Budget Stalemates in Olympia and Salem

The economy is improving and tax revenues are up, which should make it relatively easy to balance the budget. But Oregon and Washington lawmakers are finding it anything but easy.

The Oregon legislature, which planned to adjourn by the end of June, is bracing to grind on until July. The Washington legislature just completed its first special session, which The Columbian summarized in a tweet as "30 days, 0 bills, $77,000 in per diems."

Lawmakers in both states are hung up on how to get more money for K-12 schools. 

In Olympia, lawmakers face a court mandate to increase K-12 school funding, but can't agree how to do it.

In Salem, Democrats and Republicans have failed to reach agreement on deep enough cuts to the Public Employees Retirement System and new revenue. The Oregon Senate, which Democrats control by a slim 16-14 margin, is stymied because Senator Chris Edwards, D-Springfield, has balked at passing a large enough K-12 school budget to avoid more teacher layoffs and school day reductions.

Washington Governor Jay Inslee has called legislators back for a second special session to avert state government spending cuts if a budget deal isn't cut before July, when the state's new fiscal year begins.

Oregon has a similar problem, with the 2013-2015 biennial budget set to take effect July 1.

There aren't promising signs in either state the deadline will be met.

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Putting the Death Penalty to Sleep

Despite advocacy from former Oregon Supreme Court chief justices and administrators of the Department of Corrections, a ballot measure to repeal Oregon's death penalty seems unlikely until at least 2016. A legislative resolution by Rep. Mitch Greenlick to put the issue on the ballot next year died in committee.

Meanwhile, all that stands between the execution of convicted killer Gary Haugen and lethal injection is Governor Kitzhaber, who has refused to preside over any executions during his term in office. Haugen is pursuing legal action to allow his execution to proceed, despite an Oregon constitutional provision giving a governor sole authority over clemency decisions.

Oregonians for Alternatives to the Death Penalty staged a forum at Willamette University last week that attracted more than 200 people and featured an address by retired Supreme Court Chief Justice Paul DeMuniz. He said the death penalty doesn't work as a deterrent to violent crime, creates enormous legal complexities and costs Oregonians more than housing convicted felons for a life sentence.

Aliza Kaplan, a Lewis & Clark Law School professor, says the cost of trying to execute someone is at least 50 percent more that a life sentence without parole. She cited the case of Randy Lee Guzek who has been on death row in Oregon for 24 years and still has remaining appeals, costing Oregon taxpayers approximately $2.2 million.

Former Oregon State Penitentiary Warden Frank Thompson, who oversaw the two most recent state executions in 1996 and 1997, told the crowd, "Oregon should not be implementing policy that has been proven not to work." Both executions occurred during Kitzhaber's first stint as governor, which he has cited as a major reason for his moratorium on any further executions while he is governor.

Backers of death penalty repeal took solace in passage of similar legislation in Maryland. Governor Martin O'Malley signed the legislation last week, making Maryland the 18th state to outlaw the death penalty.

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Finding Budget Happiness

When Governor Kitzhaber returns from his Bhutan sojourn to find the secrets to happiness, he will discover unhappiness engulfs his homeland.

A Democratic plan to raise taxes on wealthy Oregonians and corporations evaporated on the House floor for that pesky constitutional problem of too few votes. Two days later, labor-backed Our Oregon responded by filing six proposed ballot measures to hike corporate taxes from as little as $185 million to as much as $1 billion per year. All that has business groups howling about a reprise of the divisive Measure 66 and 67 tax battles.

The purpose behind raising revenue is to prevent more K-12 school cuts. Nervous about the legislature's ability to boost spending on schools, droves of parents in the beleaguered Beaverton School District took to knocking on doors to drum up votes for a special levy.

The governor stepped back to let rookie House Speaker Tina Kotek, D-Portland, have a go at the $275 million bill, which never even came to a vote. Now it may be time for Kitzhaber to invite legislative leaders to Mahonia Hall to find common ground.

Senate Republican Leader Ted Ferrioli, R-John Day, told reporters the failed House tax vote last week created an opportunity to find solutions in the political center. In his first two years of this term, Kitzhaber was adept at finding bipartisan support for major initiatives, in part because he spent time meeting with both Democrats and Republicans. That same skill set will be called on this session.

In reality, the 2013 Oregon legislative session has not been overly partisan. Going into the session, observers said it would be necessary for Democrats to recruit Republicans to support budget and revenue packages — as well as wise to sustain the bipartisan esprit that developed as a result of the unique power-sharing agreement in the 2011 and 2012 sessions.

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A Grand Bargain on PERS, Public Safety

Oregon lawmakers settle in for real Monday and will quickly see, if they haven't already, that the 2013 session pivots on the outcome of two tough political decisions — modifying PERS and public safety reforms.

The legislature's only absolute duty is to approve a balanced budget and Governor Kitzhaber has teed up that task on the backs of saving a lot of money on PERS and new approaches to managing public safety. He also wants to slow the rate of growth of Medicaid and save $400 million in projected health care costs in the next biennium.

Squeezing money out of Medicaid rests on the ability of hospitals, doctors and health systems to, in Kitzhaber's words, "bend the cost curve" of the health care delivery system. But squeezing money out of PERS and Oregon’s public safety system falls squarely on the shoulders of legislators.

If there ever was a need for a grand bargain, this is it.

That's undoubtedly why legislative leaders have created a bipartisan, bicameral committee with equal numbers of Democrats and Republicans to address the public safety reforms — or, in legislative parlance, to provide both parties with political cover on what surely will be tough votes.

Leaders know there will be hell-no votes on both issues in both Democratic and Republican caucuses. Bipartisan majorities will be required if PERS and public safety changes are going to pass this session.

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Reforms Will Push Up Premiums

At the end of the 2011 and 2012 legislative sessions, headlines crowed about the progress Oregon had made on health care transformation as a result of bipartisan legislation from both sessions. In fact, Oregon has become a national leader on the topic with leadership from Oregon's governor, Dr. John Kitzhaber. From the establishment of Coordinated Care Organizations (CCOs) to the establishment of one of the first exchanges nationwide, Oregon took major steps forward in implementing health care reform.

As CCOs have begun to spring up in different communities throughout the state and details of the health insurance exchange have become more clear, a surprise that legislators didn’t anticipate is beginning to bubble-up to the surface: Major increases in health care costs will hit consumers just as the exchange debuts early next year.

Many of the causes of these cost increases are outside the control of Oregon legislators, but they nonetheless have the potential to unravel public support for reform as front-line consumers come face-to-face with the true cost of health care for the first time. 

Many legislators may have thought their work on health care reform was complete, but their oversight work on implementation may have just begun to ensure the transition to a reform reality doesn’t become a consumer nightmare.

Based on work done by the regional office of America's Health Insurance Plans (AHIP) and reported last week to the Senate Health Care Committee, here are the reasons why premiums are going up:

            *  A major factor is that "underlying medical costs are rising" at much faster rates than overall inflation.

            *  Rising costs of pharmaceuticals is another factor.

            *  Federal and state budget constraints have resulted in an underfunding of Medicare and Medicaid obligations. As a result, doctors, hospitals and other practitioners charge more to the insurance-buying public — sometimes as much as 20-30 percent more. This is what is referred to as the “cost shift.” It has a real impact on consumer rates.  

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Canny Tax Policy Works for Oregon

There is nothing new or novel about Oregon using tax policy to lure or retain major manufacturers, as Governor Kitzhaber has proposed to clear the path for a major Nike expansion.

Oregon has maintained its stake in the competitive manufacturing sector over the last two decades by a canny approach to tax policy.

Governor Kitzhaber’s proposal this week to create a tax policy guarantee for large manufacturers such as Nike is the latest in a line of proposals dating back to 1984 when Oregon lawmakers repealed the state’s worldwide unitary tax.

The circumstances through the years have been the same — state leaders needed effective ideas Oregon could afford to attract or retain major employers. Clever tax policy did the trick.

The 1984 repeal of the unitary tax occurred during an economic downturn and threats by Japanese and other foreign companies to black list Oregon. Repeal of the unitary tax wound up causing only a scant tax revenue drop, but rolled out a red carpet to companies such as NEC and Epson that responded by quickly building manufacturing plants in Oregon.

In the early 2000s, manufacturers complained that Oregon’s tax apportionment formula penalized them for having large physical footprints and lots of employees. The 3-factor formula weighed property value, employees and in-state sales equally to determine their tax liability.

Lawmakers recognized the tax disincentive for companies such as Intel and Precision Castparts to keep investing here and adding jobs. They modified the apportionment formula to give double-weight to in-state sales.

Under continuing pressure from the manufacturing sector, and competition for their jobs by other states, Oregon lawmakers agreed to phase out the 3-factor formula and replace it with an apportionment scheme that just considered in-state sales.

That change eliminated the penalty manufacturers felt when they expanded their operations and hired more workers. It undoubtedly reduced state corporate tax bills, but the addition of more, often higher-paid workers increased personal income tax collections. On balance, the state achieved a net positive economic benefit.

Local communities also benefitted from higher industrial property valuations that helped pay for schools and firehouses, while demanding relatively few public services. New workers bought or built homes and shopped in local stores.

Kitzhaber’s latest idea basically enshrines the latest good idea for manufacturers who promise to make sizable investments and create jobs. It doesn’t cost anything, but it will reap dividends by once again helping Oregon stand apart from the crowd — California, Arizona and Colorado and cities such as Austin and Raleigh-Durham.

Some may question Kitzhaber’s haste in summoning lawmakers to pass tax legislation undeniably intended to entice Nike to stay and expand. But it’s no different than Governor Vic Atiyeh who summoned a small group including us 20 years ago to count votes on repeal of the unitary tax. Oregon’s sizable, productive and diverse manufacturing sector is the evidence of a smart, cost-effective strategy that still works.

[Pat McCormick represented the Oregon electronics industry and Gary Conking worked at Tektronix in 1984 and lobbied for repeal of the unitary tax. They later collaborated to found a Portland-based public affairs firm.]

Stuck in Low Gear

The latest quarterly revenue forecast drew a sigh of relief from lawmakers who won't face the prospect of immediate spending cuts. But the accompanying economic forecast confirmed what people feel — Oregon's economic recovery is stuck in low gear.

If nothing else, the forecast served as the opening act of the 2013 legislative session.

New House Republican Leader Mike McLane seized the moment to underscore that 160,000 Oregonians are out of work and may have slim prospects if the state economy continues to limp toward recovery. "Without stronger private-sector job growth," he said, "the next legislature will have difficulty funding education and other services at the levels Democrats promised to voters in the recent election."

"As 2012 winds down," said State Economist Mike McMullen, "Oregon's economic expansion persists, but remains stuck in low gear. Growth continues to come in fits and starts — a strong quarter or two followed by a weak quarter or two, with the underlying trend remaining slow and steady." 

The forecast, which Senate President Peter Courtney said shows "signs are positive," means lawmakers won't have to break out their budget axes. But the weak recovery is certain to fuel a more intense debate in the 2013 legislative session about stimulating the economy and restraining spending.

A focal point of that debate will be changes that Governor Kitzhaber seems prepared to advance to the Public Employees Retirement System (PERS), which is projected to soak up a sizable percentage of tax revenue growth in the next biennium.

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The Battle for the Gavel

The general election is a month away, but the plot is already thickening over who will be in control in the Oregon legislature after all the votes are counted. What's happening out of public sight is a combination of inside baseball and roller derby.

If Democrats regain control of the Oregon House, there appears little doubt Portland Rep. Tina Kotek will ascend to become House Speaker. Rep. Arnie Roblan, D-Coos Bay, who served as co-speaker in the 2011 and 2012 sessions, is running for an open Senate seat.

The bigger question is who takes over for Kotek as Democratic leader. Rep. Val Hoyle, D-Eugene, is the only declared candidate, but rumors have circulated that Rep. Tobias Read, D-Beaverton, is considering a bid for the post, which is complicated by his departure from Nike and search for a new job. 

Another logical option could be Rep. Peter Buckley, D-Ashland, but he may prefer to keep his job as co-chair of the Joint Ways and Means Committee for a third consecutive term. Another candidate who could emerge is Rep. Chris Garrett, D-Lake Oswego, who assumed the co-chairmanship of House Business and Labor after Rep. Mike Schaufler, D-Happy Valley, was stripped of the role after a scandal.

Earlier this year it looked as if there could be a rebellion in the House Republican caucus, with a handful of new lawmakers eager to be more aggressive in opposing Democrats, including Governor Kitzhaber. However, events — including a scandal that led Rep. Matt Wingard, R-Wilsonville, to drop his bid for re-election — seem to have cemented Roseburg Rep. Bruce Hanna's position as GOP leader or speaker if Republicans claim 31 or more House seats this fall.

Hanna, who enjoys a warm working relationship with Kitzhaber, which eased passage in 2011 of major gubernatorial initiatives, could still face a challenge from Rep. Dennis Richardson, R-Central Point, who favors a harder-line approach to policy issues. Richardson has served as the GOP co-chair of Ways and Means.

The sudden retirement of Senator Jason Atkinson, R-Central Point, and the primary victory of Tim Knopp over sitting GOP Senator Chris Telfer from Bend have sparked conversation about Senate Republican caucus leadership. Senator Ted Ferrioli, R-John Day, has mounted what could be described as loyal opposition in the Senate, but some expect Knopp, a former House majority leader, to inject more fire in caucus debates. Knopp has made no pubic gestures to unseat Ferrioli, but the caucus has edged to the right and may want a fresh voice leading it.

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A Reflection on Oregon Co-Governance

As we approach the November 2012 election, it is timely to reflect on how well co-governance has worked in the Oregon House the last two years as Democrats and Republicans each held 30 seats.

Any reasonable assessment of co-governance would indicate that it has been, in the main, a success.

Republicans and Democrats managed to find a way to work together, with co-speakers of the House, co-chairs of every legislative committee, co-vice-chairs of every committee and "co" everything else.

Truly, it has been an experience in which legislators, regardless of party label, found a way to identify the middle on a host of pressing public policy problems. At a time when there appears to be almost nothing but acrimony, recrimination and name-calling in the presidential and congressional campaigns, it has been refreshing to watch Oregon’s elected officials work together to express the very definition of politics — the art of compromise.

Here are a few examples where legislators found common ground:

       *  Deciding not to propose any increased taxes while Oregonians try to recover from a stubborn recession — that could have driven another wedge between businesses and unions.

       *  Agreeing across party lines to balance the state budget, with a larger-than-normal ending balance.

       *  Moving ahead on health care reform that, at least in theory, proposes to provide health care to more Oregonians while slowing the growth in the cost of care.

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Republicans Face Uphill Challenge for Control

The battleground for control of the Oregon House and Senate in 2013 is narrow, with perhaps as few as a handful of races to determine which party holds the gavel. It appears Republicans have the most challenging terrain to regain control.

House Republicans surged from a 24-36 deficit in the 2009 session to win six suburban seats, forcing a 30-30 power-sharing agreement in the 2011 and 2012 sessions. Now Republicans have to stand those six seats and pick up at least one more in a swing district to control the House

Control of the Senate more or less boils down to the open Senate seat on the Southern Oregon Coast being vacated by the retirement of Senator Joanne Verger, D-Coos Bay. Unless political wisdom is turned upside down, the seat should stay in Democratic hands with House Co-Speaker Arnie Roblan, D-Coos Bay, winning it.

Jeff Mapes, senior political reporter for The Oregonian, narrowed the contest for control of the House to 10 races. But mid-summer, after fundraising totals and polling results are analyzed, that number probably will dwindle to four or five.

The three GOP freshmen viewed as most vulnerable by Democrats are Reps. Patrick Sheehan of Clackamas, Katie Eyre of Hillsboro and Julie Parrish of West Linn. All have credible, hardworking Democratic opponents.

Republican hopes for pick-ups center on two coastal House seats — Roblan's, which he is vacating to run for the Senate, and Jean Cowan's, which will be open following her retirement. GOP operatives also believe Rep. Betty Komp, D-Woodburn, could be upset with a repeat opponent, Kathy LeCompte, who reportedly is working harder than she did in 2010. She will have to work pretty hard to keep up with Komp.

Two races a little less under the political radar involve Rep. Matt Wand, R-Troutdale, and Rep. Jeff Barker, D-Aloha, who have attracted significant opponents. Barker, who has hinted at retirement after the last two sessions, will face GOP newcomer Manual Castenada, whom many observers believe could be a rising GOP political star. Barker, a former Oregon State and Portland police officer, has earned bipartisan respect for his leadership on the House Judiciary Committee.

Control of the House and Senate determines who chairs committees and what legislation will be heard or buried. It also is part of the larger political jockeying with a popular governor in the middle of his third term.

Behind the races on the ballot is political hand-wrestling for dominance in respective caucuses. Here, the most intriguing news is in the House and Senate GOP caucuses. Some observers report a possible competition between more conservative elements of the House GOP caucus and House Co-Speaker Bruce Hanna, R-Roseburg, and his close ally, Rep. Kevin Cameron, R-Salem. If Republicans take control of the House, it might make little political difference. However, if Democrats take control, the conservatives in the caucus may press for more vocal opposition.

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