A proposed billion-dollar business tax for Oregon schools took a big step forward Monday, as it passed out of a special legislative committee created more than 15 months ago, with this single piece of legislation in mind. 

The Joint Committee on Student Success has been working for months on a commercial activities tax to fund early learning through high school. The spending side has been relatively clear for weeks, with a goal of investing at least $2 billion per biennium into three main categories: early learning, statewide initiatives (ranging from career-technical education to summer programs), and a grant program intended to allow school districts flexibility to make targeted investments aligned to specific needs they’ve identified, such as improving graduation rates or boosting attendance.  

The general tax schematic has been in discussion for some time, too – in short, a tax on business revenue for enterprises doing at least $1 million in annual sales in Oregon. 

The business tax has had some key players on board virtually from the beginning, such as the Nike-led Coalition for the Common Good.  

But it hasn’t been clear whether other key business groups might fight it. Sandra McDonough, president of the state’s largest business group, Oregon Business and Industry, told the committee Monday her group’s businesses would stay on the sidelines.  

“We feel comfortable with the direction that this conversation is going, and we will be neutral on the tax proposal,” said McDonough, though she suggested that lawmakers still have some work to do, as far as her group is concerned.  

“We look forward to working with you on some technical issues that we’ve brought to the committee’s attention.” 

McDonough’s neutrality was welcomed with broad smiles by Democrats on the committee, starting with Sen. Mark Hass, D-Beaverton. 

State Sen. Mark Hass, D-Beaverton, in the Oregon Senate on Monday, Jan. 14, 2019.

State Sen. Mark Hass, D-Beaverton, in the Oregon Senate on Monday, Jan. 14, 2019.

Bradley W. Parks/OPB

“It’s very gratifying to hear you say that, and honestly I must confess, I never thought we would hear you say that,” Hass said, emphasizing the diverse interests among OBI’s business members. 

McDonough’s commitment to stay neutral appeared to catch some committee members off-guard, such as Rep. Greg Smith, R-Umatilla, who voted “no” on the bill, though he said he might change his vote when it comes up on the floor of the Oregon House. 

“I didn’t anticipate businesses coming to the table and sharing that they’re neutral,” said Smith, as he ticked off reasons he appreciated the legislation, rather than explaining his opposition. “The notion that my food processors, and my electric cooperatives, and my grain processors have much higher level of comfort on this piece of legislation.”

Smith and the committee’s other Republicans agreed with Democrats that Oregon’s public schools need help. As members from both parties routinely point out, the committee visited 77 schools and logged hundreds of miles across the state, collecting anecdotes and data from teachers, students, parents and school administrators. They came away convinced that schools need help to address significant problems, from children entering school unprepared for kindergarten to mental health challenges in the stressful world of high school.

Rep. Diego Hernandez, D-Portland, said he came up through Oregon’s public schools in the years after public school funding was capped by property tax limitations, and went on to be a teacher and school board member. Hernandez was the first in his family to go to college. In an emotional statement, Hernandez said the additional funding could make a big difference.    

“I think we’re going to see, instead of like me being the only one out of my four siblings graduating, we’re going to see four out of four,” Hernandez said. 

As a tax measure, the bill requires a three-fifths vote to pass, meaning Democrats will likely need lawmakers like Smith to vote “yes.” 

And while OBI is officially staying out of the tax fight, Republican committee members are still concerned about the tax’s potential effect on businesses, particularly small ones. Rep. Cheri Helt, R-Bend, argued there was insufficient input from affected business owners and no helpful data on how small businesses would be affected by the proposed tax increase. 

“As an owner of two small businesses, I’m here to serve as a voice for them, and tell you that this bill would be devastating for small businesses in Oregon,” Helt said. 

Legislative fiscal staff shared projections that the business tax would collect as much as $1.6 billion in the next two-year budget cycle, but would only net $1.2 billion to the state. That’s because the bill also includes a 0.25% cut to personal income tax, to offset a likely increase in costs to Oregon consumers caused by the business tax. Projections for future biennia are higher.