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.