As Trade Talks Loom, Blood Pressures May Zoom

Negotiations to reshape the North American Free Trade Agreement will begin in about a month. Priorities in negotiations for the Trump administration drew mixed reviews on Capitol Hill, including from a GOP leader who said changes in NAFTA can’t harm existing US business activity that depends on trade with Canada and Mexico.

Negotiations to reshape the North American Free Trade Agreement will begin in about a month. Priorities in negotiations for the Trump administration drew mixed reviews on Capitol Hill, including from a GOP leader who said changes in NAFTA can’t harm existing US business activity that depends on trade with Canada and Mexico.

Oregon exports and US industrial production are increasing, according to state economists, which could raise the stakes and blood pressure for Oregon businesses and workers as the Trump administration begins negotiations on NAFTA with Canada and Mexico in about a month.

Trump administration officials outlined their priorities for NAFTA negotiations, which drew mixed and nervous reviews on Capitol Hill and among trade groups. Trump objectives include improving market access for US manufacturing, agriculture and services, adding a “digital economy chapter” and adding labor and environmental obligations.

Administrative negotiators will seek to eliminate “unfair subsidies and market-distorting practices by state-owned enterprises” and improve intellectual property, says US Trade Representative Robert Lighthizer.

Texas Republican Kevin Brady, who chairs the House Ways and Means Committee, said Trump’s objectives are “ambitious” in seeking “strong, enforceable rules that go beyond any agreement ever negotiated.” Brady also said an updated NAFTA agreement can’t remove trade benefits currently enjoyed by US businesses.

Utah Senator Orrin Hatch, who chairs the Senate Finance Committee, made an underwhelming comment that he hopes Trump’s negotiating objectives will be “further developed” as negotiations proceed.

Democrats were less subdued. Oregon Senator Ron Wyden, the ranking Democrat on Senate Finance, called the Trump priorities “hopelessly vague” in explaining how they will “benefit the United States on key topics ranging from intellectual property rights and investment, to currency manipulation and government procurement.”

Wyden also jabbed Trump’s team for including what he called “watered down versions of [Trans-Pacific Partnership] TPP proposals” that candidate Trump belittled in his presidential campaign and withdrew from when he became President.

“Before sitting down with Canada and Mexico,” Wyden said, “I expect the Administration to update this summary, shine some daylight on its negotiations and set the bar high for American workers, businesses and farmers, as it promised it would."

Michigan Democratic Congressman Sander Levin said Mexico’s low wages and a lack of workers’ rights have cost many US jobs, but he said Trump’s priorities don’t evince “that a new NAFTA will be different than the old [NAFTA].”

A number of economists said trying to negotiate a better deal based on a goal of reducing trade deficits is “misguided” and could backfire.

The complexity of trade considerations that go into negotiations was illustrated by South Bend Mayor Peter Buttigieg, who has transformed abandoned factories into a business park for technology companies in his Indiana city. In an interview today with CBS News, Buttigieg said unionized American autoworkers in his city are assembling German Mercedes Benz vehicles to sell to consumers in China.

In the May economic forecast, Oregon economists said changes to international trade agreements, not to mention a trade war, would have a larger impact on Oregon, which has an economy that depends on exports, than on many other states. Even though job growth in Oregon has cooled off, the state economy continues to expand and is already the third longest upswing since World War II.

Bank Says Market, Not Policy Will Propel Renewables

Despite US withdrawal from the Paris Climate Accords, Morgan Stanley says market forces may drive strong growth in renewable energy, cutting carbon emissions, lowering costs, genereating jobs and creating investment opportunities.

Despite US withdrawal from the Paris Climate Accords, Morgan Stanley says market forces may drive strong growth in renewable energy, cutting carbon emissions, lowering costs, genereating jobs and creating investment opportunities.

Much has been made of President Trump’s decision to withdraw the United States from the Paris Climate Accords. However, a forecast by Morgan Stanley says it won’t matter because the market is moving rapidly and inexorably to less expensive renewable wind and solar energy.

“Numerous key markets recently reached an inflection point where renewables have become the cheapest form of new power generation,” the Morgan Stanley forecast says. A 50 percent drop in the cost of solar panels combined with efficiencies in wind turbine blades could enable the United States to exceed its “Paris commitment of a 26-28 percent reduction in 2005-level carbon emissions by 2025.”

Whether or not you believe in human-caused climate change, it is hard to argue with ineluctable market forces. “By our forecasts, in most cases favorable renewables economics rather than government policy will be the primary driver of changes to utilities’ carbon emissions levels,” Morgan Stanley says. Solar and wind power could be cheaper than their carbon-based counterparts in as little as three years.

The price drop in solar panels is the result of global oversupply and, according to US solar panel manufacturers, foreign dumping of low-priced panels. Wind turbine efficiencies involve using longer blades that can “increase power output exponentially.”

In addition to climate benefits, Morgan Stanley says lower-cost renewable energy sources can benefit electric utilities, consumers and investors.

“First, the ability to lower customer bills from utilizing low-cost renewables can improve utilities' regulatory environment and provide related investment opportunities in grid modernization initiatives,” the bank says. “Second, for utilities with large, competitive renewable development businesses, investment in renewable energy projects can generate attractive risk-adjusted returns.”

Oregon is seeing increasing interest in utility-scale solar projects, according to the Oregon Solar Energy Industries Association. The solar energy trade group says there already is 155 MW of utility-scale solar power installed in Oregon. The addition of new large-scale and rooftop solar installations could push solar power sources, OSEIA says, to 10 percent of Oregon’s overall energy mix within a decade.

That timeline could be affected by the failure of the 2017 Oregon legislature to extend the residential energy tax credit (RETC) that provides an incentive for rooftop solar installations. Lawmakers agreed to an extension for solar, but it didn’t survive the cuts required to achieve a balanced state budget. RETC funding could be resumed in the 2018 short legislative session, which could minimize any slowing of solar momentum in Oregon.

Threatened Medicaid Referral Creates Capitol Shivers

 A serious threat by Rep. Julie Parrish, R-West Linn, to refer legislation to raise funds to sustain Oregon’s Medicaid program from an increase a hospital tax and a new tax on health insurers has sent shivers down the spines of legislative leaders and created shudders for other interest groups that could be targets to patch Oregon’s budget hole.

 A serious threat by Rep. Julie Parrish, R-West Linn, to refer legislation to raise funds to sustain Oregon’s Medicaid program from an increase a hospital tax and a new tax on health insurers has sent shivers down the spines of legislative leaders and created shudders for other interest groups that could be targets to patch Oregon’s budget hole.

A big part of Oregon’s budget fix approved this session could spring a leak if Rep. Julie Parrish, R-West Linn, successfully refers the legislation that increases a hospital provider tax and adds a tax on insurers to sustain funding for Oregon’s Medicaid program.

Parrish followed through on her threat by filing a referendum petition with the Oregon secretary of state this week. She will have 90 days to gather less than 59,000 signatures of registered Oregon voters to refer the Medicaid funding package to the ballot. Parrish reportedly has monied backing to support the referral drive.

The threat by Parrish of a referral of Medicaid legislation has created what could fairly be called a panic in the state Capitol because it could undo the only major step lawmakers took this session to address a projected $1.4 billion budget deficit. The uncertainty caused by a referral would add to anxiety caused by congressional consideration of an Obamacare replacement that would reduce Medicaid funding sharply over the next decade.

Parrish says her goal is not to gut Medicaid, but “hold it accountable.” She wants to apply voter pressure to ensure Oregonians receiving Medicaid benefits are actually eligible and to address state mismanagement such as expensive IT failures. Parrish calls the hospital provider and insurer taxes amount to a sales tax on health care services and private health insurance, which are simply passed along to consumers. Coordinated Care Organizations also would face a tax in this legislation. A broad coalition of health care providers, insurers and CCOs supported the revenue-raising to maintain Oregon’s expanded Medicaid coverage. Parrish claims there were three other bills introduced this session that would have reduced the Medicaid funding gap without taxing hospitals and health insurers.

If a possible referral isn’t contentious enough, Democratic legislative leaders may have sparked an even wider partisan wildfire over a bill that would schedule a referral vote next January 23 and allow lawmakers to write the referral ballot title, which is sometimes all voters ever read about a measure.

Democrats defended the earlier vote as a way to prevent a deeper budget hole. If Oregonians rejected the Medicaid tax measure in a January special election, then lawmakers would have time to find an alternative during the 2018 short legislative session. Republicans charged Democrats with ambushing Oregon’s referral process and trying to suppress voting by scheduling a special election on a date with an anticipated lower voter turnout.

Parrish isn’t alone in threatening a referral. In fact, she finds herself a strange bedfellow with an entity she rarely agrees with – SEIU 503.  The largest union in the state made headlines earlier in session when it held a rally on the steps of the Capitol and threatened to refer any transportation package bill unless lawmakers secured new revenue for schools and other vital services. 

She and some Democrats also have threatened to refer the $5.2 billion transportation funding package. The threat from Democrats differs from Parrish. They want to hold the transportation bill, which has fairly broad bipartisan support, hostage to try to force legislative action this session on a corporate tax measure. After the transportation package passed out of committee Saturday evening, 16 House Democrats sent a letter to Speaker Tina Kotek urging her to “re-focus on the all-important task of identifying addition revenue.”  The implied threat hanging over the letter doesn’t go as far as SEIU’s saber-rattling, but it does raise concerns among stakeholders as we enter the final days of session.

Democratic leaders, including Governor Brown, threw in the towel on a corporate tax bill a week or so ago after it became clear there wasn’t consensus on a replacement for the current corporate income tax – and not enough votes to pass anything in the Senate. Nothing would be done to change the corporate tax, they said, until the 2019 legislative session.

The Oregon legislature is expected to wrap up remaining budgets and head home before its constitutionally mandated July 10 adjournment deadline, unlike at least four other states – Washington, Illinois, Maine New Jersey. It took three special sessions before Washington lawmakers reached a budget deal. New Jersey’s budget stalemate resulted in a partial government shutdown, but a solution was suddenly found after social media exploded with pictures of Governor Chris Christie lounging on an empty beach that was closed to the public because of the shutdown. Illinois has been in budget gridlock for three consecutive years.

Referral of the Medicaid funding package could bring Oregon back to the brink of a deep budget hole and put more pressure on legislative leaders to look at other tax hikes. Some education advocates are already urging lawmakers to resume work on a corporate tax measure earlier than the 2019 session, and perhaps as early as a special session later this year. If the Medicaid referral is successful, pressure would grow to look at cuts, not just in Medicaid, but also in the Public Employees Retirement Fund.

As noted in a previous Oregon Insider, adjournment can’t come soon enough, but even when it does it will seem more like an intermission than the end of the play. The animating issues of the 2017 session – the budget hole, Medicaid spending, corporate taxation and transportation funding – may still be anything but resolved.

Adjournment May Seem Like Only an Intermission

The Oregon legislature is on track to adjourn by July 10, but adjournment this time around may seem more like an intermission as corporation taxation, PERS, Medicaid, education funding and political leadership remain as hot griddle issues that won’t wait until the next election or next legislative session.

The Oregon legislature is on track to adjourn by July 10, but adjournment this time around may seem more like an intermission as corporation taxation, PERS, Medicaid, education funding and political leadership remain as hot griddle issues that won’t wait until the next election or next legislative session.

Oregon lawmakers appear on the road to adjournment by July 10, but with an air that the journey is just beginning, not ending on big issues such as taxes, transportation and long-term cost containment.
 
Last week, Governor Brown, Senate President Peter Courtney and House Speaker Tina Kotek hoisted the white flag on an attempt this session to revise Oregon’s corporation taxation and raise additional revenue. They said corporate tax changes would have to wait until the 2019 session. However, public employee unions want to move up the schedule. They are already airing TV ads saying “big corporations” should pay their fair share of the tax burden in Oregon, which appears to be a bombing run to soften the ground for another revenue-raising ballot measure.
 
The Senate and House approved an $8.2 billion K-12 funding bill, which Republicans and Democrats said was not enough, even though it represents 11 percent increase over the current biennium. Republicans blamed Democrats for trying to ram through a tax hike without cost containment. Democrats blamed Republicans for refusing to budge on revenue, even though it meant serious budget cuts. Education advocates are furious and may push state leaders to do something before the 2018 general election or the 2019 legislative session.
 
The Oregonian published an editorial lambasting the lack of leadership in Salem, pointing a particular finger at Brown, who faces another re-election battle next year, with GOP candidates already salivating at the chance to unseat her. More than one Capitol wag suggested that Beaverton Democratic Senator Mark Hass showed more leadership on a corporate tax compromise and a more substantial cost containment proposal that included the Public Employees Retirement System. Hass and others have pointed to a growing fiscal crisis in Illinois that is faltering under the weight of huge underfunding of its public employee retirement fund.
 
There is still time for lawmakers to act on a transportation funding package, which was a bipartisan priority before the session started. However, its fate continued to hang in the balance, despite an announcement by Brown that a deal has been struck. Key players are still working hard to tie down final details, which could surface today.
 
But the major hiccup is an 11th-hour threat by Rep. Julie Parrish, R-West Linn, to refer the transportation package and Medicaid tax measure to voters. Democratic leaders scrambled to write legislative language in Senate Bill 229 that would allow legislators to write ballot titles for the referrals and schedule them for a vote at a special election January 23.
 
While the legislature cleared a tax increase on hospitals and a new tax on health insurers to patch the state’s Medicaid budget hole for the next two years, stomachs are still churning while Congress considers health insurance legislation that, in versions so far, make drastic cuts in federal support for the program vital to low-income Oregonians, children and the elderly housed in nursing homes. Whatever Congress does, it probably won’t have much of an effect on the 2017-2019 biennium, but its shadow will cast a pall over the program moving forward into subsequent biennia. Voter approval of a referral of the tax increases would turn the shadow into a serious rain cloud.
 
In fact, the issue of health care could be at the center of policy and political debates for the foreseeable future. Congressional Republicans seem hell-bent on reining in a fast-growing entitlement program and lowering insurance premiums, even at the expense of reducing what’s covered in health insurance policies. Democrats are defending the Affordable Care Act, while conceding it could use some repairs to remain viable. Meanwhile. Voices such as Providence St. Joseph Health CEO Rod Hochman deplore GOP legislation that slashes federal support for Medicaid when states have little financial ability to pick up the slack. Hochman said he and others in the health care industry hoped federal legislation would address some of the issues making health care delivery unaffordable for many Americans, including households with health insurance.
 
The interim – the time between legislative adjournment and the next session – is usually fairly quiet, with a few hearings, some work groups and early stirring for ballot measures. The looming interim may be anything but quiet and may make it seem like adjournment was just an intermission before the final acts.

Medicaid Bill Clears; Tax and Transportation Bills in Limbo

Oregon lawmakers have passed a Medicaid funding measure, but appear stuck on a corporate tax increase and a transportation funding package with only three weeks left before the deadline to adjourn. Things are starting to get wild in Salem.

Oregon lawmakers have passed a Medicaid funding measure, but appear stuck on a corporate tax increase and a transportation funding package with only three weeks left before the deadline to adjourn. Things are starting to get wild in Salem.

Oregon lawmakers have cleared a bill to raise $550 million to prevent cuts in the state’s Medicaid program, but have no clear path on a corporation tax increase or funding for a major transportation package. Time is running out as the legislature faces a July 10 deadline to adjourn.

The House and Senate approved legislation that increases an existing hospital tax and adds a new tax to health insurance plans to pay for Oregon’s Medicaid program that covers more than 1 million Oregonians, 40 percent of them children from low-income households. Reduced federal funding for Medicaid was a contributing factor to Oregon’s projected $1.4 billion hole in the 2017-2019 biennium, which begins July 1.

House passage of the Medicaid funding measure came after Democrats defeated a Republican alternative with a smaller tax increase that would have funded the program for one year at current spending levels, but allow time to confirm the eligibility of Medicaid enrollees before funding the second year of the biennium.

After some backroom negotiations, Rep. Sal Esquivel, R-Medford, provided the necessary 36th House vote for a three-fifths supermajority to pass the Democratic Medicaid funding measure in the House. The Senate voted for the Medicaid funding bill by a 20-10 margin.

Lack of consensus on a general revenue increase sparked a variety of actions so far this week:

  • House Democrats voted along party lines to stall a vote on an $8.2 billion K-12 school budget until June 27. The Senate has already approved the public school budget, but House Democratic leaders believe delaying a vote in the lower chamber could be leverage to swing a deal on a revenue measure. One House Democrat called the maneuver a “Hail Mary pass."
  • The Oregon Education Association took the first steps to place two corporate tax measures on the November 2018 ballot that would seek to generate $1.75 billion annually for K-12 and higher education. One measure would impose a corporate gross receipts tax. The second measure would make it easier for the legislature to raise corporate taxes to pay for education.
  • The joint committee looking at a revenue measure entertained a passel of amendments to a compromise reached by Senator Mark Hass and Speaker Tina Kotek to raise $900 million in the next biennium. The compromise would initially increase the current corporate income tax rate, then phase in a commercial activities tax based on sales in Oregon, which would function like a gross receipts tax, but contains different rates for different kinds and sizes of corporations. At least one House Republican has signaled his potential support for this approach – if it can pass in the Senate. For now, Senate Republicans are reportedly locked up in opposition.

Frustrated by inaction on the joint committee’s bill, House Revenue Chair Phil Barnhart, presumably with Kotek’s approval, said he will pursue a separate revenue-raising bill, possibly one that makes it harder to qualify for lower rates on pass-through income. Even though this measure would generate only $200 million – far less than the $900 million in the compromise corporate tax bill, it has the procedural advantage of requiring only a simple majority, not a three-fifths majority to pass. House Democrats may force a floor vote on a larger corporate tax hike before the postponed voting next week on the K-12 school budget to put Republicans on the record. If it fails, they then can pass the smaller measure.

Also looming in the legislative bill stack is a cost-saving measure estimated to trim the projected budget deficit by $270 million.

Oregon Lawmakers Face Pivotal Week on Big Issues

Veteran Oregon lawmaker Peter Courtney says this is the week the legislature must fish or cut bait on major decisions to avoid slipping into a special session to find a way to dig out of a $1.4 billion budget hole.

Veteran Oregon lawmaker Peter Courtney says this is the week the legislature must fish or cut bait on major decisions to avoid slipping into a special session to find a way to dig out of a $1.4 billion budget hole.

This is the pivotal week, according to Senate President Peter Courtney, that will determine whether Oregon lawmakers will spend more time this summer or fall in Salem in special session.

The keys to watch for this week, Courtney tells Jeff Mapes of OPB in an interview today, will be House votes on the K-12 education budget and an extension of the health care provider tax to pay for rising Medicaid costs. Courtney said if those two measures move this week, the legislature has a chance to adjourn by or before July 10, its constitutionally required deadline to approve a balanced budget and go home.

In his interview with Mapes, Courtney sounded less than optimistic about prospects for a $900 million corporate income tax increase and expressed concern that back-room haggling over tolling on Interstate 5 and 205 and potential compromises on low-carbon fuel standards could bog down progress on a transportation funding package.

Governor Brown said much the same thing last week to the Salem Statesman Journal. It’s time, she claimed, "to stop bare-knuckles politicking and move major bills including a hospital tax, a transportation package and a cost containment initiative.”

Brown's list omitted a revenue package, even though she and other Democratic leaders are rooting to pass such a package – if they can find at least one Republican in both the House and Senate to vote for it. So far that has proven elusive. The governor said she has met with nearly every lawmaker and walked away with, “I honestly don’t know whether the votes are there are this point in time.”

“We’re so close to a real, comprehensive solution this session – one that has been influenced by years of advocacy from all sides of Oregon’s political spectrum, including business and labor leaders, Republicans and Democrats,” she said." It’s time to get the work done.”

Predictions and pep talks may not offset the political barriers to progress toward a balanced budget. Republicans want deeper cuts in what they call “cost drivers” that push spending unsustainably beyond state revenues, even in good economic times. Democrats believe corporations aren’t paying their fair share to support state spending, and many think the existing corporate income tax has too many loopholes that allow big corporations to evade state taxation.

Lawmakers are debating today the latest iteration of tax legislation, which includes a corporate activities tax that would go into effect in 2019 and a "bridge proposal” of higher corporate tax rates between now and then. Democratic leadership on the House may try to move the bill despite an unknown vote count in the Senate.

The provider tax this session has faced ambivalence or opposition from portions of the health care community, including the trade group representing hospitals and health care systems. In the 2015 session, the health care industry came to Salem with full agreement a provider tax extension was among the earliest major bills to win bipartisan legislative approval. Now approval of a provider tax has become a political buoy indicating whether the 2017 legislature can avoid a special session.

The K-12 education budget, because it is the largest state agency budget, reflects a healthy increase over the current biennium, but not enough to satisfy K-12 education advocates or avoid teacher layoffs and the prospect of a ballot measure to impose a constitutional funding requirement similar to what is in the Washington Constitution. Failure to find a way to meet that constitutional funding standard has put the Washington legislature on the brink of a third special session this year.

Despite bipartisan support for a transportation package, there still doesn’t appear to be complete agreement. There always is a natural tension between urban and rural areas over allocating new revenues. Based on Courtney’s comments, there also is tension within the Portland-area legislative delegation about tolling on major interstate highways. And remember this is tolling without a new I-5 Columbia River Bridge.

End-of-session pressure often produces dramatic resolutions to seemingly irreconcilable positions. If Courtney, the longest serving legislator in the Capitol, is right, this week will determine whether there is enough pressure to break political blockades that can lead to timely adjournment.

Why Oregon Could Be Staring at a Special Session

House Speaker Tina Kotek and Republican Leader Mike McLane aren’t on the same page when it comes to how to proceed on addressing Oregon’s $1.4 billion budget hole, which could result in Oregon lawmakers spending a chunk of their summer in Salem trying to find consensus.

House Speaker Tina Kotek and Republican Leader Mike McLane aren’t on the same page when it comes to how to proceed on addressing Oregon’s $1.4 billion budget hole, which could result in Oregon lawmakers spending a chunk of their summer in Salem trying to find consensus.

As Washington lawmakers enter their second special session, speculation has begun to build on whether Oregon lawmakers are in store for a similar summer sequestration to plug a $1.4 billion budget hole and pass a transportation funding package.

Oregon lawmakers have roughly six weeks to find a political solution, even as political priorities in the Capitol don’t seem full aligned. House Speaker Tina Kotek wants action first on a revenue package. Legislative Republicans favor moving ahead on cost containment.

The disagreements don’t stop there. Kotek prefers a Corporate Activity Tax, which would replace the corporate income tax, provide a small amount of income tax relief for low and middle-income households and generate a net revenue gain of $2.164 billion. Senate Finance Chair Mark Hass, who started working on a corporate tax alternative last fall after voters soundly defeated Measure 97, is touting a different plan that would net the state just under $1 billion in additional revenue.

Hass’ Senate office saw a flurry of activity last week as Governor Brown, Kotek and Senate President Peter Courtney tried to broker a compromise version of a corporate tax. There is no sign they reached agreement on the plan’s tax provisions and, more important, on how much revenue it would raise in the next biennium.

Meanwhile, Kotek has stopped the flow of major bills, including a provider tax to fund Oregon’s Medicaid program and a transportation funding package, a 300-page piece of legislation that will receive its first public hearing May 31, with public testimony to follow June 5, 7 and 12. A provider tax package is vital to balancing Oregon’s $900 million Medicaid budget deficit and negotiations continue furiously behind closed doors.

Big decisions, especially ones involving votes to raise revenue, often are jammed into the waning days of a legislative session when fatigue sets in and pressure builds inside the Capitol to go home. However, Republicans hold the critical 36th vote in the House and 18th vote in the Senate to approve any revenue measure under Oregon’s constitutional three-fifths majority vote requirement. At the moment, they appear to be locked up pending movement on cost containment.

"My priority right now is budget" and boosting corporate taxes to fund services, Kotek told reporters. "Our goal is to get a long-term solution to our budget problems and tax reform. So any other bill will just have to wait until we get that done.” House Republican Leader Mike McLane responded, “This is Tina Kotek on her own. If that’s what she wants to do, she puts in jeopardy all we’ve working on in a bipartisan fashion so far."

Disagreeing on the order of how bills move is roughly akin to diplomats arguing about the shape of a negotiating table. It may seem trivial to outsiders, but it is the ball game to insiders. Controlling the order of voting is the leverage that Kotek believes will deliver the votes she needs to pass a revenue measure. Withholding GOP votes on a revenue measure is the leverage McLane wants to exert to win spending concessions from Democratic leaders.

The political order and timing of voting has significant ramifications for wrapping up a legislative session. It is hard to finalize state agency budgets when you aren’t sure what numbers to plug into those budgets. There is an inevitable amount of time it takes to prepare the paperwork so budget bills are ready for voting. This reality means Oregon lawmakers don’t actually have six weeks to reach consensus on a revenue-raising and cost containment deal, but more like three weeks if they want to avoid sliding into a summertime special session.

Another complicating factor to consider is the education budget. Lawmakers reportedly will begin negotiating a K-12 budget this week, further destabilizing discussion around budgets in health care and public safety. Those three issue areas make up around 90 percent of state spending, so if legislators finalize an early K-12 budget at historic numbers, it will leave less money on the table for vital human service programs, public safety and other considerations.

As Washington lawmakers have shown, political differences don’t necessarily melt away just because you are in a special session. They spent an additional 30 days in the first special session and wound up in essentially the same place. Now they have until roughly the end of June to solve their political puzzle. Oregon lawmakers have until July 10 to balance the budget or face their own special session purgatory.

At a floor session at the end of last week, Courtney once again voiced pessimism about enough votes to pass a tax measure, a cost containment plan or a transportation bill. Lawmakers will non-refundable summer vacation plans won’t be happy if they are stuck in Salem.

The good news is that a stymied Congress is unlikely to move ahead with a replacement for Obamacare and steep cuts in federal Medicaid funding that would go into effect in time to impact Oregon's 2017-2019 biennium. It doesn’t appear any major tax legislation will move in Congress before the Oregon legislature adjourns, even with a potential special session.

Legislators Get a Mostly Good News Revenue Forecast

State economists Mark McMullen and Josh Lerner shared the latest Economic and Revenue Forecast that contained mostly good news, but also a warning that Oregon’s economy is cooling off.

State economists Mark McMullen and Josh Lerner shared the latest Economic and Revenue Forecast that contained mostly good news, but also a warning that Oregon’s economy is cooling off.

The Oregon Economic and Revenue Forecast released today is full of mostly good news, but also hints at less good news just around the corner. 

Better than expected revenue projection this bienniums, based on job growth and higher wages, have trimmed the state’s projected 2017-2019 budget hole to $1.4 billion, but warning signs abound that Oregon’s economy is cooling off as the nation may be inching toward a new recessionary cycle. A trade war could accelerate an economic slowdown in Oregon.

State economists say Oregon’s economy remains solid, but a "pervasive slowing of job growth” is sure to intensify calls for deeper spending cuts in the next biennium. Governor Brown and Democratic legislative leaders acknowledge there is a structural gap between Oregon’s revenues and spending levels, but there isn’t consensus on how to bring them into alignment.

Here is how state economists predict the short-term outlook for Oregon:

"While Oregon’s economic expansion continues, growth has clearly slowed. In recent years, the state has enjoyed robust, full-throttle rates of job gains in the 3-3.5 percent range, or nearly 5,000 jobs per month. No longer is this the case. Oregon is expected to continue to see healthy job gains – a bit more than 3,000 per month or just more than 2.1 percent over the course of the 2017-19 biennium, but the state is now past its peak growth rates for this expansion. Importantly, such gains remain strong enough to hold unemployment down and account for ongoing population growth.”

One piece of news that may please personal income taxpayers, but add to the distress of legislative budget-writers is the likelihood that Oregon’s unique “kicker" will be triggered. If actual revenues exceed 2 percent of what is projected in the state budget, all revenues above the projected total will be rebated to personal taxpayers. Based on current numbers, that would mean around $400 million going back into taxpayer pockets as refunds when they file their tax returns for 2017 next year.

Here is some of the other good news contained in the forecast:

  • Oregon’s average wage gains are in the 3-4 percent range, which have helped to bring wage levels in the state closer to the national average – the highest relative level they have achieved since the 1980s when many timber mills were shuttered.
  • Labor participation rates have sharply increased for workers between the ages of 35 and 50 since 2015 – and grew 10 percent for workers nearing 65 years of age.
  • Oregon household incomes are on the upswing, which can be expected as labor markets tighten.
  • Rising household incomes have, in turn, kept the state’s housing affordability crisis and poverty rates from getting worse.
  • Oregon’s unemployment rate has plunged, making the 3-month decline in the first quarter of 2017 the largest ever recorded in state history.
  • Ten economic sectors have recovered from Great Recession job losses and now are at all-time high employment levels. They include food manufacturing, education, health care, professional services, leisure and hospitality and retail. Oregon’s manufacturing sector has returned to growth in recent quarters, but job levels have not.
  • Nationally, US exports have rebounded, while consumer spending slowed in early 2017.
  • Most of the indicators used to mark up-or-down economic movement are in positive territory. One of the exceptions is  income tax withholding levels from Oregon paychecks.

Release of the May Economic and Revenue Forecast provides the baseline numbers and starts the final countdown on state budget approval before the regular legislative session ends around July 4. The forecast also signals the final political push for a spending and revenue package that can pass.

Elements of a possible deal have surfaced, but so far the deal doesn’t appear to have been closed. Brown says there has been continuing engagement with business leaders on an acceptable budget deal. She also has proposed a massive sell-off of surplus state assets to reap as much as $5 billion to buy down the unfunded liability of the Public Employees Retirement System. Agreement on filling Oregon’s Medicaid budget hole are also close to completion..

Senator Mark Hass, D-Beaverton, has unveiled his proposal to replace the current Oregon corporation income tax with a broader-based gross receipts tax. House Democratic leaders have come up with a corporate activity tax that also would replace the current corporate tax regime.

The next six weeks will be intense in Salem. Fortunately, today’s revenue forecast didn’t make the situation even tenser.

Lawmakers Unveil $8 Billion Transportation Package

Under the just unveiled Oregon transportation funding package, buying a new car may have a new line item – a 1 percent excise tax – to help pay for congestion relief and seismic retrofits of critical bridges.

Under the just unveiled Oregon transportation funding package, buying a new car may have a new line item – a 1 percent excise tax – to help pay for congestion relief and seismic retrofits of critical bridges.

Oregon lawmakers and the public got their first look this week at a $8 billion, 10-year transportation package that includes provisions to preserve existing roadways, deal with highway bottlenecks, retrofit critical bridges to withstand earthquakes and bolster public transportation and bike safety.

To raise the $8 billion, Oregon’s gas tax would gradually increase over a decade by 14 cents, a 1 percent excise tax would be assessed on new car purchases and a .001 percent statewide employee-paid payroll tax would be imposed. Revenue from the excise tax on new cars would be dedicated to congestion relief projects, while the payroll tax would pay for transit improvements. There is also language in the proposal that would allow tolling on roadway facilities in the Portland area and a new excise tax on bicycles.

Senators Lee Beyer, D-Springfield, and Brian Boquist, R-Dallas, who presented the plan, made clear there is still a lot of negotiation left to do before voting begins. However, Beyer said the plan represents the minimum of what’s required to maintain Oregon’s highways and bridges, address issues such as congested freight corridors and major earthquake damage and expand public transportation.

Under the just unveiled $8 billion transportation funding proposal, tolling would be allowed to pick up the local share of the cost of congestion relief and seismic retrofits of critical bridges such as the Abernethy Bridge in Clackamas County.

Under the just unveiled $8 billion transportation funding proposal, tolling would be allowed to pick up the local share of the cost of congestion relief and seismic retrofits of critical bridges such as the Abernethy Bridge in Clackamas County.

Lawmakers arrived in Salem in February with a broad consensus it is time for a major transportation funding package. But the devil is always in the details – and, in this legislative session, in the context of a large debate over how to plug a $1.6 billion state budget hole that may grow bigger.

The plan Beyer and Boquist outlined calls for the lion’s share of early money raised by the bill to be spent in the Portland area, where congestion is the worst and few of the bridges across the Willamette River could stand up to a major earthquake. That may not set well with rural lawmakers. And not everyone, including in the Portland area, may agree on how much should be spent on seismic retrofits for a potential problem versus on relieving congestion that is an immediate and worsening problem.

There also could be voices expressing concern that the biggest bottleneck – the I-5 Columbia River Bridge – isn’t factored into the plan.

Another point of contention will be using the payroll tax to pay for transit. Supporters of the idea note there aren’t many alternatives. Under the Oregon Constitution, the State Highway Trust Fund, which is where gas tax and title, registration and license fee revenue goes, can only be used to pay for road and bridge projects. Previous attempts to find a statewide funding mechanism for public transportation, such as a tailpipe tax, were struck down because of the constitutional restriction.

A significant procedural question mark is whether all of the new or increased taxes and fees, including the statewide payroll tax, can be included in a single bill. If not, then the package may require more than one vote with a three-fifths majority to pass.

The proposal has a lot of nuances to it. For example:

  •  After an initial six cent bump, the state gas tax would increase two cents every two years, for a total of 14 cents after 10 years.
  • The title and registration fees would be increased under a tiered program designed to charge more for owners of high mileage vehicles, such as hybrids or electric cars. Vehicles that get 40+ mpg will pay the most ($40 after 10 years), 20-40 mpg will be in the middle, and 0-20 will keep the current $20 fee.
  • The gas tax and vehicle fee increases will raise $5 billion over 10 years, with 50 percent going to state roads, 30 percent to county roads and 20 percent to city roads.
  • Funding generated by the 1 percent excise tax on new cars would be used to match on a 50-50 basis with local funding through Metropolitan Planning Organizations (MPOs) throughout the state. Smaller MPOs outside of Portland may lack the capacity to raise enough money for a 50-50 match. There also was discussion among lawmakers who developed the package of raising the excise tax on new cars to 2 percent over the 10-year period.
  • Tolling was discussed, mainly on I-5 and I-205, but as Boquist pointed out, any project-specific tolling needs to be collected at the project area.
  • A 5 percent excise tax levied on newly purchased bikes would generate an estimated $4 million annually to pay for bike safety projects.
  • Under the employee payroll tax, a minimum wage worker would pay 39 cents a week, for a total of $20 per year. Te new statewide tax is expected to generate approximately $100 million annually, with the following distribution: 10 percent to fund a competitive grant program for improved service; 4 percent dedicated to inter-city transit; 1 percent dedicated to a statewide resource center and the remaining 85 percent distributed among the transit properties by formula. If the statewide payroll tax becomes a reality, public transportation would no longer be eligible for funding under the Oregon Connect program.
  • The package also contains $7 million in Connect Oregon funding and $4 million for the State Parks Department, which oversees Oregon’s beaches that allow vehicular traffic.

The Joint Committee on Transportation Preservation and Modernization will resume on Wednesday its review of the proposal and answer questions.

Because of the size of the package and concerns about Oregon Department of Transportation management, accountability provisions  have been attached. The proposal recommends continuing the Joint Committee, giving it oversight over both the budget and policy of ODOT as well as expanding the Oregon Transportation Commission to include members from each region of the state. Uniform standards for the quality of roads and bridges also would be established as part of the package.

Address Oregon’s Budget Deficit in Digestible Chunks

Oregon has a $1.6 billion budget hole, which could grow deeper if the personal income tax kicker is triggered and Congress enacts health care and tax legislation. There isn’t a big table to reach a grand bargain, so maybe it’s time to address the budget deficit in digestible chunks.

Oregon has a $1.6 billion budget hole, which could grow deeper if the personal income tax kicker is triggered and Congress enacts health care and tax legislation. There isn’t a big table to reach a grand bargain, so maybe it’s time to address the budget deficit in digestible chunks.

With no big table to negotiate a grand bargain in the offing, it may be time to look differently at Oregon’s projected $1.6 billion budget hole. One possibility is to break up the deficit into smaller pieces and connect them to smaller-gauge solutions.

The May economic and revenue forecast has become the signal that the legislature is entering its final six-week lap before adjournment. But lawmakers can’t leave town until they balance the budget and there are few public signs of any pending agreement – or even a process to reach an agreement.

Adding irony to injury, Oregon’s booming economy may trigger the personal income tax kicker, returning millions of revenue in the next biennium to taxpayers. Congressional action on replacing Obamacare and changing federal tax law also could have a significant, if uncertain impact on Oregon’s beleaguered budget. These complicating factors aggravate an already elusive challenge to balance the state’s budget and put spending on a sustainable track.

The advantage of a grand bargain, which would include spending cuts and a major revenue-raising vehicle, is that it could be simpler to round up the votes needed to pass the big parts. But getting Republican votes for any tax measure has proven elusive in the aftermath of a divisive campaign last year over Measure 97, which would have imposed a gross receipts tax on corporations with $25 million or more in sales in Oregon.

Senate Finance Chair Mark Hass, D-Beaverton, unveiled this week an alternative version of a gross receipts tax, with a lower rate, a broader base and a smaller tax bite, which OPB labeled as the “ghost of Measure 97." However, resistance within the business community remains, which could stymy its ultimate passage.

Trying to tackle the budget deficit in chunks would require more legislation and more tax votes, which require a three-fifths majority in the House and Senate. The advantage of this chunking approach is that it may be easier to find some level of bipartisan consensus on smaller solutions than on an omnibus package.

To some degree, there is already a precedent for subject-specific budget deals in the ongoing negotiations over a larger health care provider tax to address rising state costs for expanded Medicaid eligibility. 

An obvious candidate for a similar kind of discussion could be on how to finance a voter-approved initiative (Measure 98) that requires career education in all Oregon public high schools, estimated to cost around $350 million in the next biennium. Business, labor and education interests may find common cause and a consensus solution for a spending plan for something this specific.

The one-by-one approach also might work out for defenders of existing expenditures, such as the Residential Energy Tax Credit that requires $60 million or so to continue. A carefully constructed proposal might generate the funding to sustain the tax credit for homeowners and renters who purchase eligible energy-efficient devices or energy systems such as solar panels. Despite the RETC’s positive reputation, it could get left on the cutting room floor in negotiations on an overall spending and tax package.

At the moment, the default political approach for the Democratically controlled legislature is to hold bills important to GOP lawmakers hostage and use them as leverage to get the votes needed for a budget-balancing agreement. An unwitting victim of that approach could be a transportation funding package, which has bipartisan support in concept, but still needs work on the details.

Grand bargains usually require a powerful political figure to get key players around the table, drive the conversation and push for resolution. So far, no one has volunteered for that role. However, Governor Brown’s recruitment of former Rep. Peter Buckley, who served as co-chair of the Ways and Means Committee and has a detailed understanding of how state budgets work, could be an effective manager of a series of smaller table negotiations that whittle away at the $1.6 billion deficit.

There is no obvious or easy path to address the immediate budget hole or some of the systemic reasons why the hole exists when Oregon’s economy is rolling along, generating an estimated $1.5 billion in new revenue in the next biennium. Tackling the problem through a series of smaller, specific solutions may not result in a solution to the unfunded liability of the Public Employees Retirement System, but a solution isn’t assured even in a grand bargain. The PERS changes that were part of the last Oregon grand bargain budget were largely thrown out in court.

If the Governor and legislative leaders are unable to push through an overall spending and tax plan to balance the 2017-2019 budget, they perhaps should look at an alternative approach while there is still time. Time flies in the Capitol, even when it seems like it would take an eternity to get all the work done before heading home for the Fourth of July.

Casino Opening Creates Another Oregon Budget Jackpot

The opening of a new casino just north of Portland is expected to produce lemons in Oregon Lottery video game sales and reduce the state's General Fund by more than $70 million a year, adding to the legislature's budget woes. 

The opening of a new casino just north of Portland is expected to produce lemons in Oregon Lottery video game sales and reduce the state's General Fund by more than $70 million a year, adding to the legislature's budget woes. 

The Ilani Casino opened its doors in La Center, Washington this week, clogging I-5 for eight miles and packing its parking lot. The new casino is expected to create serious ripples farther south in the State of Oregon’s pocketbook, complicating an already troubled budget predicament.

The Office of Economic Analysis forecasts the tribally owned casino just a short drive from Portland on the freeway could chop off as much as $120 million per year in Oregon Lottery revenues, which translates into more than $70 million per year in reduced revenues to the state General Fund.

Much of the loss is attributed to video lottery. The state economist says more than half of  Oregon’s video lottery sales occur in the Portland metropolitan area and 11 percent occur in the northern part of Portland, which is closest to the new casino. North Portland also is where a lot of video lottery jackpot winners live.

“If these northern Portland zip codes see a 40-50 percent decline in video lottery sales, that means total statewide video lottery sales would decline 4.5 to 5.5 percent,” according to the state economic forecast. “Factoring in additional losses of around 10-15 percent throughout the rest of Portland regional brings the statewide total impact to nearly 12 percent.”

For a state budget enumerated in billions of dollars, $70 or so million may not sound like much of a revenue hit. But Oregon legislators find themselves in a troubled place where they are scrounging for every dollar they can find to avoid budget cuts. To put a $70 million revenue loss into perspective, that would pay for Governor Brown’s affordable housing construction program or cover the cost to extend health care coverage to every child in Oregon.

Salem is just days away from receiving the May economic and revenue forecast, which is the final financial benchmark used to determine state agency budgets. It’s possible state economists may raise the potential impact of the Ilani Casino based on its bustling opening, where eager patrons chanted for the doors to open.

The May forecast will signal the beginning of the bell lap in the session when lawmakers need to get serious about a budget deal. Democratic leaders have released a budget showing what cuts could look like if there is no new revenue. A bipartisan committee issued ideas for how to curb spending. Senator Mark Haas, D-Beaverton, has developed a corporate gross receipts tax that would replace the current state corporate income tax. However, there doesn’t appear to be a concerted effort – or a clear ringleader – to hammer out a budget deal that can pass.

The new casino features a 100,000 square foot gaming floor with 2,500 slot machines and 75 table games, according to a report in The Oregonian. There are 15 dining and drinking venues, three retail outlets and a 3,000-slot parking lot.

The opening-day traffic jam was caused in part because of incomplete construction on a $32 million interchange on I-5 that was financed by the Cowlitz Tribe.

Oregon Rebuffs Washington Invite to Revisit the I-5 Bridge

 Car and truck traffic crossing the Columbia River between Portland and Vancouver continues to increase and will soon exceed 300,000 vehicles per day, based on data from ODOT.

 Car and truck traffic crossing the Columbia River between Portland and Vancouver continues to increase and will soon exceed 300,000 vehicles per day, based on data from ODOT.

Oregon Senate President Peter Courtney gave a trademark rebuke this week to State of Washington legislation that seeks to resume bi-state planning for a replacement of the I-5 Columbia River Bridge.

Courtney said he was so upset when Washington abruptly pulled out of bi-state cooperation on what was called the Columbia River Crossing that he angrily swung his arm, toppling the Pope Francis bobblehead sitting on his desk. “He got wounded. We bandaged the poor pope,” Courtney said, adding the hurt – presumably his, not the bobblehead’s – hasn’t gone away.

In less colorful ways, Governor Brown and House Speaker Tina Kotek were equally adamant as Courtney in deflecting Washington’s effort to rekindle interest in a new bridge to address one of the most serious bottlenecks on I-5 in the Pacific Northwest. All three officials said the transportation package being crafted in the Oregon legislature won’t include any provision relating to bridge replacement.

While the sentiment among Oregon officials is understandable, the consequences may mean that any progress on a new bridge, which Washington Governor Jay Inslee now says is a “high priority," could be pushed off for another decade. Oregon manages to come up with a significant transportation plan about every 10 years.

Then there is the Trump $1 trillion infrastructure plan. As outlined by President Trump, the plan would favor projects that private developers could build and toll to recoup their investment. Trump also says he wants to prioritize projects that are ready to go. There is a fairly advanced plan to replace the Columbia River I-5 bridge with vehicular and transit bridges, which presumably could be quickly resuscitated, tweaked as needed and put in play for funding from the Trump plan.

Traffic on the two bridges connecting Portland and Vancouver has continued to climb after a brief decline during the last recession. Now around 300,000 vehicles use the two bridges daily, lengthening peak-hour commuting times. Commuter “peak hours” have extended to three or more hours, traffic engineers report. Bridge lifts on the I-5 bridge routinely thwart motorists who cross the river for doctor appointments, job interviews and child care pickups.

Oregon lawmakers face a daunting challenge to find a politically acceptable solution to a $1.6 billion budget hole and what Republicans call unsustainable spending, which already has added to complicated political calculus of building a transportation funding package for roads, bridges and transit. But they also might be guilty of missing the forest for the trees.

The $1.5 billion redevelopment along Vancouver’s waterfront near the existing I-5 Columbia River bridge is certain to spur more interstate traffic and change attitudes about extending light rail from Portland.

The $1.5 billion redevelopment along Vancouver’s waterfront near the existing I-5 Columbia River bridge is certain to spur more interstate traffic and change attitudes about extending light rail from Portland.

Vancouver’s major waterfront redevelopment is well underway, which is likely to change attitudes about light rail. Reluctance among Clark County officials to hook onto Portland’s MAX system was a major factor in deep-sizing the Columbia River Crossing plan. One of the most vocal opponents, Senator Don Benton, has left town to work in the Trump administration, heading up the Selective Service.

It doesn’t take enormous imagination to see stars suddenly align on a plan that Washington and Oregon officials – and commuters and freight haulers in both states – could embrace in time to pitch for a piece of the Trump infrastructure pie. The timing may not be convenient and hard feelings may not have receded, but the stakes seem too high to ignore.

A capstone project like a new I-5 Columbia River bridge might ignite even greater interest in an Oregon transportation funding package and inject fresh energy into expansion of the metropolitan light rail system, which today awkwardly ends in the Portland Expo Center parking lot on the Oregon side of the Columbia River.

Courtney, using Trumpesque language, says the transportation bill under development in Salem is “extraordinary” and will be “one of the greatest transportation plans Oregon has ever seen. “We’ll take care of our own backyard,” Courtney explains, “and then we’ll decide whether or not there’s a state north of us.” Frustrated motorists and truck drivers who sit sometimes for hours waiting to cross the I-5 bridge can attest there definitely is a state “north of us."

Legislative Video Argues Bipartisanship is Alive and Well in Salem

Reps. Bill Post, R-Salem, and Dan Rayfield, D-Corvallis, may be on the opposite ends of the political spectrum, but they have posted a video that argues partisanship has its place, but bipartisanship is the rule.

Reps. Bill Post, R-Salem, and Dan Rayfield, D-Corvallis, may be on the opposite ends of the political spectrum, but they have posted a video that argues partisanship has its place, but bipartisanship is the rule.

If Congress can be depicted as a hell-hole, the Oregon legislature might fairly be described as a friendly campground. And two of the campers have posted their homegrown video.

Reps. Bill Post, R-Salem, and Dan Rayfield, D-Corvallis, sit on opposite sides of the political aisle, but in their video they sit side by side in comfy chairs. Their YouTube video starts off by discussing how to pronounce Philomath, a timber town in Rayfield’s district.

Post and Rayfield don’t share much in terms of political ideology, but on video they look like best of friends. And they might be.

The shrill partisanship that seems to consume Washington, DC  is largely absent in Salem. There are strong disagreements, political ploys and occasional obstruction, but mostly there is respectful comity. Friendships transcend politics. That’s the point Post and Rayfield make in their video. The general public thinks Republicans and Democrats are waging wars in the hallways, when instead they trade jokes on the stairs and look for common ground in committee rooms.

For people familiar with the Oregon political scene, this is not new. But it is news that the tradition has by and large continued.

When former Rep. Vic Gilliam, R-Silverton, revealed his diagnosis of ALS, the legislative colleague who took the new the hardest was Rep. Brian Clem, D-Salem. Representing neighboring House districts, Gilliam and Clem became good friends, with friendships that extended beyond the Capitol grounds. Clem has pledged to pitch in to help Gilliam as his physical condition ineluctability deteriorates.

The Post-Rayfield bromance video is intended to give a “behind-the-scenes” look at the 2017 legislative session.  For example, they trade thoughts on how to deal with legislation suggested by constituents, even if it seems creepy. Post wondered what to do if the bill represented an opposing political philosophy. Rayfield said he tries to provide counsel to constituents on how to lobby their own bill or find an alternative solution.

If you watch the entire video, you come away with some additional knowledge about camellias and marijuana, but mostly with a sense that bipartisanship continues to thrive in the Oregon legislature.

In terms of snappy entertainment, the Post-Rayfield video lacks the punch of tweets by President Trump or press briefings by Sean Spicer. But it is a reassuring affirmation that the world has not gone totally mad, which makes the video very entertaining, even without Snapchat filters.

Future videocasts promise more Capitol history, including a dissertation by Rep. Jeff Barker, D-Aloha, on the origin of Hawaiian Shirt Friday. We can hardly wait.
 

Tax Votes Add Complexity to Budget Balancing Challenge

Tax votes that require three-fifth majorities to pass complicate already complex Oregon budget negotiations, which remain opaque and may not have really begun in earnest.

Tax votes that require three-fifth majorities to pass complicate already complex Oregon budget negotiations, which remain opaque and may not have really begun in earnest.

Negotiating a budget deal has the complexity of a Rubix cube. Factoring in one or more three-fifth majority tax votes makes the exercise more like Super Rubix.
 
In addition to finding a tough-love agreement on a budget, Oregon legislative leaders must line up even tougher votes for tax increases that would require at least one Republican and the entire Democratic caucuses in both the House and Senate.
 
It seems likely there will be at least two tax votes in connection with a budget agreement – a hospital provider tax bill and some kind of corporate tax legislation. There also could be a tobacco tax increase.
 
There is bipartisan agreement on the need for a transportation funding package, which would require another vote with at least 36 “yes" votes in the House and 18 in the Senate. Despite two months of public hearings and several months of road show meetings, there isn’t any apparent agreement on what should be in the package or how to pay for it.
 
A question legislative leaders have to ask is how many tax votes their members can stomach in a single session. The answer is usually tied to how relatively painless the tax votes can be made. Removing pain involves painkillers, known in legislative vernacular as political trade-offs.
 
Legislative Republicans have circled the wagons demanding significant spending cuts, including to the Public Employees Retirement System. They believe substantial reductions are needed to make the state budget going forward sustainable, especially when the next economic downturn occurs.

There aren’t any silver bullet solutions for PERS because of court rulings and contractual obligations, which means any spending cuts would be spread over a larger array of state agencies and programs. That means a higher probability of resistance from more corners of the legislative body, including in the Democratic caucus.
 
Some political observers worry that early-session pushes by Democrats on issues such as paid family leave and rent control could dampen Republican willingness to collaborate, or at least delay meaningful negotiations. At the same time, Democratic legislative leaders have allowed some GOP priority bills to move forward with the hope that Republican legislators keep an open mind on future legislation
 
A bigger obstacle is reticence by Oregon’s business community to engage in tax discussions before specific spending cuts are squarely on the table. Senate Ways and Means Co-Chair Richard Devlin has offered a conceptual plan to address the state’s $1.6 billion projected budget deficit in 2017-2019 with $500 million in spending reductions, $500 million in tax increases and a separate deal involving the hospital tax and other health care revenue to sustain the Oregon Health Plan, the state’s Medicaid program.
 
Reports have circulated in the Capitol that some business leaders have approached GOP lawmakers about tax increases, but there isn’t much public evidence yet of significant bipartisan negotiations. In fact, the negotiations seem unusually opaque for this deep into a legislative session, especially considering all the moving parts that will go into an eventual deal.
 
Ordinarily, so-called grand bargain budget and tax talks are convened by the governor. However, Governor Brown hasn’t signaled publicly she is ready to undertake that role.
 
Congressional turmoil has added uncertainty to Oregon budget considerations, though the failure of the US House to repeal and replace the Affordable Care Act removed, at least temporarily, concern about an immediate fiscal impact.

AG Sessions Threatens Grant Money to Sanctuary Cities, States

Attorney General Jeff Sessions sent a warning shot to sanctuary cities and states indicating they could risk Department of Justice grant money if they cannot prove they comply with federal immigration law.

Attorney General Jeff Sessions sent a warning shot to sanctuary cities and states indicating they could risk Department of Justice grant money if they cannot prove they comply with federal immigration law.

Attorney General Jeff Sessions announced today that cities and states must prove compliance with federal immigration law before becoming eligible for $4.1 billion in Department of Justice grants. The policy could put grant requests at risk in Washington and Oregon.

Sanctuary city policies “endanger lives of every American” and violate federal law, Sessions said, adding that “this disregard for law must end. Failure to deport aliens who are convicted of criminal offenses puts whole communities at risk, especially immigrant communities in the very sanctuary jurisdictions that seek to protect the perpetrators.”

The Sessions policy announcement made at the White House didn’t expressly indicate a time line, whether the risk extended beyond DOJ grants or if sanctions applied to a state would include all cities within the state.

Governors in Washington and Oregon recently issued executive orders to declare they are sanctuary states.

Both executive orders explicitly state the declarations are consistent with current federal law.  Sessions said in his statement states and cities "must prove compliance with immigration law before they can be eligible for $4.1 billion in Department of Justice grants.”

This could boil down to an interpretation of 8 USC Section 1373 of federal law that “prohibits local and state law enforcement from restricting the sharing of immigration status information with federal authorities.” The Immigrant Legal Resource Center says “Few, if any, so-called sanctuary policies actually conflict with this statute. Moreover federal law does not provide for any financial penalties for non-compliance.”

A contentious issue in Oregon involves detaining people at the request of Immigration and Customs Enforcement (ICE). Based on a US federal court ruling calling the practice illegal without probable cause, Oregon law enforcement agencies decline such ICE detention requests.

In February, Washington Governor Jay Inslee signed an executive order blocking state law enforcement from detaining undocumented immigrants at the request of federal officials, days after the Trump administration began ramping up immigration enforcement actions.

Inslee’s order prevents state agencies from discriminating against or refusing service to those living in the country illegally and blocks the Washington State Patrol and the state Department of Corrections from detaining anyone solely on the basis of immigration status. It also blocks those agencies from spending state resources to create or enforce a registry of citizens on the basis of religious affiliation. 

However, Inslee said state law enforcement agencies will continue to honor federal arrest warrants. He noted his order only affected state agencies, so city and county law enforcement wouldn’t be impacted. And Inslee said the order should not be construed to mean the state would break federal law. The actual executive order reads: This Executive Order is intended to be consistent with 8 U.S.C. §1373. Should federal or state law change so as to give rise to a conflict with this Executive Order, such provision of this Executive Order shall be inoperative to the sole extent of the conflict.  

Oregon Governor Kate Brown issued an executive order in February that forbids all state agencies and employees from helping federal immigration officials locate or apprehend undocumented immigrants.

Though Oregon law already forbids state and local law enforcement agencies from using public resources to find or arrest those whose only crime is being in the country without proper documentation, Brown's order goes a step further in solidifying the state's sanctuary status by expanding the law to all agencies.

The governor's order also makes it illegal for state agencies to discriminate based on immigration status and forbids state agencies from using public resources to help create a religious registry. But each provision of Brown's order included a caveat: No state employee should break state or federal law to comply with her order.

Another sore point has been more aggressive activity recently by ICE agents to arrest undocumented people outside of courthouses where they appear for minor offenses or traffic tickets. Local officials say this practice has discouraged many Latinos from coming to courthouses, even as prospective jury members or to file legal paperwork.

Devlin Proposal May Break Budget Talk Blockade

Senator Richard Devlin proposed a plan that would cut $500 million in state spending, increase business taxes by $500 million and hike the hospital tax to pay for rising Medicaid costs.

Senator Richard Devlin proposed a plan that would cut $500 million in state spending, increase business taxes by $500 million and hike the hospital tax to pay for rising Medicaid costs.

Veteran Senate Ways and Means Co-Chair Richard Devlin may have broken the deadlock on the state’s projected $1.6 billion budget hole. He called for $500 million in new taxes matched with $500 million budget cuts, including the Public Employees Retirement System (PERS).

Devlin’s idea may not be popular with everyone – or anyone, but it offers a basis for actual negotiations on how to raise revenue and what spending to trim. Until now, the major players in the budget battle have just stared at each from opposite sides of the room.

Another $500 million in tax revenue combined with $500 million in budgets cuts doesn’t equal $1.6 billion. Much of that remaining $600 million budget shortfall is expected to come from higher hospital and provider taxes to sustain Oregon’s Medicaid program.

Around $350 million of the $1.6 billion budget hole reflects the state’s requirement in the next biennium to pay 10 percent, up from 5 percent, of the cost of Medicaid. And that’s an optimistic number. Legislation Republicans are pushing in Congress could make deeper cuts in federal support of Medicaid as early as 2020. An Oregon fiscal analysis suggests the GOP health care bill, which proposes to slash more than $800 billion in Medicaid funding over the next decade, could put Oregon in the hook for an additional $2.6 billion to sustain existing coverage and eligibility by 2023.

A thorny budget debate was predictable after an acrimonious campaign on a union-backed initiative to impose a gross receipts tax, in the form of a minimum tax, on corporations with $25 million or more in sales in Oregon. After the sound defeat of the measure, business groups basically said the price of their participation in talks to raise revenues depended on making cuts in PERS.

For Democrats, tinkering with PERS is awkward politically because of their support from public employee unions. But finding ways to cut back on PERS is legally challenging because of a series of court rulings and contract arrangements. Devlin included PERS cuts in his concept, but said at most there would be modest savings from what he described as “technical fixes.” He foresees cuts in public employee compensation, vendor payments and staff levels.

On the revenue side, a lot of ideas have been floated – from limits on mortgage interest deductions to a tax on coffee. Senate Finance and Revenue Chair Mark Hass, D-Beaverton, dismissed those ideas and said he is concentrating on a gross receipts tax patterned after one in place in Washington. Hass said it would have a broad base and a low rate. He has been working on the idea since last year.

Devlin hopes the inclusion of PERS on the cutting board will entice business groups to negotiate an acceptable tax-raising measure. At least some level of business support will be necessary to win the three-fifths majorities needed for passage in both the Oregon House and Senate.

The hospital tax discussion may have a different track. In the last two biennia, former Governor John Kitzhaber worked behind the scenes with the Oregon Health Leadership Council to negotiate funding for Medicaid as well as steps to slow increased spending on health care delivery. Those quiet consultations enabled a 4-year extension of the hospital tax to pay for Medicaid to pass in the early months of the 2015 Oregon legislative session.

Governor Brown doesn’t have the same health care chops as Kitzhaber, but the same side rail conversations are underway with hospitals and other health care providers to address the Medicaid funding dilemma, which seems likely to get worse if Congress enacts its American Health Care Act. Health care providers and insurers may be wary of cutting a deal on Medicaid when the individual health insurance market that is supported by federal subsidies also may face significant changes under the GOP-backed legislation.

Devlin expressed hope that a revenue package could be wrapped up as early as next month, even a final budget won’t pass until at the end of the legislative session this summer. That may be an optimistic hope on Devlin’s part, because of the shaky relationship between business interests and union leaders. Serious negotiations could be delayed until after the May economic and revenue forecast, which includes the numbers on which final budgets are based.

Meanwhile, almost 40,000 Oregonians landed jobs in the past 12 months, bringing down the state’s unemployment rate to 4 percent, the lowest point on record. That’s good news in the short run, but it also means the current tax revenue stream is about as good as it is going to get and could be a lot worse in the next two years.

CBO Health Plan Score Underscores Deep Medicaid Cuts

 The Congressional Budget Office released its score on the House GOP health plan pushed by House Speaker Paul Ryan to replace Obamacare and the verdict is more uninsured Americans and a federal spending reduction, especially on Medicaid coverage for low-income Americans.

 The Congressional Budget Office released its score on the House GOP health plan pushed by House Speaker Paul Ryan to replace Obamacare and the verdict is more uninsured Americans and a federal spending reduction, especially on Medicaid coverage for low-income Americans.

The just released Congressional Budget Office score on the House GOP plan to replace Obamacare provides a lot to chew on and even more for state lawmakers and GOP backers of the plan – to worry about.

The top line in the CBO score is that as many as 24 million Americans will lose health insurance coverage while the federal deficit declines $337 billion over the next decade. You have to read the fine print to find out what’s behind – and what’s ahead – a projected $1.2 trillion reduction in direct federal outlays combined with an $883 billion reduction in revenues.

"The largest savings would come reduction in outlays for Medicaid and from the elimination of the Affordable Care Act’s subsidies for non-group health insurance,” according to CBO, which estimates an $880 billion reduction in federal outlays for Medicaid. Another $673 billion in savings comes from elimination of ACA health insurance subsidies.

CBO says those reductions are offset by $361 billion in projected spending for health insurance tax credits, the loss of $210 billion from penalties paid by uninsured employees and employers, $80 billion for a new Patient and State Stability Fund grant program and a net increase of $43 billion under Medicare that would go to hospitals that serve a disproportionate share of low-income patients.

As many as 14 million more Americans would be uninsured as early as 2018, CBO says, then rise to 21 million in 2020 and 24 million in 2026, largely because of federal spending cuts on Medicaid.

Changes to Medicaid funding would result in 14 million fewer Americans served by the program by 2026, a reduction of 17 percent of those covered under current law, including the Obamacare expansion. CBO projects the biggest fiscal and enrollment changes will occur in 2020 when the “enhanced federal matching rate” for new enrollees terminates. Oregon was one of the states that agreed to expand its Medicaid eligibility. The House GOP plan contemplates giving states a per capita amount for Medicaid patients. By 2026, federal outlays to states for Medicaid will be slashed by 25 percent of what states would receive under current law.

Despite all the changes, CBO and the Joint Committee on Taxation predict the health insurance market will remain by and large stable. The CBO and JCT report notes:

"Under current law, most subsidized enrollees purchasing health insurance coverage in the nongroup market are largely insulated from increases in premiums because their out-of-pocket payments for premiums are based on a percentage of their income; the government pays the difference. The subsidies to purchase coverage combined with the penalties paid by uninsured people stemming from the individual mandate are anticipated to cause sufficient demand for insurance by people with low health care expenditures for the market to be stable.

"Under the legislation [House GOP plan], in the agencies’ view, key factors bringing about market stability include subsidies to purchase insurance, which would maintain sufficient demand for insurance by people with low health care expenditures, and grants to states from the Patient and State Stability Fund, which would reduce the costs to insurers of people with high health care expenditures. Even though the new tax credits would be structured differently from the current subsidies and would generally be less generous for those receiving subsidies under current law, the other changes would, in the agencies’ view, lower average premiums enough to attract a sufficient number of relatively healthy people to stabilize the market. 

CBO says individual health insurance market will see sharp premium increases until 2020, then lower average premiums than anticipated under the ACA. Premiums for this health insurance market, CBO says, could be 10 percent lower by 2026 than current law projections.

Secretary of Health and Human Services Tom Price disputed CBO’s projections for larger numbers of uninsured Americans under the House GOP health plan. “We believe our plan will cover more individuals at a lower cost and give them the choices that they want for the coverage that they want for themselves and for their family.” Ryan didn’t dispute the findings, but pointed out the CBO projection for lower individual health insurance premiums by 2026.

Democrats needled Republicans over tax cuts for wealthy Americans at the expense of Medicaid patients and the retention of a Medicare spending reduction that the GOP scorned in the ACA. Senate Minority Leader Chuck Schumer noted “The CBO score shows just how empty the President’s promises that everyone will be covered and costs will go down have been. This should be a looming stop sign for the Republicans’ repeal effort.” 

Quarterly Forecast Nuggets Buried in Plain Sight

Media coverage of Oregon’s quarterly economic and revenue outlook tends to focus on whether net state revenues have gone up or down since the last forecast. But that overlooks a lot of other interesting nuggets mined by the state economists who generate the report.

Media coverage of Oregon’s quarterly economic and revenue outlook tends to focus on whether net state revenues have gone up or down since the last forecast. But that overlooks a lot of other interesting nuggets mined by the state economists who generate the report.

Oregon’s quarterly economic and revenue outlook grabs headlines, usually related to whether net state revenue has gone up or down. But the outlook contains lots of interesting nuggets that generally go unreported, but are easily mined.

Here are some of those interesting nuggets generated by the Oregon Office of Economic Analysis:

  • While Oregon has a projected 2017-2019 biennial budget hole, the state also will have approximately $1.5 billion in budgetary reserves.  The two largest chunks of reserves are locked in the Rainy Day Fund and the Education Stability Fund, which are intended to fill in budget gaps during economic downturns.
  • Despite all the talk about a wall on the Mexican border, the outlook says Mexican-born Oregon residents has declined to 5,000 since 2009, down from 55,000 in both the 2000s and 1990s.
  • The outlook lists immigration migration as a risk factor to Oregon’s economy, but notes the 388,692 foreign-born Oregon residents constitute less than 10 percent of the state’s population, compared to foreign-born residency in the United States stands at 13.2 percent.
  • Federal policy is also listed as a risk factor. Risks noted included rising interest rates, tax changes, deregulation, federal lands, trade wars and the status of the Affordable Care Act or its replacement.
  • Oregon employment has continued to grow since the start of 2010. Job growth so far in 2016 is highest along I-5 from Salem south to Medford. The percent of job growth in non=metropolitan areas now has caught up with the Portland metropolitan area.
  • Monthly statewide job growth since 2011 peaked at slightly more than 6,000 in the first part of 2016. State economists predict monthly job growth will hover at or above 4,000 into 2018, then taper off in 2019 to 2,000 jobs.
  • Oregon is in the top 10 states in terms of per capita federal Medicaid grants, which in FY 2016 total $1,895, making the state more vulnerable to proposed Obamacare changes that would reduce subsidies.
  • One chart in the outlook underscores why rural parts of Oregon that are timber-dependent have continued to suffer economically. The chart shows timber harvest rates in the 1970s compared to the current decade. On federal lands, current harvests are 88 percent lower. Timber cuts on private lands are 22 percent lower. Harvests on state and local lands are up 35 percent.
  • Estate taxes are by their very nature unpredictable. From 2001 to 2015, the largest monthly spikes topped out at $20-$23 million. However, two recent months spiked to between $40-$48 million.
  • State revenues from marijuana sales during 2016 totaled $60 million, which was slightly more than the $59 million derived from snuff and $209 million from cigarettes. The comparative totals are interesting because the effective tax rate on marijuana is substantially less than on cigarette and other tobacco products.

New Fiscal Reality Tracks Trump Infrastructure Plan

President Trump is touting a major infrastructure plan, but with little direct federal spending on projects. The plan seeks to induce private developer to build highways and bridges and recap their investment through tolls and federal tax credits. There may be few investment-worthy infrastructure projects in Oregon.

President Trump is touting a major infrastructure plan, but with little direct federal spending on projects. The plan seeks to induce private developer to build highways and bridges and recap their investment through tolls and federal tax credits. There may be few investment-worthy infrastructure projects in Oregon.

President Trump has promised a $1 trillion infrastructure investment plan, but it will involve relatively little direct federal spending on roads, bridges, transit systems, dam repairs, rail upgrades and waterworks.

The Trump plan seeks to squeeze out price investment by allowing more tolling on roads and bridges, rolling back environmental regulations and providing tax credits to developers, as reported last year by CFM’s Joel Rubin.

Billed as public-private partnerships, the funding scheme envisioned by Trump’s administration will only be viable in infrastructure investments with some form of a payback. That probably limits the eligible projects to major highways and bridges that can be tolled and large water and sewer projects that can recoup investment costs through rates charged to users.

This new fiscal reality is the motivation behind the Oregon Department of Transportation’s decision to apply for one of three spots in the federal FAST Act tolling program. ODOT indicated it would look at tolls to finance improvements to reduce congestion on I-5 near the Rose Quarter or widening the I-205 Abernethy Bridge over the Willamette River.

ODOT is still in the exploration stage, according to Director Matt Garrett, who also told lawmakers last week “Timing is everything. We’re going to push hard.” If successful, ODOT would have to start at ground zero because currently it doesn’t operate any tolling facilities in the state.

Governors convening in DC before Trump’s address to a joint session of Congress acknowledged the President's plan falls short of what many hoped for to cope with long lists of aging infrastructure. But most don’t see much of a choice.

There are few concrete details of how the Trump public-private partnerships would actually work, and what it would it take to induce developers to undertake major projects. Like old-fashioned federal-state infrastructure spending, it will come down to money. Even though the Trump plan calls for relatively small amounts of direct federal spending, the tax credits that are intended to attract developer interest come at a cost, too, which Congress, with its reluctant conservative wing, may be unwilling to fund.

The profile of projects that might ultimately garner private developer interest are likely to be larger projects in more congested areas – places with a lot of captive traffic to pay tolls and big water projects with lots of built-in ratepayers.It is harder to see how private developers would be interested in transit, dam projects and high-speed trains or light rail investments.

Ironically, the project best suited for a pubic-private partnership is replacement of the I-5 Columbia River Bridge, which for the moment isn’t on the radar screen in either Oregon and Washington, though Southwest Washington lawmakers have signaled an interest in resuming conversations. In the previous Columbia River Crossing project, which faltered in 2015, tolling was looked at, but deemed untenable because commuters could use the relatively nearby I-205 Glenn Jackson Bridge.

A rush for more highway and bridge tolling may have some unintended impacts. As more fuel-efficient and hybrid energy cars have hit the nation’s roadways, federal and state gas taxes have lost ground in terms of what they generate on a miles-driven basis. That has caused many states, including Oregon, to explore shifting in whole or part to a system based on how many miles a motorist drives, not on how much gas he or she buys.

Modern conceptions of highway and bridge tolling involve electronic assessments, not toll booths. As electronic tolling becomes more common in a metropolitan area’s transportation system, there may less resistance to moving to a tax based on miles driven to replace the gas tax. While a gas tax provides an incentive for more fuel efficient vehicles, a vehicle-miles-traveled (VMT) tax in a metropolitan area encourages fewer trips and ridership on public transit.

A VMT tax has faced opposition from rural residents who per force of where they live drive longer distances to work, school, medical clinics and grocery stores. Both urban and rural motorists have expressed privacy concern about the state keeping track of their miles driven – and, by extension, where they are traveling. ODOT has worked on an electronic system that keeps track of mileage, but doesn’t track where the mileage occurs.

All this adds another layer of uncertainty to ongoing talks in Salem about a major state transportation funding package. There is bipartisan agreement on the need for a funding plan, but so far no legislative outline has emerged on what the plan might include and how it would be financed.

Funding for public transportation appears to have bipartisan support, but poses its own unique funding challenge. Under the Oregon Constitution, revenue generated from gas taxes and vehicle registration fees can only be used for highway and bridge improvements. A separate funding source would be required to pay, for example, for new buses powered by electricity or cleaner burning diesel or propane engines.

Washington Lawmakers Send Smoke Signal About Bridge Replacement

The Columbia River Crossing project went away, but not the congestion that continues to frustrate shippers and  commuters between Southwest Washington and Portland who have gained the attention of Washington lawmakers.

The Columbia River Crossing project went away, but not the congestion that continues to frustrate shippers and  commuters between Southwest Washington and Portland who have gained the attention of Washington lawmakers.

Plans to replace the aging, congested I-5 Columbia River Bridge crashed two years ago and now lawmakers from Southwest Washington are trying to send smoke signals to their Oregon legislative counterparts that there is still life in the project.

Life support might be a better description.

An ambitious project to replace the vehicle bridge and add a crossing for light rail from Portland to Vancouver faltered when the Washington legislature failed to come up with its share of funding to match federal and Oregon funding commitments. Light rail was a sticking point, but legislative attention and favor was aimed at a major project in the Seattle metropolitan area.

It didn’t help that former Southwest Washington Senator Don Benton planned the project. Benton is now working in DC as part of the Trump administration.

Qualms about light rail extending into Vancouver may still remain, but the more dominant narrative is the continued frustration of Southwest Washington commuters who endure ever longer delays because of bridge lifts and thick congestion on I-5. The Southwest Washington delegation has gotten the message.

What the delegation has managed to eke out Is legislative language coming out of the Washington Senate Transportation Committee calling the I-5 Columbia River Bridge a “project of great public importance.” That would strike commuters heading daily into Portland as classic understatement.

Senators Annette Cleveland, D-Vancouver, and Ann Rivers, R-La Center, had pushed for more. They wanted the bridge project tagged with the phrase “statewide significance,” which could help to expedite permitting for the project. Despite the downgraded wording and vague reference to mass transit and other Columbia River bridge crossing, the senators tried to put the best blush on the outcome and hoped Oregon lawmakers would take notice. They said it shows there is consensus to move forward.

Oregon officials are trying to pass a transportation funding package in the 2017 legislative session, but the starting list of projects proposed by Governor Brown didn’t include the I-5 Columbia River Bridge. Coincidentally, TriMet General Manager Neil McFarlane suggested this week several major congestion-fighting projects in the Portland area, including light rail extension to Tualatin, but his list didn’t include light rail extension to Vancouver or a new bridge.

House Speaker Tina Kotek, whose North Portland House district includes the area leading up to the bridge, was  and, according to a spokesperson, remains a strong advocate for a replacement of the existing bridge.

The Washington legislative action would authorize $350,000 to inventory and catalogue previous work on the Columbia River Crossing, which devoured millions of dollars in engineering and consulting services, and prepare a report back to the Washington legislature by December 1.

That may be enough for Oregon officials to reciprocate and agree to resume some level of bi-state exploration of a solution to what may be the worst bottleneck in the region, if not the entire Pacific Northwest. Even if discussions resume, an actual consensus project still may be years off and the necessary funding further downstream.