Student Success Act

Time Again for Political Football with the Oregon Kicker

A historically large income tax kicker has tempted Oregon officials to offer up ideas of how to divert and spend some of it on transportation, rural housing, broadband expansion and PERS.

A historically large income tax kicker has tempted Oregon officials to offer up ideas of how to divert and spend some of it on transportation, rural housing, broadband expansion and PERS.

The Oregon income tax kicker has been a political football since its inception in 1980. It has gone from checks in the mail to a tax credit and a cunning way to control the size of government to a potential cash register for an expanding government liability.

Governor Kate Brown initiated the latest play for kicker funds last week with a proposal to keep $500 million of a projected $1.4 billion in personal income tax refunds that Oregonians will receive when they file their tax returns next year. Brown says half of the amount would pay down the PERS unfunded liability, $200 million would pay for rural housing and $29 million would go to expand rural broadband.

Brown’s proposal didn’t contain a lot of specifics, which reflects that it is more of a sales pitch right now than a well-tuned legislative initiative. According to OPB political reporter Dick VanderHart, Brown sounded out her plan with Senate and House Republicans, some of whom would be needed to reach the two-thirds requirement in the Oregon Constitution to divert kicker refunds. Their initial response wasn’t too encouraging – or surprising.

House Speaker Tina Kotek earlier suggested a portion of kicker refund revenue should be retained and pay for various transportation projects. Brown was cool to that idea, indicating any retained money from the kicker should go to hold down PERS costs to public employers.

Brown admitted her proposal is a tough sell. However, she drafted it in a way that most Oregon taxpayers wouldn’t feel the pinch. Under her proposal, kicker refunds would be capped at $1,000 per tax filer, which means Oregonians who declare $55,000 in taxable income wouldn’t see any reduction in their kicker refund. The average kicker refund is estimated at around $338.

The income tax kicker refund is unique to Oregon and was sold originally as a way to hold down government spending in the good times when higher-than-expected revenue poured into state coffers. Here is an explanation of when a kicker refund is triggered and how it is calculated.  https://youtu.be/c439JJmsipM

The income tax kicker refund is unique to Oregon and was sold originally as a way to hold down government spending in the good times when higher-than-expected revenue poured into state coffers. Here is an explanation of when a kicker refund is triggered and how it is calculated. https://youtu.be/c439JJmsipM

Some 331,000 Oregon taxpayers would see their refunds reduced. The biggest rollers in the state may receive kicker refunds as high as $14,000.

The $1.4 billion kicker is a tempting target to spend rather than return. However, rounding up even Democratic votes might be challenging after tough votes to approve a $1 billion per year commercial activities tax to fund the Student Success Act and a PERS measure that included a requirement for public employees to contribute to their own retirement accounts. Tough votes loom on a much-amended cap-and-trade proposal and a potential funding measure to sustain the Oregon Health Plan. Add to that an earlier session vote to divert $108 million of kicker rebate funds to bolster the state General Fund. 

The income tax kicker is unique to Oregon. It was created on a belief that you could capitalize politically on an economist inclination, which some call prudent, to underestimate personal and corporate income tax revenue. The way the kicker law works is that if tax revenue exceeds 2 percent of projections, all the revenue above the projection must be returned to taxpayers based on what they paid in taxes. 

Former Oregon Senate President Gordon Smith recognized the political potential of a kicker based on an economic formula, with no real basis in economics, and sealed it in the Oregon Constitution. To cement the idea into Oregonian lore, Smith insisted kicker refunds be sent to taxpayers in checks they could fondle, sign and deposit.

The kicker underwent some rethinking as school funding suffered, college tuition soared and the public pocketbook went wanting during economic downturns. The corporate income tax kicker was the first political casualty, with its revenue siphoned off to a rainy day fund, which happens to total currently around $3.5 billion.

The personal income tax kicker commands more voter loyalty, so political leaders over the last four decades have been chary to challenge refunds when times are good enough to generate them. That seems to be changing as the collective public memory of the kicker fades.

A confusing explanation of what produced the historically large projected kicker refund doesn’t make it seem all that sacred. A chunk of over-realized revenue results from a business tax break that Brown and the legislature ended. The GOP-backed federal tax cut wasn’t kind to many Oregon taxpayers, which contributed to reduced taxpayer refunds on state income tax returns. A strong economy played a role, too.

 

PERS Bill Moves on Fast Track to Senate and House Floors

Tackling the still-growing Public Employees Retirement System unfunded liability is one of the thorniest political issues facing Oregon lawmakers. What appears to be their best shot this session is headed to the Senate and House floors. The bill is more patchwork than policy reform.

Tackling the still-growing Public Employees Retirement System unfunded liability is one of the thorniest political issues facing Oregon lawmakers. What appears to be their best shot this session is headed to the Senate and House floors. The bill is more patchwork than policy reform.

A PERS bill is moving in the Oregon legislature that is more patchwork than policy reform, but it may constitute all that can pass in the 2019 session. The fast-tracked legislation could reach the House and Senate floors as early as next week.

Senate Bill 1049 is unofficially, but politically tied to the Student Success Act, which generates an additional $1 billion per year to boost education funding and imposes a commercial activities tax on larger corporations. The critical 18th vote provided by Senator Betsy Johnson, D-Scappoose, was conditioned on legislative action this session on what she termed “substantive” reform of the Public Employees Retirement System. Johnson voted for SB 1049 in the Joint Ways and Means Committee.

The core provision in SB 1049 involves extending the minimum payment schedule for the $27 billion unfunded liability for another eight to 10 years, which accounts for the largest savings achieved by the legislation. Detractors called that another example of kicking the can down the road as opposed to actual reform.

“The bill does not meaningfully impact the system’s deficit or move Oregon any closer to solving its underlying pension problem,” writes The Oregonian’s Ted Sickinger, who closely tracks PERS issues.

SB 1049 includes a cost-sharing provision that would redirect a portion of employee pension contributions made to a supplemental savings plan that resembles a 401(k) plan. An amended version of the plan that was voted on left out an earlier provision that would have reduced the interest used to calculate the pension system’s money-match. The bill reverses a PERS decision and would give employees discretion on how to allocate investments in their own accounts.

Lawmakers added a provision to tap future net revenues from sports betting for an employer incentive fund to make lump sum payments to pay down liability. Lawmakers also tossed in a one-time $100 million contribution.

There was no mention of diverting personal income tax kicker rebates to reduce the PERS deficit.

Amendments to create a new tier of public employees who would receive a 401(k) plan in lieu of pension benefits didn’t pass in committee. 

Like most bills dealing with PERS, no one was really happy. Public employee union officials indicated they would explore a court challenge to cost-sharing provisions. Business advocates and some public employers didn’t think the measure went far enough. Legislators fretted over having to vote on the bill, fearing political consequences down the road.

“Not a single lawmaker questioned or expressed any apprehension about further underfunding the pension system and extending the deficit for another decade,” Sickinger reported. “That’s the bill’s main thrust – a strategy that could lead to further destabilization of the pension fund and land the issue back in lawmakers’ laps if investment returns don’t live up to expectations.”

In an even harsher judgment, Sickinger wrote, “Several committee members repeated the myth that greedy Wall Street bankers and the 2008 recession are to blame for PERS problems, rather than misguided and financially self-interested decisions by earlier legislatures and PERS boards that actually created the system’s structural deficit.” 

Governor Brown’s task force failed to coalesce around major proposals to reduce the PERS unfunded liability. Trial balloons on ideas such as raiding SAIF reserve funds didn’t gain any political traction. 

The PERS unfunded liability has continued to grow despite a strong economy and in the face of stock market volatility.

 

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.

 

 

Political Poker Game Underway on Taxes, PERS and Cap and Trade

Willamette Week’s Nigel Jaquiss reports there is a high-stakes political poker game underway in Salem and Senator Betsy Johnson, who represents the 18th vote for a Senate supermajority, holds the most important cards. [Photo Credit: Willamette Week]

Willamette Week’s Nigel Jaquiss reports there is a high-stakes political poker game underway in Salem and Senator Betsy Johnson, who represents the 18th vote for a Senate supermajority, holds the most important cards. [Photo Credit: Willamette Week]

A billion-dollar boost for education, a new tax on large businesses and a cap-and-trade scheme may all boil down to how one Oregon senator votes, according to Willamette Week’s Nigel Jaquiss.

“Senator Betsy Johnson (D-Scappoose) holds almost all the cards” in a big-stakes political poker game that could determine the fate of the three highest-profile legislative measures in the 2019 Oregon legislative session, Jaquiss writes this week.

A keen-eyed, long-time legislative observer, Jaquiss says Johnson’s position as the critical 18th Democratic vote in the Senate gives her a lot of leverage. A three-fifths supermajority is required to pass tax-raising measures. Johnson also is one of two Senate co-chairs of the Joint Ways and Means Committee, which okays state spending authority. 

Senator Betsy Johnson, D-Scappoose, may be the key vote that determines the 2019 legislative future for the Student Success Act, PERS funding reforms and cap and trade.

Senator Betsy Johnson, D-Scappoose, may be the key vote that determines the 2019 legislative future for the Student Success Act, PERS funding reforms and cap and trade.

In Jaquiss’ telling, Johnson, whom he describes as a “business-friendly Democrat,” is reluctant to bolster education funding with a commercial activities tax without “significant PERS cost cuts.” This roughly parallels the view of Senate Republicans who staged a walkout this week, denying the Senate a quorum to take floor votes, including the vote on education funding bill. The 12 Senate Republicans feel left out of the final compromise on the tax measure, which has already passed the House, and want to slow it down to allow more time to negotiate an agreement on PERS.

Jaquiss says Johnson also isn’t keen on the Clean Energy Jobs bill that sets up a cap-and-trade system, apparently agreeing with opponents that it will result in higher costs for Oregon consumers. It’s little surprise – and probably not a coincidence – that the state’s leading business advocacy group, Oregon Business & Industry, just gave Johnson its first Jobs Champion Award.

As the crucial Senate floor vote for the Student Success package, Johnson could use her leverage on a PERS deal or to scuttle cap and trade, but probably not both, Jaquiss claims. Her decision may be informed by which option has the strongest political legs. 

In his article, Jaquiss says the other power player in this legislative poker game is House Speaker Tina Kotek, D-Portland. She has a comfortable supermajority in the House (the Student Success Act passed by a 37-23 vote) – and gubernatorial aspirations. Wading into a contentious fight over PERS isn’t on the priority list, but she may not be able to avoid it. Kotek may have to do what it takes to smooth the way for Johnson’s vote on education funding. 

The idea floating around Capitol hallways to deal with the large and growing PERS unfunded liability is to require teachers and possibly all public employees to begin contributing to their own retirement funds. Governor Brown, who is term-limited and under pressure to address PERS funding, could accept that, Jaquiss says, but it would be a tougher draw for Kotek who enjoys high level of trust from Oregon unions. 

Keeping with the poker motif, Jaquiss says Senate Republicans see a delay on the education funding bill as a way to call the bluff of Democrats, forcing backstairs conversations into the open and either gain PERS concessions or a death blow to cap and trade.

Senate Republicans can’t hide out forever, so a deal or no-deal should emerge soon. The Student Success Act is a safe bet to pass. Everything else is 50-50.