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.