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.