Oregon would enact a new tax on businesses and raise more than $1 billion annually for public schools under a legislative proposal released Thursday after more than a year in development.

Three leaders of the Joint Committee on Student Success briefed reporters on a House Bill aimed at prioritizing early childhood education, student mental health and district initiatives to improve graduation rates and other priorities.

Committee members visited 77 schools, hearing from teachers, administrators and students, to identify the highest priorities in funding schools. They said they’re focusing the billion-dollar investment on a few problems they heard discussed everywhere they went.

Where The Money Would Go

A chart shared by committee leaders Thursday outlined three main components:

  • $400 million per two-year budget cycle on early childhood priorities including full funding for Early Childhood Special Education.
  • $600 million per biennium on “statewide investments” such as drop-out prevention and supports for students with disabilities.
  • $1 billion per biennium for a “school improvement” fund, described as “non-competitive grants” toward specific goals, such as smaller class sizes, a longer school year and additional health professionals in schools.

Committee co-chair Sen. Arnie Roblan, D-Coos Bay, told reporters that the spending plan was the culmination of his 14 years as a legislator. He said he has repeatedly thanked Senate President Peter Courtney for placing him on the joint committee.

“I jumped at the chance,” Roblan said. “Even though the hours are long and the travels have been great, this is singularly the most important thing for me, because it’s getting at the heart of why I came here in the first place.”

Legislative leaders are working to address funding difficulties that date back nearly three decades to Oregon’s passage of property tax measures. Ballot Measure 5 shifted responsibility to fund schools away from local school districts and to the state legislature through caps on local property taxes. But lawmakers and school advocates have repeatedly said that the state has never addressed that new responsibility the way voters intended, with a new source of revenue.

Where The Money Would Come From

The committee’s goal has been to raise upwards of $2 billion per biennium, and since they started working on the revenue side, they’ve focused on enacting a tax that would spread the cost across the largest possible group of taxpayers. The leading proposal is a Commercial Activities Tax, likely tiered based on the size of businesses.

One of the committee’s vice-chairs, Rep. Greg Smith, R-Umatilla, said the smallest businesses would be exempt from the tax completely. He said businesses earning between $150,000 and $1 million per year would pay a flat fee of $250, while the largest businesses would pay a percentage of revenue, between .37 percent and .45 percent.

A presentation at the Student Success committee Thursday evening offered two variations on the commercial tax that could allow businesses to deduct the cost of labor in exchange for higher tax rates, so that the revenue total would remain at $1 billion per year.

Legislators would also cut personal income taxes by one quarter of a percent, to soften the impact on individuals who would likely pay more for goods and services as a consequence of a new tax on business.

Smith said he believed there could be other Republican votes to support the tax proposal.

“I think that there are Republicans who want to make strategic investments in education,” Smith said. “Once they have the opportunity to see what the revenue package looks like both on the personal income tax side and the commercial activity tax side, I believe there may be votes there.”

Political Path Forward

The joint committee’s work is far from done. Even before committee members briefed the public on its plans, Gov. Kate Brown was questioning the proposal by calling for the new revenue proposal to also help fund Oregon’s public universities.

The committee’s co-chairs, both Democrats, were firm but diplomatic in their insistence that the dedicated revenue and targeted investments that they’ve spent 14 months working on were never intended to include higher education.

“The goal of this committee’s work has been pre-K to 12 from the start, and that’s because in 1990, when Measure 5 was passed, we had a significant shift in how funding worked,” said committee co-chair Rep. Barbara Smith Warner, D-Portland, referring to the lack of dedicated funding for public schools.

Smith Warner pointed out that colleges and universities can raise tuition and fees when they need more money; public schools can’t. However, college students and faculty have been vocal in recent years about the growing unaffordability of higher education, even as employers are looking for workers with college degrees.

At the same time, legislators are also aware that rising costs have the potential to eclipse much of the additional revenue they find, and to limit its impact. High-profile advocates, including former Gov. Ted Kulongoski, have warned legislators of the potential impact Oregon faces as costs go up for the Public Employee Retirement System, specifically.

It was also a focus of legislators on both sides of the aisle. Sen. Kathleen Taylor, D-Milwaukie, flagged PERS as a key concern, though her colleagues quickly argued that the revenue from the commercial activity tax couldn’t go to retirement costs. That didn’t prevent Sen. Tim Knopp, R-Bend, from making a similar point minutes later.  

“All the great and grand plans that we have will likely end up with the new revenue essentially funding PERS if we don’t address that,” said Knopp.

Committee members acknowledged that PERS changes are under discussion, but not by the Joint Committee on Student Success, which was discouraged from examining the issue, when it was formed by legislative leaders.