Deal Ends Senate Walkout, Lets Student Success Act Pass

After massive demonstrations and a Senate Republican walkout, Governor Brown stepped in to cut a deal that allowed Senate passage of the Student Success Act at the expense of two other high-profile bills – eliminating non-medical exemptions for vaccinations and strengthening gun laws. The deal annoyed some and didn’t produce any Republican votes for the education funding measure. (Photo Credit: AP/Rich Pedroncelli)

After massive demonstrations and a Senate Republican walkout, Governor Brown stepped in to cut a deal that allowed Senate passage of the Student Success Act at the expense of two other high-profile bills – eliminating non-medical exemptions for vaccinations and strengthening gun laws. The deal annoyed some and didn’t produce any Republican votes for the education funding measure. (Photo Credit: AP/Rich Pedroncelli)

The Oregon Senate, on a party-line vote, finally approved the $1 billion per year Student Success Act after Governor Brown negotiated a deal that scuttled high-profile vaccination and gun control legislation.

Senate Republicans ended their walkout that denied Democrats a quorum to conduct business on the Senate floor, delaying the approval of the education funding measure that was a top priority for the 2019 legislative session. But it wasn’t the only top priority and Democratic champions of the sacrificed measures expressed anger and frustration publicly. 

Republicans weren’t celebrating a victory. House Democrats were irate. Democratic Senator Betsy Johnson, the 18th vote to ensure passage of the Student Success Act, declared her vote was conditioned on leadership promises to approve substantial PERS reform legislation. If PERS reform legislation doesn’t pass, Johnson vowed to support and campaign for a voter referral of the business tax that will pay for Student Success education investments.

The deal reportedly only scuttles the vaccination and gun control bills for this session. They are expected to return – and most likely pass – in the 2020 legislative session, which begs the question of what was actually won and lost as a result of the deal.

The Student Success Act was destined to pass, despite the Republican walkout, as even GOP senators conceded. Senators couldn’t remain absent for the rest of the session. Senate Democratic leaders could have outlasted the walkout. They might have won public sympathy by ordering the State Police to round up at least two senators to reach a quorum, an action that was seriously considered.

Commanding the State Police to corral senators would have required permission of Governor Brown. She had other ideas and took the lead on Sunday evening to cut the deal that ended the walkout and put a stake into the vaccination and gun control bills. Democratic lawmakers weren’t active participants in the negotiations, based on their reactions in media interviews.

Speculation in Salem is that a robust quarterly economic forecast due out on Wednesday may have prompted Brown’s move to take over the negotiations. Increasing state tax revenues – and a larger personal income tax kicker – may have complicated the narrative around the need for a new tax incorporated in the Student Success Act.

If Senate Republicans couldn’t declare victory with a straight face, the “winner” may have been their tactic. Holding the Senate hostage worked and will likely embolden future legislative minorities to adopt the same hostage-taking tactic. It could even happen this session in the House. 

The “loser” may be legislative leaders who were undercut by a governor brokering a deal. Sometimes lawmakers ask governors to broker deals. But legislative leaders need to retain the ability to work out arrangements across a wider spectrum of legislative issues. This deal short-circuited two bills whose sponsors said their bills had the votes to pass in the Senate.  

Another "loser" may be businesses relying on Senate Republican leadership to protect their interests by stopping the revenue mechanisms contained in HB 3427 and HB 2020's cap and trade bill. Businesses may be upset that Republicans traded away opportunities to reduce the financial impacts from those two bills in an effort to stop social issues like vaccines and guns.

The political maneuvering to pass the Student Success Act this week doesn’t fully eliminate the legislation’s peril if referred to voters. A referral seems likely, even though Oregon Business & Industry, the state’s largest business lobby group, took a neutral position on the tax. Nike, which supported the Student Success Act, has already donated $100,000 to defend it if there is a referral. 

The referral may hinge on the PERS reform legislation, which has just been introduced and may be on a fast track. That legislation would stretch out the unfunded liability, providing some relief in the short term for public employers, but actually increase the liability. The most contentious part of the legislation is requiring public employees to contribute to their own PERS accounts, which could be a hard pill for some legislative Democrats to swallow.

The tax measure represented at least a two-session campaign by Senator Mark Hass to find a way to raise money for public schools while modernizing the state’s corporate tax system. The final version focuses the tax on an estimated 40,000 out of 460,000 businesses operating in Oregon, according to the Legislative Revenue Office. Hass credited Nike tax experts for providing critical assistance to fine-tune the tax proposal. A key compromise was to sequester the projected $1 billion per year in new revenue from going to PERS payments.



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.]