Capital Chatter: Dangerous times for the Oregon Legislature

Only in Oregon would powerful Democrats lament having more tax dollars to spend.

That was happening behind the scenes recently as legislative leaders learned the state would have around $900 million extra to spend before June 30; or, more likely, to carry into the 2019-21 budget that takes effect July 1.

The unexpected revenue will make it even more difficult for Democratic leaders to win approval on tobacco taxes and other taxes still being considered this week.

Democrats also will have a tough time diverting part of the record $1.4 billion income tax “kicker” for other uses, as Gov. Kate Brown and other Democrats have proposed. Such diversion requires a two-thirds vote in the House and the Senate. To lure Republican support Democrats could include rural housing among the uses, as well as PERS.

Money and more money: The $2 billion business tax for schools passed the Senate on Monday and headed to Gov. Brown before most legislators learned of the windfalls. On Wednesday, Senate Republicans unsuccessfully tried to undo Monday’s approval. Their effort failed on a party-line vote.

“Senate Republicans attempted to recall this bill today because the majority party continues to make taxpayers suffer when the state budget has an incredible amount of money at its disposal,” Senate Minority Leader Herman Baertschiger Jr., R-Grants Pass, said in a press release.

That majority party responded, “Senate Democrats squelched a surprise attack by Republicans against tax cuts for everyday Oregonians and better schools for students statewide.”

HB 3427, the Oregon Student Success Act, includes a small reduction in personal income taxes.

How the kicker works: Oregon’s unique law contains one kicker for corporate income taxes and one for personal income taxes. At the start of each two-year budget period, state economists estimate how much corporate tax revenue will be received during the biennium and how much personal income tax and other non-corporate tax revenue will be collected.

A kicker results at the end of the biennium if the revenue in that category exceeds the original estimate by at least 2 percent. For personal income tax payers, all the excess is refunded when taxpayers file their returns the following year – unless the Legislature intervenes.

Under the Oregon Constitution, that diversion would happen in a roundabout way. Legislators technically would not take the kicker money. Instead, they would vote to increase the original revenue forecast and thereby change the baseline for a kicker.

A 2012 ballot measure mandates that the corporate tax kicker go to public schools instead of back to companies that paid the taxes. That corporate kicker currently is projected at $615.9 million, but the actual kicker amounts won’t be determined until the next revenue forecast in three months.

As of now, the average filer of personal income taxes would get almost a $691 credit. The median filer — that is a taxpayer in the middle of the range — would have a credit of $338 next year. Filers in the top 1% of the income distribution would receive nearly $14,000.

Brown contends that the kicker disproportionately benefits well-to-do Oregonians, and she proposed diverting the first $100 of each kicker to pay down PERS’ unfunded liability.

An ongoing irony is that it’s almost impossible for any government, business or other organization to forecast revenues two years in advance within 2 percent accuracy. But that’s why Oregon voters adopted the kicker: to stop the state from spending unexpected revenue.

State Economist Mark McMullen and Senior Economist Josh Lehner presented the quarterly economic and revenue forecast on Wednesday morning to the members of the House and Senate revenue committees.

The May forecasts are the most important of the two-year budget cycle, establishing how much money the Legislature has to spend for 2019-21. However, it was a quick meeting, lasting only 25 minutes before House members rushed off to their party caucuses.

Good news and uncertain news: Oregon is better-prepared than ever for the inevitable recession, with the state’s rainy day funds and related reserves projected to top $3.5 billion when the current budget period ends June 30. Economists are unsure when the next downturn will arrive.

In their written forecasts, McMullen and Lehner said: “Looking forward, Oregon’s economic outlook calls for ongoing, but slower growth this year and next. The tighter labor market, somewhat fewer in-migrants, fading federal fiscal stimulus and past interest rate hikes all cool economic activity. That said, Oregon continues to hit the sweet spot. Growth is strong enough to keep up with a growing population but also deliver economic and income gains to Oregonians. This pattern is expected to continue until the next recession, whenever it comes.”

Bend continues to be the state’s economic star.

Meanwhile, rural counties in Eastern Oregon seem left behind, as was pointed out by Rep. Lynn Findley, R-Vale.

Findley suggested that more tax cuts, instead of tax raises, would help sustain the economy. McMullen responded that tax cuts create temporary effects and the “huge federal spending package,” which expires at the end of the federal fiscal year, likely did more to boost the economy.

Driver licenses but no self-serve: A proposal to let gas stations convert some of their pumps to self-serve appears dead in the Legislature’s Joint Committee on Transportation.

The committee has scheduled a May 22 work session on HB 2015, which allow undocumented residents to get driver licenses. In essence, it would overturn a 2014 ballot measure.

Saving for retirement: State Treasurer Tobias Read was on Capitol Hill this week to tout Oregon’s first-in-the-nation automatic retirement savings program — OregonSaves.

“We’re very excited to play the role of laboratory of democracy and share our lessons,” he told the Senate Finance Committee. Oregon Sen. Ron Wyden is the top Democrat on the committee.

As OregonSaves is phased in, employees will be enrolled if their employer does not offer a retirement plan. The workers can opt out; but, so far, most have elected to stay, according to Read.

It’s an IRA and all contributions are made by the employee, not the employer. The IRA also stays with the employee if he or she switches jobs.

The program should appeal to people who want a retirement plan without having to make a lot of investment decisions. The fee is about 1 percent.

Read said the automatic enrollment turned inertia into involvement. Wyden called Read one of the nation’s innovative thinkers in retirement savings.

And with an assist from Read, Wyden also put in a few plugs for the Portland Trail Blazers at Tuesday’s committee hearing. It didn’t help. The Blazers lost that night to the Golden State Warriors.

Rolling in the words: Oregon Senate Republicans are back at work this week after the Senate Democratic leadership agreed to kill a sweeping gun-control bill and a vaccine mandate.

House Republicans continued to insist that each bill be read word-for-word before being debated on the House floor, slowing the supermajority Democrats’ legislative steamroller.

As the readings dragged on, representatives handled email, studied documents, worked on other jobs, did needlepoint, negotiated on other bills, and sometimes chatted not-so-quietly.

Short takes: Sen. Jackie Winters, R-Salem, continues to be absent for health reasons. Other legislators also are absent for various reasons, although for shorter periods. … During Wednesday’s revenue meeting, a video began playing loudly on the smartphone of Rep. Susan McLain, D-Hillsboro. Colleagues were sympathetic as she sought to turn it off. … Rep. Brad Witt, D-Clatskanie, cast the only vote on the House floor against HB 2452 A, which alters the homestead property tax deferral program.

One more place to eat: Construction begins next month on an In-N-Out Burger just off I-5 in Keizer. Capitol wags found this news more exciting than much of the Legislature’s work.

Lawmakers from Southern Oregon already have In-N-Out in Medford and Grants Pass. They can debate Mid-Valley lawmakers as to whether the California-based chain is better than the Northwest’s Burgerville, which has no restaurant in Oregon’s capital but one in nearby Monmouth.

Dick Hughes, who writes the weekly Capital Chatter column, has been covering the Oregon political scene since 1976. Contact him at TheHughesisms@Gmail.com , Facebook.com/Hughesisms, YouTube.com/DickHughes or Twitter.com/DickHughes.