Oregon lawmakers approved billions of dollars in new business taxes on Wednesday that could inject money into schools to pay for early learning programs and efforts to improve student performance.

While Democrats in the Oregon House hailed the measure as “historic” and “game-changing,” it passed with no Republican support.

The vote was 37 to 21. The measure now heads to the Senate.

Democrats argued the state has been disinvesting in public schools for decades and this measure would finally create a more stable funding source.

State Rep. Barbara Smith Warner, D-Portland, called the bill an “unprecedented opportunity to finally give our children the education they deserve and the support they need to succeed. It’s a chance to right the wrongs of decades of disinvestment and change the trajectory of our state.”

Republicans tended to agree with the premise that Oregon’s schools are failing and need additional revenue, but they pushed for Democrats to consider how the state’s pension system could gobble up any revenue. The minority Republicans also raised concerns about the effects the measure could have on Oregon’s small businesses and working families.

They also criticized Democrats for effectively shutting them out of the negotiations. To make their point, they slowed the legislative process down by using a procedural maneuver to require the entire 45-page piece of legislation to be read out loud before a vote could be taken. That move effectively delayed discussion of the bill for more than two hours. 

A committee made up of both Republicans and Democrats traveled the state for months to meet with school officials and students to gauge what schools needed to improve dismal graduation rates and reduce class sizes.

After their travels, the Joint Committee on Student Success, as it’s called, both identified where new investments should be made and landed on a revenue stream: a commercial activities tax.

The measure passed on Wednesday, House Bill 3427, would funnel about $2 billion every two years into schools and be invested into three areas: early learning programs, other statewide initiatives such as career-technical education and summer programs, and grant programs, which would give schools more spending flexibility to meet other goals such as increasing attendance and graduation rates.

Rep. Cheri Helt, R-Bend, is a member of the Student Success Committee and a small business owner, who argued lawmakers should slow down and ensure they understand the tax they are passing.

Despite being part of the committee, Helt said, she is still uncertain how the new tax could affect her own businesses. The latest details of the tax were only recently revealed.

“How can we mitigate the impacts to our small business if we don’t even know what they are?” Helt said.

Later, Helt added, that a 0.57% tax rate makes a big difference in a business whose margins are small.

“When we make jambalaya, I make sure the chef scoops out with a spatula. … If you waste, you go out of business,” she said, adding she will be downscaling her business because of this tax. She employs 100 people, she said.

The tax would require businesses to pay a tax of 0.57% on sales inside the state’s borders that exceed $1 million. The first $1 million in sales would be exempt. There are some carve-outs for gas, groceries and some health care providers. In addition, businesses could subtract 35% of their labor or capital costs from total sales and there is a personal income tax cut by 0.25% for some consumers.

There are about 460,000 businesses in Oregon, about 40,000 of which would be hit by the new tax, according to information from the legislative revenue office.

Co-chairs Rep. Barbara Smith Warner, D-Portland, and Sen. Arnie Roblan, D-Coos Bay, listen to testimony on House Bill 2019 before the Joint Committee on Student Success at the Oregon Capitol in Salem, Ore., Thursday, April 11, 2019.

Co-chairs Rep. Barbara Smith Warner, D-Portland, and Sen. Arnie Roblan, D-Coos Bay, listen to testimony on House Bill 2019 before the Joint Committee on Student Success at the Oregon Capitol in Salem, Ore., Thursday, April 11, 2019.

Bradley W. Parks/OPB

The minority party argued the granular details of the bill were largely negotiated behind closed doors and they were left out of the process. But they pointed to Nike’s involvement in pushing for the gross receipts tax. Nike helped created a political action committee and has been involved in the negotiations.

Oregon House Minority Leader Carl Wilson, R-Grants Pass, asked, “Why did some of these big businesses here get the deal of the day?”

It’s unclear what kind of impact the tax would have on the shoe company.

Republicans also argued that without solving the state’s pension crisis, the dollars could be consumed before they reach students.

One of the state’s other influential business players, Oregon Business and Industry, announced Monday it would be neutral on the proposal.

Rep. Brian Clem, D-Salem, said OBI’s position came after many long conversations and negotiations and because ultimately, “This [tax proposal] doesn’t hit one sector particularly hard.”

Other business groups, however, disapprove of the measure and have signaled they will take the fight to the ballot box.

“Oregonians have emphatically said no to a tax on sales. They understand that this form of taxation hurts local Oregon businesses and will ultimately result in higher prices for the goods and services they rely on each day. This is a flawed policy and the product of a flawed process,” a statement from  Oregon Manufacturers and Commerce read.

Democrats needed a supermajority to pass the tax measure; they have supermajorities in both chambers.

On Wednesday, despite opposition from their Republican colleagues, Democrats argued this measure would transform the state’s education system.

“This revenue is tied to education. Period. No exceptions,” said Rep. Nancy Nathanson, D-Eugene, one of the key backers of the bill. “This is 30 years in the making. We’ve witnessed generations of children who’ve endured classroom experience far below what they deserve. … We can’t delay anymore. The time to start investing in our children’s futures has come today.”