon House heard testimony on a proposal that would pare back the tax deduction on home mortgage interest. The proposal would create a cap for the popular tax break at $15,000 and eliminate the break altogether for income earners over $100,000 ($200,000 for married filers). The proposal would also eliminate the tax credit for second and vacation homes and is intended to target high-income earners. Valued at more than $1 billion per budget cycle, reductions to the tax break could produce real savings for the state. Lawmakers will likely run into serious opposition from everyday Oregonians regarding this proposal, however, as many second homes are purchased as rental properties for retirement investments.
Rumors about budget solutions are at an all-time-high in the legislature. There is a new rumor on a new tax or a vital service being eliminated every day. Regardless of the rumors, the caucuses are gearing up for a robust discussion on a Measure 97-lite proposal. The Legislative Revenue Office has been running a circuit amongst the four caucuses presenting on the options the legislature has to consider for adopting a gross receipts tax. These discussions are usually exclusive to the revenue committee unless there is an expectation for a robust discussion.
In preparation for a dynamic revenue debate, Gov. Brown has announced the hiring a former legislator and chair of the budget-writing committee, Rep. Peter Buckley (D-Ashland), to aid her office in navigating the budget shortfall. The announcement has received mixed reactions from those in the building due to the representative’s polarizing policy positions during his tenure in the legislature (Rep. Buckley was a loud proponent of Measure 97). Late into the week, however, Legislative Counsel released an opinion suggesting that a 2007 ethics law sponsored by then Sen. Kate Brown, which created a revolving door policy for state officials, precludes Rep. Buckley from any activities attempting to influence his former colleagues.
We are only six weeks into our legislative session and the drama is only getting started. The first formal deadline of session is Tuesday, April 18, when bills must be passed by their chamber of origin. The chamber of origin deadline is typically the most dreaded day for a legislator or a lobbyist with a bill still in its first committee. This year, the deadline will take a whole new meaning because it should mark a shift in focus from policy discussions to the trenches of the budget battle.
On Monday, the House Business and Labor Committee held a public hearing on HB 2193. This bill has to do with predictive scheduling and requires an employer to pay an employee for at least four hours of their shift if the employee is called to work but is released early, or if the shift is canceled with fewer than 24 hours’ notice.
AFL-CIO submitted testimony in support of the bill, as did several restaurant and retail workers and the Oregon Education Association. Additionally, some small business owners submitted written testimony in support of the bill, stating that the proposed policy is good for workers and therefore good for business.
However, an overwhelming number of businesses did not share this line of thinking and testified in opposition to the bill. Opposition included members of the agriculture community, National Federation of Independent Business (NFIB), grocers, chambers of commerce and even some workers in the restaurant and retail industries. Many testified that the proposed requirements are too strict and fail to afford owners and managers the flexibility to respond to customer needs. There were additional concerns about a lack of flexibility for the workers themselves, since many of them chose this industry for an easily modifiable schedule.
A similar bill was heard in the Senate Workforce Committee on Feb. 27, where much of the same testimony was presented. Currently, neither one of the predictive scheduling bills have been scheduled for any further action.
Legislative Report for March 3, 2017
Camaraderie in the Oregon legislature is beginning to dissolve as tempers rise over controversial proposals. The budget crisis, one of the most visible challenges facing the legislature today, has taken a back seat while provocative measures take center stage. Even though leadership needs time to negotiate a pathway forward on the budget, the lack of public discussion on potential budget and revenue solutions has become conspicuous and is leaving many to wonder if a pathway forward is even the focus. The absence of public discussions on the budget have created a political environment where many lawmakers are eager to favor advantageous policy proposals while they wait for leadership to make their first move. Meanwhile, these policy proposals jeopardize the broad coalition they will need to move the needle on the budget without major backlash.
The legislature has held hearings on predictive employee scheduling, taxing carbon emissions and wrongful death this week. The predictive scheduling measure, modeled on legislation already implemented in San Francisco and Seattle, requires employers to provide greater flexibility to employees in setting their work schedules. The measure is aimed to support the working poor employed in service sector businesses, such as restaurants and lodging, but exemptions from the proposed mandate are slow to be announced. Taxing carbon emissions has long been a priority for environmental advocacy groups looking for new methods of strengthening the renewable energy sector. The concepted is bedded in the notion that penalizing carbon pollution will incentivize private investments in clean technology, boosting their market share. Committees in both chambers of the legislature have held multiple hearings on various proposals, and a workgroup is being formed to determine which proposal will continue moving forward. Lastly, the Oregon Trial Lawyers Association, a heavyweight in Democratic politics, is advancing legislation that would lift the cap on noneconomic damages in civil proceedings except for cases of wrongful death (which would see the cap doubled). The legislation is messaged as an issue of fairness for those who have been wronged but comes at an immense cost in the form of liability insurance.
Normally, these issues would not have any association to the budget. However, the budget has reached a point of crisis and lawmakers will need to rely on a broad coalition to reach a compromise as tax increases alone cannot solve the structural deficit facing the state. Villainizing the business community will not drive a political climate conducive to compromise. Unilateral tax increases, without any sign of restraint on the state budget, will almost certainly lead to backlash in the next election.
HB 2859 will not touch the Agriculture Tax Exemption
The House Revenue Committee heard testimony on HB 2859, on Wednesday. The bill adjusts the sunset for dozens of property tax exemptions, including the farming and forestry exemption. Chair Phil Barnhart (D-Eugene) announced at the end of the hearing that they will be introducing amendments during the next hearing that will remove all the agricultural exemptions from the new requirement. This admission solidifies this bill as effectively not touching the current agriculture and forestry tax exemptions.
Legislative Report for February 24, 2017
We have seen a considerable amount of collaborative and bipartisan government during the first month of the legislative session, but that is about to change as more contested issues take center stage.
State economists announced the forecasted tax collections for the next biennium are higher than previous estimates. The state is now expecting an additional $200 million in general fund revenues, providing a slight relief to the impending budget crisis. Oddly enough, given the debate to raise corporate taxes last fall, the revenue is primarily driven by increased corporate activity. Nevertheless, these new revenues pale in comparison to the size of the $1.8 billion budget shortfall.
Environmental advocates have long argued for a mechanism to tax polluters to combat global climate change and are using the budget situation as a catalyst to force the debate. Any proposal to put a fixed price on carbon emissions would come at an economic cost. Industries would be required to pay considerably more to continue doing business in the state and, similar to the arguments against Measure 97, those costs would eventually be paid by either increased costs for consumer goods or a decrease in paid wages. Oregon’s carbon footprint is only a small share of the global footprint but, being a very blue state, Oregon continues to be an incubator for the next generation of environmental proposals.
Gov. Kate Brown is asking the legislature to allow children who are undocumented immigrants to sign up for the Medicaid program. There are an estimated 17,000 undocumented children residing in Oregon, and the only health care services they receive are at a hospital, which is required by law to provide care to anyone regardless of their ability to pay. There is bipartisan support for the policy, but there are significant barriers to overcome. The federal government will not pay for the health benefits of a nonresident; therefore, the state would pick up all the costs for the proposed expansion. The program is estimated to cost Oregon taxpayers $55 million, which would not be a sizable request any other session.
The budget remains the looming question in everybody’s minds in Salem. Next week, the governor and legislative leadership are expected to announce a major financing proposal aimed to close the shortfall in the Medicaid budget. The conversations on a pathway forward regarding any Medicaid funding proposal and the larger budget situation are still in their infancy, and there are no assurances the various stakeholders will reach common ground. We are increasingly hearing about the looming possibility of lawmakers continuing the budget negotiations in a special session, most likely in the fall.
February 22, 2017
State Economists: Economy and revenues are strong, but not strong enough
Oregon’s economy continues to perform strongly and is benefiting from the robust national growth as speculation over potential infrastructure spending, deregulation and tax relief from the federal government, according to the economic and revenue forecasts released by state economists this morning. All these signs are showing strong short-term growth but increased long-term market risk. Locally, Oregon is seeing its employment outlook stabilizing at 2,000-3,000 jobs per month, which is enough to balance demographic adjustments.
Lawmakers and lobbyists expressed a slight sigh of relief this morning on the release of the state revenue forecast as revenue projections are showing considerable strength for the upcoming biennium. State economists project there will be more revenue than anticipated for the upcoming biennium, although it will not be nearly enough to close the looming budget shortfall.
- The state will have an additional $1.62 billion in the general fund than the 2015-19 budget.
- The forecast suggests there will be an additional $73 million in the lottery fund than the 2015-19 budget.
- There will be an ending balance of $22.8 million from the 2015-17 budget carried over to the 2017-19 budget.
Assuming the new revenues indicated in today’s budget forecast are dedicated to addressing the budget shortfall, the budget shortfall would decrease from $1.8 billion to approximately $1.7 billion.
The fiscal dilemma Oregon faces cannot be characterized as a revenue shortfall, as occurred during the recession, but rather a budget shortfall. A revenue shortfall would imply the state had declining revenue. Instead, Oregon faces a structural problem in its state budget as the liabilities for its pension system grow to unsustainable levels and costs rise for the Medicaid program. Any legislative changes to either public pensions or the Medicaid program would be seriously challenged. The courts have ruled the legislature cannot change the contractual language for benefits already earned and can only make changes prospectively. As for Medicaid, Oregon has been a national leader in the state-managed program, and eliminating core functions of the program would be a nonstarter, regardless of partisan ties.
Lawmakers will now begin the delicate dance of determining a pathway to a balanced budget. The budget-writing committees are beginning to examine agency budgets and potential options for reducing costs. While an “all-cuts” budget is always possible, we anticipate the budget crisis will be remedied by cuts to non-essential programs, marginal tax increases and technical adjustments to the tax base to generate additional revenue. The devil is always in the details, however, and the specific details of these decisions will be the most important negotiation of session.
Legislative Report for February 17, 2017
The easygoing pace of the legislature is coming to an end after only three short weeks. Policy committees are beginning to schedule more contentious legislation, and we anticipate the partisan lines to be drawn soon.
The State Land Board, which is made up of Gov. Kate Brown, Treasurer Tobias Read and Secretary of State Dennis Richardson, voted to move forward in the sale of the Elliot State Forest, a publicly owned forest in southwest Oregon, to raise money for the education system. The sale of the forest comes at a critical time when the state is seeking ways to generate new sources of revenue for public schools. Environmental groups were adamantly opposed to the sale of publicly owned lands to a timber company and lobbied heavily for the state to maintain it for preservation. The governor advocated in the eleventh hour to scuttle the sale and instead find ways to sell the land to conservation groups. Meanwhile, Secretary Richardson pressured his colleagues to move forward with the sale to drive job creation in a rural region with long-term high unemployment. Treasurer Read, citing the fiduciary responsibilities of the board, remained committed to the sale and voted against the governor’s proposal. The sale of the land is significant because it is the first time in decades we have seen moderates from opposing parties in statewide roles working together to shape statewide policy.
The deliberations on a transportation package are moving forward at an incredibly sluggish pace. Lawmakers are meeting late into the evenings to assess the needed transportation investments across the state. Before they can begin the conversation of raising gas taxes and other fees, lawmakers must clearly define where investments will be made to ensure the call for new revenue is not perceived as simply a money grab. Polling suggests that voters generally support not only investments in transportation infrastructure, but are willing to pay more for them. However, they need assurances the money will not go into a black hole—especially while “budget shortfall” is the most common phrase used in Oregon politics this session.
We also saw the beginning of a discussion on tax reform take shape this week. Sen. Mark Hass (D-Beaverton) has introduced legislation that would institute a 0.7 percent gross receipts tax, based on a similar model used in Ohio, aimed to simplify the tax code while also generating additional revenue and bringing more stable funding for government programs. The bill is a conversation starter at best, but it is poised to initiate a delicate deliberation among business, labor and lawmakers over potential reforms to the tax system. It is important to remember that the potential impacts of a change in tax policy are always complicated and require the attention and criticism of everyone in the process to ensure problems are addressed. Wholesale tax reform remains unlikely during session as the wounds from the divisive campaign over Measure 97 are still healing. Nevertheless, tax reform will continue to be a major theme this session and will cloud the legislature.
The Oregon Department of Environmental Quality released a study this week claiming the state could create a cap-and-trade program, similar to the ones in California and Quebec, to reduce carbon emissions. The study contradicts a similar study released on the economic feasibility of a carbon tax, which is rather similar in nature, that concluded there would be significant economic impacts to the economy unless the state repatriated the revenues in specific ways. Environmental groups and the business community are gearing up for this cap-and-trade discussion, which will likely be the most contentious environmental fight during session and is creating more divisions in already fragile relationships in the legislature. Hearings on the latest proposal are scheduled for next week.
As contentious bills continue to appear in the legislature, warring factions will continue to divide. The need for bipartisanship to solve some of the biggest challenges facing the state is at an all-time high. However, there are serious rifts between and within the caucuses that may undermine the ability of lawmakers to work together to find solutions. Addressing the budget shortfall, in particular, will demand bipartisanship and compromise. If divisions created by peripheral policy issues undermine reasonable solutions, reelection campaigns next fall will become ever more complicated.
Legislative Update for February 15, 2017
On Friday, February 3, stakeholders for the seed contracting concept met at the Oregon Farm Bureau to discuss updates. Members of the group were tasked with vetting the concept with ODA staff and legislative counsel to see if it is possible to reach agreement around the bill. OSA’s counsel, Helen Nelson, was in attendance who reiterated OSA’s directive that the best way to pursue this concept is by creating a new statute that mirrors the current “slow pay, no pay” statute, but makes the dates workable for non-grass agriculture.
The group discussed the possible implications of fitting the issue into the current “slow pay, no pay” statute, with Ms. Nelson explaining that the current definitions in the statute would not fit the goal. Staff from ODA expressed concern about the possibility of not keeping the statute clean enough and opening the issue up to other products, such as industrial hemp. ODA asked the group to keep in mind the cost of enforcement. ODA staff recommended asking the agency to define the seed crops by rule.
Given the current bill drop deadlines, the conversation shifted to a discussion of how the issue could be addressed in the 2018 February session. It was explained that if an emergency clause was on a bill in February, it would go into effect on March 1, 2018. Anna Scharf, the bill’s proponent, agreed that this would be an acceptable option. Ryan Tribbett suggested that we could tee the issue up in an informational meeting at the end of this session or during the interim so that it could be easily passed in 2018.
The meeting concluded with the group agreeing to pursue the bill in February 2018, and continuing to meet in the meantime to ensure the bill concept is written correctly and is workable.
Legislative Report for February 3, 2017
Oregon lawmakers convened for the 2017 legislative session on Wednesday, February 1. The “long session,” a six-month legislative period, is expected to be one of the most challenging in recent memory due to an overwhelming state budget shortfall. Traditionally, our sessions feature a slow rollout of the legislative process, allowing committees to orient themselves and introduce new members to the procedural process. Although the standard committee orientations were held this week, there was no honeymoon for lawmakers. In only three short days of committee hearings, the legislature is jumping straight into tackling major issues.
The budget will be a recurring theme throughout session. Oregon is facing a systemic shortfall of $1.8 billion. A systemic shortfall in the budget is different from a revenue shortfall in that the deficit has been created as a response to legislative action and not because of declining revenues. Oregon will face budget shortfalls for not only this budget cycle but the next four cycles. That is despite state coffers having eight percent more money than the previous budget cycle because of economic growth and tax increases enacted during recent sessions.
It is important to understand the drivers of the systemic budget shortfall because they will shape the policy discussions on virtually every other policy issue.
- Public Pensions: In 2015, the Oregon Supreme Court overturned legislative changes to the state pension program that would have set limits to the regular increases in benefits current retirees receive. The court set firm parameters on the legislature for changes to the public pension system, limiting lawmakers to only making changes to current and future employees. The budgets of state and local governments will be strained in the coming years as they work to balance their budgets to appropriate these costs. These costs contribute to $316 million in new expenses for the state budget.
- Medicaid: Oregon will begin paying for the costs associated with the Medicaid expansion program. Until now, the federal government paid all the health care costs for this population as a means to help states get off the ground, and now the states will begin paying a share of the new costs. For the upcoming biennium, these costs equate to 3 percent ($328 million) of the total expense for the new lives. Additionally, the uncertainty for federal changes to the program could produce new liabilities for the state.
- Payroll: Staffing is also a major contributor to the budget shortfall, namely the state’s contractual commitment to increase the pay for most state workers. In August 2015, the state and the public employee unions it employs agreed to a 4.25 percent cost-of-living increase and a 7 percent pay increase for the employee’s contribution to their retirement accounts. Collectively, these costs contribute $355.2 million to the new costs of state government.
Producing a balanced budget will demand compromise. The voters soundly rejected Measure 97, a corporate sales tax that would have generated more than $6 billion in new revenue, and the scars from the divisive campaign continue to show. To date, no agreement has been made with lawmakers or the business and public employee union leaders to address the budget shortfall. A high-stakes game of poker over the budget is being played right now. This afternoon, Senate President Peter Courtney and House Speaker Tina Kotek announced they will begin holding meetings with leaders from the business community and public employee unions in an attempt to find a viable solution to the budget situation.
The budget may dominate virtually all discussions in the legislature, but there are still major policies on the table. Lawmakers campaigned on making critical investments to the state’s transportation system, which will require a tax increase on motor fuels. This will demand bipartisan support to gain three-fifths of the votes in each chamber required to increase taxes. The viability of a transportation package likely hinges on the decisions made for the broader fiscal situation because the voters will not respond well to multiple tax increases in a short amount of time.
Finally, another major theme we will hear throughout session is the state responding to the Trump administration. Oregon, a deeply blue state, has Democratic majorities built on the Obama policy agenda, the same platform the new administration seeks to repeal. We will likely see Democratic leadership obstructing efforts to reverse the Obama agenda. On Thursday, Gov. Kate Brown ordered the state attorney general to file a lawsuit against the Trump administration over the immigration bans. It is safe to say this will not be the only confrontation between Oregon and the federal government. In fact, this is only the beginning.