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4 Things To Know As Oregon's Tax And Budget Wars Heat Up


The release of an eye-catching list of possible budget cuts signals the start of the Oregon Legislature's end game: negotiations about taxes and budgets.

The release of an eye-catching list of possible budget cuts signals the start of the Oregon Legislature's end game: negotiations about taxes and budgets.

Bradley W. Parks/OPB

Earlier this week, the Oregon Legislature’s top budget writers released a list of potential cuts they say they’ll have to make if lawmakers don’t find new money to fill a $1.6-billion budget shortfall. 

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Democratic legislative leaders say they want voters to understand what’s at stake. Republicans say it’s an attempt to scare the public into encouraging legislators to raise taxes.

The back-and-forth was a sign the Oregon Legislature is edging into the big negotiations and decision-making that marks the final months of the session. Here’s four things that will help you make sense of the legislative maneuvering.

Some Proposed Cuts Are Very Unlikely

When the list was released, much of the news coverage focused on the possibility that 350,000 poorer Oregonians could lose the health insurance they gained under the Affordable Care Act.

But the state has a relatively politically painless way to make up the shortfall. They can continue — and expand — their practice of taxing the health care industry to generate matching federal dollars. 

On average, the state gets back $1.81 in federal money for every $1 it puts into Medicaid, according to the Oregon Center for Public Policy, a liberal think tank that advocates for the poor.

Sen. Elizabeth Steiner Hayward, D-Portland, who chairs the human services budget subcommittee, said, “I think we’re getting close to an agreement” on provider taxes covering hospitals, insurers and coordinated care organizations. 

Legislators may not be able to make up the entire $881 million shortfall in health care. But cutting people off Medicaid — also known here as the Oregon Health Plan — is listed only as a last resort if the state can’t raise any provider taxes at all.

Steiner Hayward said she’s most worried about cuts to Department of Human Services programs covering vulnerable populations such as foster children, the elderly and people with developmental disabilities.

“I don’t think we can hold everybody harmless by any means,” she said, adding that “we don’t have an obvious source” of additional revenue like health care has with the provider taxes.

Education Needs More Money To Avoid Cuts … But It’s Complicated

Since Oregon voters capped property taxes in the 1990s, the state has become the major source of funding for K-12 schools. So every two years, school boards, parents and others trek to Salem to fight for as much money as possible.

The governor offered $8 billion for schools in her proposed budget. Legislative budget writers say that without new taxes, they can only afford just over $7.7 billion. School lobbyists argue that, in reality, they need about $8.4 billion to avoid cuts in most districts.

There are nearly 200 school districts around the state, all with their own unique financial outlook. One thing is clear, though: State aid to schools — which consumes about 40 percent of the general fund budget — would have a hard time keeping all school districts above water without ravaging other state programs.

So you can bet that if legislators manage to cut a deal to raise taxes, they’ll focus money on schools. That does two things: It protects K-12 schools, which have the largest constituency, and it takes some pressure off the rest of the budget.

There Are Twin Tracks For Taxes

Senate Revenue Chairman Mark Hass, D-Beaverton, is leading the legislative effort to strike a big agreement on taxes. He is shaping a proposal for a gross receipts tax that is quite different from the one voters defeated in Measure 97 last fall.

His version would have a much lower rate, and it would cover a much broader range of businesses. And he’d like to totally replace the corporate income tax, which has so many exemptions and loopholes that it hasn’t kept pace with the growth of the economy. So this proposal would both simplify the tax code and raise more revenue.

But that might be too tough of a lift. Some conservative elements of the business community are already running ads portraying it as a hidden sales tax. That was a big part of the campaign that took down Measure 97 last fall.

Legislative leaders may instead turn to smaller tweaks to the tax code, with the aim of filling as much of the budget hole as possible.

In her proposed budget, Gov. Kate Brown has produced several revenue raisers, including higher tobacco taxes and a rollback of a tax break that benefits many smaller business owners.

There’s a long list of other ideas, including trimming the mortgage interest deduction. 

Republicans say they’re willing to discuss tax options, but only if lawmakers first find ways to reduce the rate of growth in government costs.

“Oregonians have clearly told us they want us to cut spending before we raise taxes,” said Sen. Tim Knopp, R-Bend. At the top of his list: reducing the health insurance costs of state employees and finding savings in Oregon’s public employees retirement system.

Oregon’s Nuclear Option

Remember how U.S. Senate Republicans invoked the so-called “nuclear option? They changed Senate rules to prevent a filibuster on Neil Gorsuch’s nomination to the Supreme Court — and for future nominees.

Well, Oregon might have its own potential nuclear option. A 2015 Oregon Supreme Court decision on a complex utility case could open the door to making it easier to raise more revenue.

Oregon’s Constitution has a voter-approved provision requiring a three-fifths vote for tax increases. But this court decision led the Oregon Legislative Counsel to opine that the requirement might only appeal to increases in the tax rate. Tinkering with tax deductions, for example, might only take a majority vote.

Democrats have a majority in both chambers, but they don’t have a three-fifths majority. So it’s a provocative idea in Democratic circles.

“I don’t want to muscle things through,” said Hass, the Senate finance chair, adding that there is a feeling “in this building, ‘Why not muscle things through? We have the majority. We don’t need bipartisan support. What’s your problem?’”

There are many risks to this approach. Republicans say that if Democrats take this route, they would be going against the will of  voters. That might make for a potent 30-second ad against Democratic legislators who vote for the brute-force approach. And it’s not a certainty that the Oregon Supreme Court would agree its decision opens the door to not requiring a three-fifths majority on certain kinds of revenue-raising measures.

Still, the threat of going nuclear could be a bargaining chip. Hass likens the upcoming negotiations to the experience of reading a page-turning novel.

“You’re about half-way or three-quarters of the way through, and it’s all coming to a climax, and you’re thinking, ‘Not all of these people are going to be standing at the end,’” he said. “And that’s kind of how I’m looking at this…. It’s really interesting to see how it’s going to play out.”

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