Budget

New Workplace Battlefront Opens on Flexible Scheduling

The next workplace battlefield is emerging over flexible scheduling of workers in sectors such as fast food restaurants. The situation further rankles Oregon business leaders who are still upset over paid sick leave, a higher minimum wage and Measure 97.

The next workplace battlefield is emerging over flexible scheduling of workers in sectors such as fast food restaurants. The situation further rankles Oregon business leaders who are still upset over paid sick leave, a higher minimum wage and Measure 97.

Democratic lawmakers are teeing up legislation for the 2017 session to mandate scheduling rules for some workers, which could make testy relations with Oregon’s business community even testier.

Senator Michael Dembrow, a Portland Democrat, says it’s timely to tackle the legislation next session. He noted the 2015 Oregon legislature imposed a moratorium on municipalities passing “flexible schedule” ordinances. That moratorium expires next year.

Dembrow’s legislation probably would mirror ordinances adopted in Seattle and San Francisco that require employers with large numbers of part-time workers to provide advance schedules or pay extra compensation.

Supporters say sudden work schedule changes make it hard and costly for low-wage workers to arrange for child care or balance work for second and third jobs. Business advocates say employers need the ability to adjust worker schedules to deal with emergencies and when employees call in sick.

Business groups are already rankled about workplace legislation following the 2015 session when Democrats pushed through bills to mandate paid sick leave and raise the state’s minimum wage.

They haven’t cooled down as business representatives walked away after Dembrow's first interim work group meeting on the flexible scheduling bill.

There is broad business opposition to Measure 97, the initiative appearing on the November 8 general election ballot that would impose a gross receipts tax on corporations with more than $25 million in annual sales in Oregon. Business leaders predict business closures or departures if the measure passes and warn they will be reluctant participants in any negotiations on an alternative if it fails. That wariness could extend to other issues, including the flexible scheduling bill.

After demurring, Governor Kate Brown endorsed Measure 97, even though she says she hates it. Brown based her support on the need for substantial additional revenue to plug a $1.25 billion or larger projected budget hole in the 2017-2019 biennium. Brown and her GOP challenger Bud Pierce will hold their first gubernatorial debate Saturday in Bend and can expect to be asked about the flexible scheduling bill.

When push comes to shove, some business leaders may prefer statewide flexible scheduling legislation as opposed to the specter of cities such as Portland and Eugene adopting their own local ordinances. But bruised political feelings among business leaders also could diminish or even extinguish their willingness to compromise.

Pierce Dumps Trump as Gubernatorial Debates Loom

GOP gubernatorial candidate Bud Pierce jettisoned his endorsement of Donald Trump on the run-up to this Saturday’s first debate with Governor Kate Brown in Bend. Four more debates will follow into mid-October.

GOP gubernatorial candidate Bud Pierce jettisoned his endorsement of Donald Trump on the run-up to this Saturday’s first debate with Governor Kate Brown in Bend. Four more debates will follow into mid-October.

Few people aside from Donald Trump believe the unconventional GOP presidential candidate can capture Oregon in the November 8 general election. Now Oregon’s GOP gubernatorial candidate Bud Pierce has joined the chorus.

Pierce withdrew his endorsement of Trump this week, claiming the New York real estate magnate isn’t unifying the Republican party and is driving away Hispanic voters. Pierce says Hispanic voters have a natural attraction to political conservatives and he is actively seeking their support to upset Governor Kate Brown.

In an interview last month, Brown urged Pierce to disavow Trump and “do the right thing.” Whatever the right thing might be, Pierce stopped short of pledging to vote for Democrat Hillary Clinton. He said he won't cast a ballot for anyone in the presidential race this year.

Jacob Daniels, Trump’s Oregon campaign chairman and perhaps the only person in the state who thinks his man will win here, dismissed Pierce’s dropped endorsement as insignificant.

The most recent public polling shows Brown with a comfortable double-digit lead over Pierce, but some Oregon Democrats have been uneasy over her largely invisible campaign while she hit the campaign fundraising trail. Pierce hit the airwaves with hard-hitting TV ads last month. Brown went up in the last few days with a softer ad that describes her political start as a children’s advocate and her achievement s governor boosting state K-12 school funding.

Brown and Pierce are scheduled to square off in their first face-to-face debate on Saturday in Bend, which may only rate second billing to home football games in Eugene and Corvallis. The gubernatorial candidates debate again September 30 in front of the Portland City Club, October 6 in Eugene, October 13 in Medford and October 20 in Portland.

Pierce has called for fresh thinking in Salem while Brown has touted her leadership as the successor to John Kitzhaber, who resigned at the beginning of his unprecedented fourth term. No seminal issues have created a sharp division in the race, though the Oregon-Oracle $100 million settlement of the Cover Oregon fiasco may have averted a flash point in the race. The settlement that involved six separate legal actions came just before Brown was scheduled to be deposed.

The debates are likely to underscore Pierce’s opposition to and Brown’s endorsement of Measure 97, the initiative that would impose a gross receipts tax on corporations with more than $25 million in annual sales in Oregon. Proponents and opponents of the tax measure are waging a vigorous campaign that pivots on how much of the tax will filter down to small businesses and ultimately Oregon consumers. Early polling indicates the measure has strong support.

The gubernatorial candidates should be pressed on how they would respond if the tax measure passes or fails. Measure 97 is projected to generate $3 billion in new state tax revenue annually, which would more than plug the state’s anticipated $1.5 billion biennial budget hole. However, the state will face severe spending challenges on education and health care spending if the measure fails.

As the debates unfold, a key target for each candidate will be attracting non-affiliated voters. Brown can generally count on the Democratic majority in urban areas from Portland to Eugene. To win, Pierce may need to catch some of the same populist wind that propelled voters in Oregon to support Trump and Bernie Sanders.

Oregon’s Pending Political Divorce

Measure 97, which would raise taxes on corporations with more than $25 million in annual sales in Oregon, faces an uncertain future in the general election. However, it does seem certain that it's causing a political divorce in Oregon that will fuel polarization and make compromise harder to find.

Measure 97, which would raise taxes on corporations with more than $25 million in annual sales in Oregon, faces an uncertain future in the general election. However, it does seem certain that it's causing a political divorce in Oregon that will fuel polarization and make compromise harder to find.

Oregon voters can expect political rhetoric to escalate over Measure 97, the initiative to impose a gross receipts tax on corporations with large sales in the state, as the November 8 general election approaches.

However, the more intriguing question may be what will or should happen after the election, regardless of whether Measure 97 passes or fails? Chances are whatever happens will feel like a divorce. Andrew Bulkily, writing for Oregon Business, summed up the situation as going from “gridlock to civil war."

No one disputes that the stakes are huge. Oregon officials estimate Measure 97 will generate $3 billion per year in new state tax revenue. Proponents say most of that tax will be shouldered by large out-of-state corporations that currently don’t pay their fair share of the tax burden in Oregon. Opponents insist that the tax measure will result in higher consumer prices.

Emily Powell, the third generation owner of Powell’s Books, says higher taxes resulting from the passage of Measure 97 could drive the iconic Portland-based independent bookstore out of business. Powell says profit margins in the book business are too small and competition is too stiff to allow the store to raise its prices.

Measure 97 revenues have been touted by supporters, including Governor Kate Brown, as a badly needed and long overdue revenue make-up for K-12 school funding, health care and senior services. Opponents argue that the initiative can’t guarantee how legislators will spend the added tax money and that a big chunk of it will go to cover huge Public Employees Retirement System shortfalls.

There are people on both sides of the initiative who wish a compromise could have been reached to avoid a ballot measure mash-up that could be the most expensive political campaign in state history. Proponents and opponents have each raised double-digit millions of dollars to trade televised jabs this fall. Measure 97 backers weren’t in the mood to compromise, feeling that 2016 could be a moment to push through a major tax change on the ballot.

Which brings us to what happens after the election. If Measure 97 passes, the state’s available discretionary revenue will sharply expand. That would probably erase the projected $1.3 billion state biennial budget hole, but it wouldn’t necessarily determine how the balance of money would be spent. You could expect fierce arguments among interest groups over how much should go to K-12 schools versus investments in health care and senior services – and in higher education. You also could expect some high-profile business response, such as a business like Powell’s Books shuttering.

If Measure 97 fails, the state budget hole will loom even larger, potentially threatening cuts to K-12 and higher education funding and threatening Medicaid expansion. Perhaps worse, many in the business community may refuse to enter into discussions about how to meet that budget shortfall, PERS underfunding or tax reform because of the fractious fight they had to wage to defeat Measure 97. Oregon lawmakers may see hearing rooms full of angry faces unwilling to sit together in work groups to explore solutions.

It’s likely that the political zombie of a state sales tax would re-emerge. The sales tax has been the default idea for how to reduce the volatility of Oregon’s existing income-tax-heavy revenue system. However, sales taxes face their own haunting challenges, such as Internet sales. In Oregon, the appetite for a sales tax by voters has the same taste notes as brussels sprout ice cream.

If Measure 97 passes and Brown wins election, it will give her an effective mandate to guide how the new tax revenue should be allocated. However, it could dampen enthusiasm for climbing the steep hill to craft, pass and avoid a referral on a major transportation funding measure.

If Brown wins, but Measure 97 fails, Brown will have the challenge of trying to patch together a balanced budget, with limited credibility to court business support for alternative tax-generating options.

Brown’s position also would be weakened because she must run for election again in 2018 for a full four-year term. As secretary of state, Brown succeeded John Kitzhaber as governor after he resigned in 2015 and is running this year to fill out the final two years of the former governor’s four-year term.

This is a fairly grim picture. Sort of like a family portrait after a divorce.

Over time, views will soften, the more contentious personalities will be pushed aside and a dialogue can resume. But as the 2016 presidential election has revealed, strong political undercurrents can be unleashed, deepening polarization and crippling efforts to find common ground – or even a table where everyone can sit around to talk.

A Crack in Public Pension Wall Emerges in California

Many Oregon political leaders believe reforms are needed to public employee pensions to trim costs and plug a swelling unfunded liability, but few think reforms can pass a court test. Now a crack may be emerging in that impenetrable legal wall.

Many Oregon political leaders believe reforms are needed to public employee pensions to trim costs and plug a swelling unfunded liability, but few think reforms can pass a court test. Now a crack may be emerging in that impenetrable legal wall.

A state appellate court ruling in California will be studied carefully for its implications on whether public employee pension benefits are immutable or can be modified.

While unlikely to generate any immediate political response, the court ruling, if upheld on further appeal, could entice state lawmakers in California and elsewhere to explore public employee pension changes in the face of ballooning unfunded liabilities. Oregon’s Public Employees Retirement System unfunded liability has swelled to $21 billion.

The need to allocate more money for state and local public employee pensions has been one of the hardest fought issues in state legislatures around the country. Pension bills that have passed, including in Oregon, have mostly been struck down by courts as unconstitutional.

The Sacramento Bee reported the unanimous ruling by a California state appellate court says there is no absolute bar to modifying public employee pensions. The vested right to a pension “is only to a reasonable pension, not an immutable entitlement to the most optimal formula of calculating the pension,” the court ruling said. “The Legislature may, prior to the employee’s retirement, alter the formula, thereby reducing the anticipated pensions…so long as the …modifications do not deprive the employee of a reasonable pension.”

The effective prohibition of any change to an existing public employee pension provision, called the California Rule, stems from a series of court decisions beating back efforts to trim benefits and reduce costs. You could say there is an Oregon Rule, too.

Oregon’s latest attempt at what legislators called public pension reform was largely thrown out by the state Supreme Court. That’s what makes the new ruling in California intriguing. Does it reflect a crack in the California Rule? If so, how wide is the crack? And, most important, will the crack stand up when appealed to the California Supreme Court?

The genesis of the crack began in the judicial bankruptcy proceedings for the City of Stockton. Federal Judge Christopher Klein said "pension benefits could be reduced  in a bankruptcy action because bankruptcy is nothing by the impairment of contracts,” according to the Sacramento Bee’s reporting.

California’s Public Employees Retirement System (CalPERS) argued reducing state employee pensions couldn’t be ordered by a federal judge. Klein rejected CalPERS’ claim. However, Stockton never tested Klein’s opinion and emerged from bankruptcy without touching public employee pensions.

The appellate court opinion involved Marin County’s implementation of one of the public employee pension reforms included in the 2012 pension reform legislation enacted by the California Assembly and signed into law by Governor Jerry Brown. The provision that Marin County adopted prohibits using unused sick leave to “spike” pension benefit calculations.

There is a long road ahead before anyone will know whether the crack in the California Rule is real and just what it might permit in terms of modified pension benefits. That’s little consolation to lawmakers who will face budget holes and rising pension costs when they return to their state capitals early next year. But it does give them something to watch that could open a new conversation down the line.

Oregon Floodplain Regulations to Become More Restrictive

Development in Oregon floodplains will be restricted under a federal court ruling pushing tougher building criteria that a state agency and local jurisdictions will be required to implement.

Development in Oregon floodplains will be restricted under a federal court ruling pushing tougher building criteria that a state agency and local jurisdictions will be required to implement.

Few people would conflate floodplain insurance with endangered species. But that conflation is about to rewrite the rules of development in Oregon floodplains, with the help of an unlikely agent, the Oregon Department of Land Conservation and Development.

Whoa, how did flood insurance, fish facing extinction and LCDC get in the same sentence, let alone the same policy discussion? It’s an interesting story, with a potentially devastating punchline.

In 1990, environmental groups sued the Federal Emergency Management Agency (FEMA) and U.S. Fish and Wildlife Service for failure to consult under a section of the Endangered Species Act. Environmentalists asserted FEMA’s National Flood Insurance Program involved “discretionary agency actions” that subjected it to consultation on its impacts on endangered species. A similar lawsuit was filed in federal court in Washington in 2003.

Federal judges in both cases found FEMA must consult. The Washington decision resulted in the 2008 Biological Opinion (BiOp) issued by the National Marine Fisheries Service (NMFS) that included “reasonable and prudent alternatives” for implementing the flood insurance program in Puget Sound. Environmental groups filed suit in 2011 alleging FEMA wasn’t following through. 

A similar pattern occurred in Oregon. Environmentalists sued FEMA in 2009. FEMA settled and began consultation with NMFS, which issued its BiOp for Oregon on April 14. It has been a slow-motion bombshell.

The 400-page BiOp concludes that implementation of the national flood insurance program in Oregon could jeopardize the habitat for 16 listed anadromous fish species and adversely affect Southern Resident killer whales. The “jeopardy determination” triggers a need for interim and permanent “reasonable and prudent alternatives” that will be enforced by a local jurisdiction. In Oregon’s case, that means the Department of Land Conservation and Development (DLCD) and cities and counties.

FEMA and DLCD are required to conduct an “education and outreach” effort to affected jurisdictions, which includes “all river sub-basins in Oregon that contain ESA-listed anadromous fish” cited in the BiOp. That applies to all of Western Oregon and central and eastern parts of the state with streams that eventually feed into the Columbia or Snake rivers.

FEMA must revise its regulatory floodplain management criteria, relying on updated mapping, as early as January 1, 2019, with the goal of avoiding, minimizing and mitigating adverse effects of floodplain development.

DLCD has two years to implement its “interim” measures, which include a “no-touch” zone extending 170 feet horizontally from the ordinary high-water mark of perennial or intermittent streams. There also is a broad definition of development, which includes vegetation removal. Repairs or remodeling of existing structures within that zone would be okay, as long as there is footprint expansion. 

Lots of questions remain. How to do you calculate the 170-feet when there is a slope? Do restrictions apply to subterranean development, such as water intakes and pipes? How far up mountains and into remote valleys will mapping of flood-prone areas be required? What kind of data will be required to monitor FEMA’s compliance and who will collect it and pay for it? Will projects underway or in the permitting pipeline be affected?

DLCD’s role will include workshops, technical assistance and a model ordinance. The workshops are scheduled to begin this summer. But it also will be ground zero for landowner reaction, which can be expected to be huge, perhaps rivaling the reaction to Measure 37, which entitled landowners to compensation for regulatory takings under Oregon’s land-use laws.

So far, the NMFS BiOp has received little public notice, despite its far-ranging impact. Expect that to change fairly soon when people realize what’s afoot and what it could mean.

(Information in this blog was taken from a Stoel Rives presentation entitled “Oregon Floodplain Regulation in Flux,” featuring comments by attorneys Steve Abel, Sarah Stauffer Curtiss and Greg Corbin)

IP 28 Would Boost Taxes and May Dampen Economy

The Legislative Revenue Office released its long-awaited analysis of an initiative to impose a gross receipts tax on large corporations selling in Oregon. It says taxes would definitely go up and the overall economy might take a hit.

The Legislative Revenue Office released its long-awaited analysis of an initiative to impose a gross receipts tax on large corporations selling in Oregon. It says taxes would definitely go up and the overall economy might take a hit.

The initiative to impose a gross receipts tax on larger corporations selling in Oregon would raise $6.1 billion in revenue in the next biennium, while pushing up consumer prices and dampening income, employment and population growth in the next five years.

The Legislative Revenue Office (LRO) shared its findings today on IP 28, which will simultaneously cheer its public sector supporters and send shudders down the backs of its business opponents. Lawmakers and others have been clamoring for weeks for the findings, which will confirm fears and hopes, depending on your point of view.

The $6 billion in new tax revenue would fortify the state’s ability to boost funding for education, health care and senior services and make Oregon’s corporate tax system less volatile in down economic cycles, according to LRO.

Because the tax change falls heaviest on as few as 274 larger corporations with more than $25 million in annual sales in Oregon, LRO says they may find it worthwhile to restructure their businesses here to avoid high taxes. The retail and wholesale trade sectors would be hit the hardest by the tax increase, which could put upward pressure on consumer prices, shrink job creation and possibly even discourage some people from moving here, LRO projects.

There are other variables that complicate the analysis. One is the definition of a sale in Oregon. Another is the exemption of S-corporations, partnerships, proprietorships and benefit corporations, known as B-corps.

Then there are anomalies that arise in the interaction between existing corporate income tax rates and a corporate minimum tax in the form of a gross receipts tax. LRO provides an example of two hypothetical companies, each with $60 million in Oregon sales. For Corporation A with only $3 million of net income apportioned to Oregon, its tax would rise from $218,000 to $905,001 under IP 28. For Corporation B with $18 million of net income apportioned to Oregon, its current tax of $1.358 million would be the same under IP 28. 

It appears certain Oregonians will vote on IP 28 this fall after backers submitted far more signatures to the Secretary of State than required to qualify for the general election ballot. The specter of IP 28 and a boisterous political showdown between labor and business has caused others to back off potential initiatives, citing a lack of support and campaign cash, which is being sucked into the IP 28 vortex.

The LRO report doesn’t contain a smoking gun data point. Oregon tax revenue would rise as a result of IP 28, moving up the state’s per capita rate of taxation from 28th to 20th nationwide. The ratio of taxes to income would climb from 10.1 percent to 11.6 percent, with Oregon jumping from 26th to 9th nationally in that category.

LRO predicts the marginal impact of IP 28 will be to make Oregon’s tax system more regressive, but not by that much. Income, employment and population growth would be dampened, but only slightly. Larger negative impacts would be offset by higher public sector expenditures that tend to circulate in local economies.

LRO projects a net loss of 20,000 Oregon jobs – 37,000 in the private sector and reduced by a gain of 17,000 public sector jobs. Employment would decrease most sharply in the retail and wholesale sectors. Income would decrease $430 million, with income dropping 0.8 percent for households earning less than $100,000 annually.

The biggest “if” in the LRO report is now affected corporations will respond. “Both the large size of IP 28’s revenue impact and its concentrated impact on a small group of large corporations adds considerable uncertainty to the estimates,” LRO concludes.

The Long Shadow of IP28

An initiative to raise the tax in Oregon on corporations with large sales is destined to spark a sharp argument over business paying its fair share and taxes that lead to higher consumer prices.

An initiative to raise the tax in Oregon on corporations with large sales is destined to spark a sharp argument over business paying its fair share and taxes that lead to higher consumer prices.

Oregon faces a lot of serious issues, but they all may pale in the shadow of IP28, the proposed initiative that would increase the minimum tax paid by corporations with sales exceeding $25 million per year in Oregon. 

Proponents and opponents will argue about the merits and demerits of IP28, but it is hard to argue with Duncan Wyse, the president of the Oregon Business Council, who says, “IP28 will suck up the money and energy that could go toward other issues.”

Wyse and others worry the debate over IP28 will widen Oregon’s political divides as well as overshadow other important debates ranging from improving rural economies to solving the housing affordability crisis in Portland.

The 2016 Oregon legislative session considered, but failed to pass an alternative to IP28. Backers have until July to collect the needed signatures to place the initiative on the November general election ballot. Few doubt it will make it to the ballot. 

The Oregon Legislative Revenue Office estimates IP28, if approved by voters, could generate as much as $5 billion in new revenue during a biennium. A Better Oregon, the group pushing the initiative, says the additional revenue should go to public education, health care and senior citizen services. 

IP28 would turn Oregon’s corporate minimum tax into a gross receipts tax for larger corporations. Supporters say the measure will force out-of-state corporations that profit from sales in Oregon to pay their fair share of taxes. Opponents claim it would result in higher consumer prices.

Because the initiative exempts other kinds of businesses (S corporations, partnerships, B corporations and limited liability companies), business advisers say corporations may organize differently in Oregon to avoid the higher tax. Critics also note that the initiative can’t bind a future Oregon legislature on how to spend the money it would raise. While lawmakers may feel politically obliged to spend on the purposes proposed by initiative backers, they wouldn’t be constitutionally bound to do so.

Backers say the measure will make up for Oregon’s low overall taxation on business.

There is no doubt or disagreement the initiative will spark a vigorous, if not rancorous debate. The 2010 special election campaigns over Measures 66 and 67 – which raised the corporate minimum tax and increased the tax rate for higher-income Oregonians to raise $733 million – degenerated into name-calling and fractured political relationships, especially between business and organized labor. IP28 would impose a bigger tax change, which former state economist Tom Potiowsky has called a “sales tax on steroids.”

While there is plenty of time for arguments over IP28, its shadow already may have a chilling effect on other campaigns. What shaped up a bombshell election season in Oregon has turned out to be more of a dud. The gubernatorial race is flying under the media radar. The rumored challenge-from-the-left to Oregon Senator Ron Wyden never materialized. The race for the Democratic nomination for secretary of state, which features three candidates with credentials, has drawn little attention.

The 2016 legislature managed to pass a minimum wage bill that will avoid having that issue on the November ballot. But the session itself was marred by partisan wrangling and arguments over the purpose of an even-year, 35-day legislative session. The rancor also has led to a recall effort against Senate President Peter Courtney.

If IP28 casts a long shadow on Oregon politics, the raucous presidential primary is the big elephant in the room. It is the dominant topic of political conversation on news outlets and across kitchen tables. The “Final Five” candidates in the running for the Republican and Democratic presidential nominations are expected to campaign in Oregon prior to the May 17 primary, drowning out pretty much everyone else.

The November general election could be a different matter as the GOP and Democratic frontrunners Donald Trump and Hillary Clinton both have unusually high negative ratings according to national polls. Assuming they capture their respective party nominations, they would mount vigorous campaigns aimed at stimulating voter turnout, with Trump appealing to alienated white blue-collar workers and Clinton trying to recruit younger voters activated by Bernie Sanders’ rhetoric about a rigged economy and establishment politics.

Those appeals for radical change could complicate the efforts of IP28 opponents, who already acknowledge the initiative starts with a majority in support.

A Tale of Two Tax Systems

Washington’s sales tax, which carries the revenue load in the Evergreen State, faces a shrinking tax base because of the growth of online sales and the ease of driving to Oregon that doesn’t have a general sales tax.

Washington’s sales tax, which carries the revenue load in the Evergreen State, faces a shrinking tax base because of the growth of online sales and the ease of driving to Oregon that doesn’t have a general sales tax.

Oregonians regard their state tax system as the worst possible – except for all the alternatives, especially a sales tax. That hasn’t blunted calls for “tax reform” in Oregon, including a new initiative to subject large corporations to a gross receipts tax.

KUOW, the NPR affiliate in Seattle, aired a story about the woes of Washington’s state tax system, which depends heavily on a sales tax. The punch line of the piece was that if Washington had Oregon’s system that taxes income, it would raise almost double what the state generates now per fiscal period.

That “unofficial calculation” by the Washington Department of Revenue is based on data that shows the Evergreen State’s sales tax base is shriveling as a percent of an expanding economy, while Oregon’s relatively progressive income tax rakes in increasing revenue when the economy expands. 

Studies in both states have shown that a sales tax may be a little less volatile than an income tax in up and down economic cycles. But Washington’s analysis of its sales tax base shows it may be inadequate to the task of keeping pace with economic growth when more and more economic growth occurs online. It doesn’t help that Washingtonians cross the border into Oregon and make purchases they can cart home without paying sales tax. 

KUOW’s online version of its story includes “Washington’s Chart of Doom,” an analysis by Treasurer James McIntire that shows sales tax revenues peaked in 1987 as 6.93 percent of the state’s economy and have steadily declined since then to 4.8 percent in 2015. McIntire projects revenue to keep falling to 4.65 percent by 2021.

That’s a tough trend line, aggravated by economic and population growth that places new demands on public revenues.

Oregon and Washington have talked for years about the three-legged stool of taxation – income, sales and property. You don’t have to look far for a state with all three – Idaho. The KUOW report says if Washington adopted Idaho’s tax system, it would collect $10 billion more per fiscal period.

Oregon goes through spasms of tax reform fever, which often involve brief romances with a sales tax. The KUOW story quotes Oregon Legislative Revenue Director Paul Warner as estimating it would take a 12 percent sales tax to equal what the state’s income tax yields. Washington’s state sales tax rate is 6.5 percent.

Contrasts between the two states note that Oregon has no sales tax, which isn’t exactly true. Oregon and some Oregon localities have imposed a few selective sales taxes, most notably on hotel and motel stays, and in some tourist-centric towns on food and entertainment. When you add in Oregon’s gas tax and state-controlled pricing on distilled spirits, one of the main selling points of a sales tax – capturing revenue from tourists – isn’t especially convincing, not that Oregonians seem persuadable on the subject anyway.

There is little motivation from retail businesses to support a sales tax, especially in border communities like Portland that reap benefits from Washington commuters who already drive here to work, eat lunch at restaurants, shop on their way home and pay income tax on their Oregon-based earnings. This explains the success of the Costco store on the Oregon side of the Glenn Jackson Bridge. 

The Oregon tax system demon is economic volatility, which produces plentiful revenues in good times and sparse revenues in bad times. Economic theory would say that problem is curable by stashing away “excess revenue” during economic booms to fill in gaps when the economy lags. This is where economic and political theory diverge. With growing demands for spending, “excess revenue” is hard to define. That drove a GOP-led legislature many years ago to install, with voter approval, the personal income tax kicker, which rebates revenue that exceeds a state revenue forecast by 2 percent or more. Oregonians received a modest personal income tax kicker rebate based on their 2015 tax returns, which averaged around $125 and sucked $402 million out of the state’s General Fund.

It’s inevitable some Washingtonians and Oregonians will continue to cast covetous eyes at each other’s tax system as political leaders struggle with how to generate revenue, particularly for public education. It’s unlikely the two states will trade out their current core taxes, but very likely they will keep complaining about their shortcomings.

Washington to Vote on Carbon Tax

Washington could become the first state in the nation with a carbon tax if voters pass Initiative 732 in November. But state budget analysts warn it could amount to a loss of more than $900 million in tax revenue over a four-year period. 

Washington could become the first state in the nation with a carbon tax if voters pass Initiative 732 in November. But state budget analysts warn it could amount to a loss of more than $900 million in tax revenue over a four-year period. 

Washington state could find itself at the cutting edge of taxing carbon emissions with Initiative 732 heading for the ballot this fall. But opponents and budget analysts fear the bold plan goes a step too far.  

The measure would create a new tax of $25 per metric ton of carbon burned in fossil fuels, including gasoline, natural gas and coal. It also would also shrink Washington’s sales tax rate by one percentage point and virtually eliminate the business and occupation tax for manufacturers.

If the initiative passes, Washington will become the first in the nation to tax carbon emissions as other states look on.

“I-732 encourages cleaner energy solutions by shifting the tax burden onto carbon pollution and away from regressive and burdensome taxes that hurt families and businesses,” says Carbon Washington, the group behind the initiative.

Sounds great. So, what’s the problem? Well, as always in the process of creating new taxes and changing the rates of old ones, you have to look at the broader picture. And the big question surrounding I-732 comes down to its fiscal impact, which thus far has been defined by polar opposite projections from either side of the initiative battle.

Carbon Washington argues the tax would ultimately be revenue-neutral, bringing in an estimated $1.7 billion a year while returning roughly that much to taxpayers by lowering the sales tax. State budget analysts with the Office of Financial Management, on the other hand, estimate the tax change would amount to about $915 million in lost revenue for Washington over a four-year period, a painful gut punch for a state where annual budget shortfalls have become the norm.

Yoram Bauman, the founder of Carbon Washington, fired back at the OFM in February, saying the agency miscalculated the fiscal impact of I-732. Bauman added that OFM analysts are not carbon tax experts.

However, the Department of Revenue and legislative budget analysts also project I-732 would create a net revenue loss for the state.  

Several major state organizations have come out against the initiative, including the state Democratic Party, the Washington State Labor Council and the International Association of Machinists and Aerospace Workers. Ultimately, they argue that it’s the worst time to experiment with a change that could jeopardize so much tax revenue.

“At a time our state is struggling to fund basic services – including public schools, mental health facilities and many other essential services – I-732 would send Washington in the wrong direction and create more damaging austerity choices,” Labor Council President Jeff Johnson said.

Numerous environmental activist groups support I-732, but it's also drawing criticism from some environmentalists. Several factions of Democrats in the legislature and county-level Democratic organizations across the state also are lining up behind the initiative, which supporters tout as an economic stimulus that will do something concrete to address climate change without hurting the middle class.

Lowering the B&O tax for manufacturers would help keep living wage jobs in Washington, proponents argue. The group anticipates reducing the sales tax would save hundreds of dollars a year for the average household in Washington. The initiative would provide up to $1,500 a year in tax rebates for about 400,000 low-income households across the state, Carbon Washington says.

The legislature had a chance this winter to alter the carbon tax proposal and address revenue concerns. But in a short session ruled by more immediate budget woes and questions about adequate education funding, that simply didn’t happen. It also didn’t happen during the special session that ended March 29.

Now, it’s up to the voters to decide what to do. Given Washington voters’ recently muddled history on tax reform measures, it’s anyone’s bet as to how this one will turn out on Election Day. 

Justin Runquist is CFM’s communications counsel. He is a former reporter for The Oregonian, The Columbian and The Spokesman-Review. Away from the office, he’s a baseball fanatic with foolhardy hopes that the Mariners will go to the World Series someday. You can reach Justin at  justinr@cfmpdx.com and you can follow him on Twitter at @_JustinRunquist.

Oregon’s Running Start on Affordable College

Free college education has become a campaign slogan in the 2016 presidential election, but Oregon has gotten a running start with the first class of high school seniors facing a deadline next week to apply for the Oregon Promise.

Free college education has become a campaign slogan in the 2016 presidential election, but Oregon has gotten a running start with the first class of high school seniors facing a deadline next week to apply for the Oregon Promise.

Oregon has gotten a head start on the challenge of free college education, with a deadline next week for high school seniors to apply for the new Oregon Promise program, which guarantees a “free” two-year education at a state community college.

According to state financial aid officials, more than 12,000 Oregon high school students have signed up, with the total expected to go higher by next Tuesday. That’s when students must have filled out their online application, submitted high school transcripts to show they have a 2.5 grade point average or better and completed a financial aid application. 

In the first year of the program, an estimated 7,000 Oregon Promise applicants are expected to enroll, which would push up the percentage of high school graduates who move on to college in the state. 

Senator Mark Hass, D-Beaverton, won legislative approval for the program because of its market appeal to students from lower income households and its relatively small cost. As The Oregonian’s Betsy Hammond has pointed out, many Oregon Promise applicants already would have qualified for financial aid that covered virtually all of the cost of tuition at a community college.

Even so, Hass says the program entices students to apply who might otherwise have not even bothered. Going to community college allows most students to stay at home and continue jobs they had in high school.

Eligible Oregon Promise students will be required to take a full course load and maintain a good grade level. They can take courses needed to move on to a four-year degree-granting institution or to earn an industry certificate. Hass modeled his program after one in Tennessee, which he says has increased enrollment at both community colleges and four-year colleges and universities.

The Oregon College Savings Plan allows for student accounts that can accept contributions from parents, grandparents or other relatives and realize tax-free earnings when they use the money for college tuition.

The Oregon College Savings Plan allows for student accounts that can accept contributions from parents, grandparents or other relatives and realize tax-free earnings when they use the money for college tuition.

Another Oregon program is helping college students hold down debt. The Oregon College Savings Plan, which began in 2001, now has more than $1.2 billion in assets spread over 86,000 student accounts. More than $170 million was contributed to Oregon College Savings Plan accounts last year.

Students are able to draw on their account to pay for tuition and other qualifying educational expenses when attending college or an accredited technical school. Oregon offers a tax deduction for contributions up to $4,600 for married taxpayers filing jointly or $2,300 for single filers, but tax-free earnings are the real advantage when the funds are withdrawn for qualifying college expenses.

Not every household has the cash to contribute to the plan. However, student accounts can accept contributions from more than parents. Oregon College Savings Plan officials point out that whatever money can be tucked away for a student is money they won’t have to borrow in the future when they attend college.

Assets in the plan are subject to investment cycles, so there is an element of risk. Many savings plan account holders saw their nest eggs shrink when the housing bubble burst in 2006-2007 and the subsequent financial industry meltdown. Oregon officials replaced the plan’s financial partner and overhauled the program to provide greater protection for student account holdings.

It’s worth noting that 36,000 Oregon college students received $57.3 million in need-based Oregon Opportunity Grants in the 2014-2015 academic year. Another $69 million in student aid will be distributed to qualifying Oregon students this year. Grants of $2,100 are available for full-time, full-year students at eligible Oregon postsecondary institutions.

Oregon has lagged other states in providing need-based student aid, but in recent legislative sessions has stepped up expenditures. The 2015 legislature authorized $140.9 million for Oregon Opportunity Grants, which was almost a 24 percent increase over the previous biennium.

“Emergencies” Top Short Session Docket

Senate President Peter Courtney helped to convince Oregonians to approve annual sessions and now presides over a 35-day session packed with legislative “emergencies."

Senate President Peter Courtney helped to convince Oregonians to approve annual sessions and now presides over a 35-day session packed with legislative “emergencies."

The strains of a short even-year legislative session sprouted on day one as Republicans in the Oregon House and Senate demanded each of the 260 bills introduced be read aloud word by word.

The message sent by GOP lawmakers is that a 35-day session is too short to consider legislation raising the minimum wage, altering corporate taxation, addressing affordable housing and adopting a pair of far-reaching energy bills.

Those measures are on the legislative docket as a last-ditch effort to keep the issues they raise off the November ballot.

Oregon’s election-year annual session has evolved into a different, though perhaps inevitable role from its original conception. Senate President Peter Courtney, who led the push for annual sessions, sold the plan as a way to update the state’s biennial budget, pass minor legislative fixes and deal with emergencies that couldn’t wait.

Emergencies that can’t wait now apparently include blockbuster ballot measures that would raise the minimum wage as high as $15 per hour, slap a gross receipts tax on large corporate taxpayers and force Oregon utilities to ditch coal-generated electricity.

Senate Republican Leader Ted Ferrioli tweaked Courtney’s memory of the purpose of the short even-year legislative session by saying, “As I recall, Oregonians were sold on the idea of annual meetings with the promise that the ‘short session' would focus on balancing the budget, making small legislative ‘fixes' and responding to emergencies that need immediate attention.  I'm sorry to report that the 'short session' has become little more than a setting for the majority party to pursue an over-reaching agenda of tax increases, regulation and ideological issues dear to the progressives who rule Portland and to a great extent, the rest of Oregon.”

The last part of Ferrioli’s statement reflects his underlying opposition to all of the heavy-duty legislative proposals that are on the table thanks largely to Democratic-leaning activists. The exception is the coal-to-clean bill that was negotiated by utilities and environmental groups.

Governor Brown has offered an alternative minimum wage proposal and Senator Mark Hass, chair of Senate Finance, is proposing a scaled down corporate tax measure.

While those high-profile issues command attention, other significant legislation has been introduced to address marijuana industry regulation, gun sales, processing of rape kits and a few bills that didn’t make it out of the longer 2015 legislative session.

The racer-fast pace of a short session – if a bill can’t get a hearing, markup and a vote in the first two weeks, it is basically dead – provides plenty of fodder for skeptics. House Republican Leader Mike McLane said one-hour notice for a hearing on a major bill doesn’t allow enough time from someone from Eastern Oregon to show up to testify.

In the end, emergencies are in the eye of the beholder. For many Portland-area legislators, for example, the growing housing affordability problem in the city has elevated to a crisis that requires a legislative response. Their proposed response, which requires construction of affordable housing and puts limits on evictions of renters, may not seem so urgent in other parts of Oregon.

What Matters Most to You in 2016?

As we head into a new year, CFM wants to know what policy priorities are most important to Oregonians for 2016. Lawmakers will convene a new legislative session in February, but they will only have 35 days to get their work done .

As we head into a new year, CFM wants to know what policy priorities are most important to Oregonians for 2016. Lawmakers will convene a new legislative session in February, but they will only have 35 days to get their work done.

From tackling Portland’s housing crisis to negotiating a plan for an unprecedented minimum wage hike, Oregon lawmakers have their work cut out for them in 2016.  

Education, health care, transportation, human services, consumer protection, environmental preservation, criminal justice, taxation: Those are just some of the priority areas calling for swift action and firm leadership in Salem as we look ahead to the next year. 

The Oregon legislature convenes February 1 for a brisk 35-day session. Soon after, statewide elected positions will be contested in the May primary and November general elections.

In the meantime, CFM wants to know what issues matter most to you. Is it finding more revenue for education and social services? Improving transportation infrastructure? Or maybe it’s something else entirely.

As we ponder the political battles ahead, CFM invites you to share what you believe demands the most attention from Oregon's elected leaders. Here’s what we’re looking for:

•  What are the top two policy priorities facing Oregon? 

•  For each of your two priorities, provide a short explanation of what you think should be done and how it should get done. Is legislation needed? Better enforcement? Bully pulpit leadership? Bipartisan support? Be as specific as you can.

•  In addition to your top two policy priorities, tell us what you expect in terms of leadership from Oregon's governor and from House and Senate leaders. What would you regard as real leadership? How can leadership be manifested so it produces positive results? What would you see as a lack of leadership?

Send us your submissions through Friday, January 8, and we’ll share them shortly after on our Oregon Insider blog.

This isn't a contest or a survey. Our intention is to reflect the range of thoughts and concerns that everyone shares with us. We will point out areas where a number of people's priorities overlap, but we also will include priorities that may generate only a single recommendation.

Please send your submissions to Justin Runquist, CFM’s communications counsel, at justinr@cfmpdx.com.

We look forward to hearing your thoughts.

Legislative End Games in Play

Every legislative end game boils down to budgets and taxes, but in Washington, the end game may involve furloughs for some state employees, while in Oregon it may mean higher prices for cigar smokers.

Every legislative end game boils down to budgets and taxes, but in Washington, the end game may involve furloughs for some state employees, while in Oregon it may mean higher prices for cigar smokers.

The final countdowns in the Washington and Oregon legislatures have very different characters. Washington's governor is sending out notices to state employees about a partial government shutdown, while Oregon's governor is working across party lines to negotiate a transportation funding measure.

End games in state legislatures can be very similar. Big issues left to the end become magnets for marathon haggling. Lawmakers who have some political leverage in theirs committees or caucuses exert it to bring home a prize for his or her district or salvage a personal legislative priority. Almost always, end games center on budgets and taxes.

The Washington budget hovers around $38 billion, but negotiators are hung up over a difference of about $350 million. Democrats, who control the Washington House, wanted to close the gap with a capital gains tax. Republicans, who control the Senate, wanted to plug the hole with spending cuts.

The compromise, which House Democrats have floated, is to generate some additional revenue by closing "loopholes." One of those loopholes is the sales tax exemption for Oregon residents.

There is little chance in Oregon, where Democrats control the House and Senate by solid margins, of a budget meltdown. Oregon lawmakers much earlier in the session approved the K-12 school budget and continuation of Medicaid funding. Big budgets for the Department of Human Services and the Oregon Health Authority are on their way to passage.

Lawmakers in Oregon are wrestling with how to pass a transportation funding bill, increase the minimum wage and a relatively small tax measure that affects things such as fine cigars and long-term insurance tax credits to pay for extension of low-income tax credits, which will expire.

The tax hike married to extending tax credits has drawn partisan boos from House Republicans who see it as a way to skirt the constitutional requirement for a three-fifths majority to pass tax increases. A key Senate Democratic leader hasn't sounded too thrilled with the idea, either.

Tensions will build and lawmakers will be run through the gauntlet so they are weary enough to bend just enough to vote for what is needed to go home. But the road home in Washington is significantly more dicey, especially for the state employees who will be receiving furlough notices.

With PERS Benefits Off the Table, Time to Reduce Costs

Oregon's gamble on trimming public retiree benefits failed and it now faces a $13.75 billion Public Employee Retirement System deficit, with few ideas on the table of what to do next. Photo by The Oregonian. 

Oregon's gamble on trimming public retiree benefits failed and it now faces a $13.75 billion Public Employee Retirement System deficit, with few ideas on the table of what to do next. Photo by The Oregonian. 

A lot of hand-wringing, but not much action has followed the Oregon Supreme Court's decision invalidating many of the Public Employee Retirement System changes aimed at reducing the state's unfunded liability.

Public employee union officials are clucking, "We told you so." Legislators are conceding there is little more that could be done to trim retiree benefits. And state and local public agencies are bracing for a round of stiff PERS contribution rate hikes in 2017.

If you can't touch retiree benefits, all that's left is reducing costs associated with PERS. And lo and behold, the legislature is sitting on a bill that backers say could save $2.7 billion over the next 20 years in expenses to manage public retirement investments.Under Senate Bill 134, an Oregon Investment Department would be formed as an independent agency, much like SAIF Corporation. The department would be overseen by the Oregon Investment Council and responsibility to administer public retirement funds would fall to a professional investment manager, not the state treasurer. The treasurer would be the vice chair of the Council.

Even though this set-up would require hiring more staff members to manage a portfolio and assess risk, it would enable Oregon to free itself from the higher-priced consultants it pays for now. One benchmarking analyst said Oregon is a “high-cost fund compared to its peers, in large part because of Treasury's heavy reliance on outsourcing.” This is where the projected savings comes into play.

Cost-cutting has the drawback of not appearing to reduce the unfunded liability, but the advantage of reducing the outflow of cash to manage public retirement funds, while "in-sourcing" investment management duties.

Republican lawmakers may fret about hiring more state workers, but they may see increased local employment as a better alternative than sending big sums to Wall Street investment management firms.

The legislation, introduced by Treasurer Ted Wheeler, nearly passed in the short 2014 legislative session. The Oregon Investment Council expected it to fly through the 2015 session. But it hasn't.

Senate President Peter Courtney has sat on the legislation this session out of fear of creating another "Cover Oregon" calamity. But that was before the Oregon Supreme Court ruling on so-called PERS reforms. Now the legislature is staring at a financial tsunami far worse than Cover Oregon.

Wheeler's uncertain political status may be another contributing factor. Deemed constitutionally unable to run for another term as state treasurer, Wheeler appears to be considering his options. Many of those options could involve other elected officials – in the governor's office and in key legislative leadership positions. These potential opponents may not feel a need to give Wheeler a perceived "political victory."

While Courtney's reluctance and other elected officials' wariness are part of the normal political process, the PERS problem may force everyone to rise above "normal."

At a minimum, giving the Oregon Investment Department and the savings it might generate a second look could form the basis of a broad coalition business-labor coalition willing to find ways to nibble away at the problem without threatening retiree benefits. It seems like a much better use of time than hand-wringing.

Links: 

State Taxes, Volatility and the Kicker

As tax revenues in Oregon once again reach the level to trigger corporate and personal kickers, we’re likely to see lawmakers talking about tax reform.

As tax revenues in Oregon once again reach the level to trigger corporate and personal kickers, we’re likely to see lawmakers talking about tax reform.

Oregon's tax revenue system is slightly more volatile than the all-state average, but less than some critics think based on a new study by Pew Research. One volatile element not included in the Pew assessment is the personal income tax kicker, a unique and quirky procedure that rebates to taxpayers money that exceeds projected revenues by two percent or more.

According to Pew, Oregon's state tax regime volatility rating is 6.4 percent, compared to an all-state average of 5 percent. The most volatile state tax regimes are ones heavily dependent on severance or extraction taxes. Alaska has the most volatile state tax system at 34 percent.

Oregon depends heavily on personal and corporate income tax revenues, which rise and fall in concert with broader economic trends. When times are good, Oregon's income tax system generates a growing pot of money.

If times are too good, Oregon's personal income tax kicker is triggered, requiring a chunk of incremental revenue to go back to taxpayers.

Triggering the personal and corporate income tax kickers could happen again this year, forcing state lawmakers to contend with a hole in their budgets. In the latest quarterly economic forecast, state economists said the corporate kicker is almost certain to be triggered and we are very close to triggering the personal kicker.

The corporate kicker is in the $50 million range and poses less of a problem because that revenue is now dedicated to schools instead of business bottom lines. The personal income tax kicker, if triggered, would likely be in the $300 to $500 million range, enough to pinch the state budget, but not anything like the $1 billion bite in the 2005-2007 biennium, which at the time represented 10 percent of Oregon's General Fund. 

Reducing volatility has been a long-time goal of governors and legislators. It is the source of most drives for "tax reform." Arguments generally come down to finding a "balanced" state tax system, which usually means one that derives revenue from both income and sales. The argument for less volatility is that it makes it easier for state budget writers to do their jobs. 

Sales tax advocates point to Washington, which has a sales tax but not personal income tax, as an example of a more stable tax system. The Pew research shows Washington's tax system volatility is 4.6 percent. 

South Dakota, which relies on a sales tax, has the least volatile tax regime at 3.6 percent, Pew says. The next lowest state in the ranking at 2.9 percent is Kentucky, which has both personal income and sales taxes.

Seeking Pots of Gold from Pot

Oregon voters won't decide on legalizing marijuana until November, but Portland and Ashland — and perhaps, before long, more cities — are exploring whether they can tax it if becomes legal. 

There is an urgency to the municipal inquiries because the legalization ballot initiative specifically reserves the right to tax marijuana to the State of Oregon. However, if cities impose a sales tax before legalization becomes effective, the tax might stick.

The perceived bonanza to government tax coffers from legalizing marijuana took a body blow when ECONorthwest estimated first-year sales would net $16 million in tax revenue, not the $38.5 million touted by the measure's supporters. 

Key variables cited by ECONorthwest would be the number of licensed pot shops to open up — and the willingness of pot smokers to shift to legal, but more expensive marijuana sold in state-licensed stores. The economists predicted 60 percent of pot users would continue to shop in the black market.

Inching Closer to the "K" Word

It's amazing how quickly you can forget something like the personal kicker, the obscure Oregon income tax provision that can suddenly rain on the parade of an economic recovery for state government.

State economists gave lawmakers this week their latest quarterly estimate of economic progress and state tax collections. The news was good, maybe a little too good. Net proceeds for the State were projected upward by $54 million as a result of more people working, especially on housing. That means no budget cuts to existing state agency budgets.

But the latest uptick in state revenue is precariously close — about $72 million — from the trigger that would require the return of the entire surplus of $290 million or more to state personal income taxpayers, leaving an unanticipated hole in budget planning.

The personal and corporate income tax kickers were instituted by lawmakers to prevent lawmakers from spending "surplus" revenues that exceeded by 2 percent projections on which spending bills were based. The kickers were akin to a financial chastity belt to avoid legislative spending sprees during economic good times that couldn't be sustained in the inevitable economic bad times. 

The Good and the Ugly Session

End-of-session reports by lawmakers to their constituents often leave a lot to be desired — and to the imagination. However, reports by House Speaker Tina Kotek, D-Portland, and freshman Rep. John Davis, R-Wilsonville, offered lucid, contrasting views on how the short 2014 session went.

One of the biggest contrasting viewpoints was on the session itself.

"We now have annual legislative sessions because Oregonians shouldn't have to wait a year and a half to have urgent issues addressed," Kotek wrote in her newsletter.

In a piece appearing in the Wilsonville Spokesman and sent to his constituents, Davis said, "In 2010, when Oregon voters supported Measure 71 to amend our Constitution to add annual sessions, we were told these short, even-year meetings would focus on budget stability and transparency.... This year, unfortunately, Oregonians experienced 32 days of politics and one day of budget review."

"The complexity of the state budget," Kotek said, "requires annual updates to respond to changing revenue forecasts or emerging priorities." She said budget writers were able to increase the state's reserve funds while boosting assistance for seniors, low-income families and the mentally ill.

Legislature Ends Short Session of Modest Accomplishments

The 2014 “short” legislative session came to an orderly end Friday. At 33 days, the session nearly bumped up against the constitutional limit of 35 days for short sessions held in even-numbered years. The session will be remembered for modest achievements and a budget rebalance.

At the beginning of February, there were a number of big policy issues in play. Liquor privatization and marijuana legalization legislative referrals, gun control legislation and the Columbia River Crossing were high on the “to-do” list for legislative leaders. None of those issues passed the legislature.

The legislature also passed on issues that grew heat towards the end of the session: changes to class-action lawsuits to fund legal aid, modifying the ballot title for a driver’s license referendum and a bill to change the investment division of the State Treasurer.

There were some significant actions. The legislature authorized $198 million in bonds for the OHSU Knight Cancer Challenge, but only if OHSU raises the other $800 million first. A land-use “grand bargain” passed that codifies an out-of-court agreement among parties in Washington County. The legislature managed to find a way to tax pre-paid cell phones for 911 services.  And, most important, the legislature rebalanced the budget and found a way to fund a few new initiatives.

State, Local Revenues on the Rise

Legislators have a little more cash in the bank as the short 2014 session nears its mid-point, but maybe not enough to avert some spending cuts. Local school revenue derived from property taxes showed a healthy jump.

Oregon State Economist Mark McMullen delivered today the March economic forecast, which predicts another $14.8 million revenue. The forecast show revenues largely flat for this biennium and into future years, but is more optimistic on job growth than previous forecasts. In the near term, however, stronger job growth projections are offset by disappointing revenue collections.

The Office of Economic Analysis is optimistic about the future. Profitable businesses have been sitting on cash, waiting and building confidence to invest and expand. The state is beginning to see industries get close to production capacity. When combined with lower energy costs, brought on by expanded US oil and gas production, businesses are poised to begin expansion efforts. Labor force expansion follows business expansion creating opportunities for workers who are sitting on sidelines of the economy.

No personal income or corporate kicker is currently predicted for 2015, but the state is edging ever closer to hitting the target. McMullen reported the state is just $100 million away from a personal income kicker. April’s tax returns should give a better indication of the size of capital gains, providing a clearer picture as to whether the kicker will actually kick.

The outlook remains stable and there is evidence that economic recovery is spreading across regions in Oregon. The net changes over time suggest the growth trend will continue at a steady pace around 10 precent.

As lawmakers begin to push to close the short session, they will have a few more resources to dole out to agencies and pay for the costs associated with the passage of new policy bills. The amount is just enough to give budget writers some breathing room without giving other lawmakers a false sense of plenty — thus creating a rush of funding requests that cannot be met.

Even with new resources, the state will struggle to maintain a substantial ending fund balance as the costs associated with budget rebalances, devastating fire seasons and unexpected emergencies create risk for the remainder of the biennium. Lawmakers also face potentially large budget gaps in corrections and human services that will be major challenges in 2015.

A separate forecast showed a $98 million increase in revenue available to Oregon K-12 school districts. While most of the increase is the result of larger property tax collections statewide, the amount also reflects a temporary extension of federal timber payments and proceeds from state lands.