With no “Grand Bargain” in sight, revenue-raising bill turns up heat

House Republican Leader Mike McLane (R-Powell Butte) speaks passionately of the Oregon Constitution on Friday before a vote challenging the ruling that House Bill 2060 could pass on a simple majority vote. (Photo by Jake Arnold, OSBA)  

After a three-hour, often-acrimonious debate, the House passed a bill that would increase Oregon revenue by an estimated $196 million in 2017-19. House Bill 2060 limits the number of people who can take a business tax exemption created in the “Grand Bargain” of the 2013 special session.

Democrats characterized the exemption as a give-away being used by health care and legal professionals while providing little help for small businesses or job creation as it was intended. Republicans said it would hurt hundreds of small businesses in every district.

The bill passed 31-28, but Republicans have suggested it could be challenged in court if it passes the Senate. Republicans say it is a tax increase and therefore the Oregon Constitution requires a three-fifths supermajority to pass it. The Legislative Revenue Officer said the tax changes could be passed by a simple majority in both houses because they expand the tax base but do not directly change tax rates. The Oregon Supreme Court may have to decide.

Nobody in the Capitol is happy. The Legislature shuffled forward this week, moving a few bills and hearing a few more, but it appears that Democrats and Republicans are at an impasse. Democratic leaders have said revenue reform won’t happen this session, and it doesn’t look like there will be a major deal to address governance needs in education funding, stable revenue generation, cost control or the unfunded Public Employees Retirement System liability. And unlike 2013, when Gov. John Kitzhaber was able to engineer a series of compromises called the “Grand Bargain,” no such leadership seems likely this year.

Amendments to House Bill 2061 surfaced Tuesday that could translate to more than $550 million in new revenue in 2017-19, mostly by repealing existing business tax exemptions or broadening how existing business taxes are calculated. These amendments lurched into the House Revenue Committee, which met on short notice.

One amendment would do the same as HB 2060. Another would prevent businesses from writing off employee compensation over $1 million, thus increasing the businesses’ taxable income. That would increase Oregon revenue by an estimated $160 million in 2017-19. A third amendment would limit business deductions for larger corporations, adding $209 million to the General Fund in 2017-19, according to LRO estimates.

The Legislative Revenue Office has said this bill also would require only a simple majority to pass.

The amendments for HB 2061 did not receive a vote, but House Revenue Committee Chair Phil Barnhart (D-Eugene) warned the committee to be ready. At this time in the session the committee can meet with an hour’s notice, so “everything is very much in flux,” Barnhart said after the hearing.

Revenue reform has been closely tied to the bill to fund the State School Fund. Senate Bill 5517 would appropriate $8.2 billion for K-12 public education, but education advocates, school district officials and legislators of both parties agree that is not enough. It was passed by the Senate 25-5 despite widespread testimony that Oregon should do better for its children. When it came up for a vote in the House on Tuesday, Rep. Barbara Smith Warner (D-Portland) proposed it be postponed.

“We are still working hard to find a way to make strategic new investments in our schools by containing costs and reforming our revenue system,” said Smith Warner in her motion. Smith Warner is vice chair of the House Revenue Committee.

House Republican Leader Mike McLane (R-Powell Butte) urged an immediate vote on the State School Fund, pointing out there is no cost-containment bill for the House to consider and the state has record revenue.

“No amount of political jockeying is going to change the numbers in this state,” he said Tuesday.

In the end, the House voted on a party-line vote to hold Senate Bill 5517 over to Tuesday, June 27.

The rationale behind holding the bill another week was much discussed in the Capitol this week. It could be that House leadership, including Speaker Tina Kotek (D-Portland), reasonably expect to be able to add more money to the bill. The State School Fund is the largest single appropriation that the Legislature makes, so it also has political value as a bargaining chip. There are a few policy initiatives that are not quite dead, including a transportation funding package that Democrats and Republicans both want. But beyond the reasons stated by Smith Warner, everything else is speculation.

One final item of interest: the sine die motion, Senate Concurrent Resolution 31, was introduced Wednesday. Introduction of that measure signals the beginning of the end each session. It gives everyone in the Capitol something to point to when venting frustration with this session. As the session winds down, most say that little has been done to solve significant policy challenges facing the state.

And there is no reason to think it will get better any time soon. Leadership in both chambers and both parties are unable to compromise. Most significant policy bills died a long time ago, casualties of the anemic budget situation. And advocates for both business and labor are sharpening knives and already preparing ballot measure campaigns for 2018.

- Richard Donovan
Legislative specialist
rdonovan@osba.org