Voracious PERS appetite to swallow revenue from any taxes passed this year
State Director Anthony Smith reports from Salem on the small-business agenda up to April 11
It’s now Day 80 of the 160-day Oregon Legislative Session, which means we are officially half-way to Sine Die. Quick takes:
- Business Taxes Back in the Spotlight: The Joint Committee on Student Success is rolling out its $1 billion per year tax-and-spending plan. The revenue component of the measure is a new business tax based on gross Oregon sales.
- Paid Family Leave Update: Several of the worst paid family and medical leave bills died in committee this week when they failed to move forward before the April 9 first chamber deadline, but one bill remains – House Bill 2005.
- State Budget/PERS: Gov. Kate Brown is likely to soon release her plan to deal with the fact that any new taxes passed by the Legislature this year would soon be eaten up by the state’s growing public pension debt.
Massive Tax Proposal Taking Shape
The Joint Committee on Student Success rolled out the first draft of a bill on April 9 that would direct $1 billion per year in new education spending. Then, two days later, the committee (accidentally?) rolled out the work-product of the Subcommittee on Revenue when it released an amendment that lays out the new $1 billion-per-year Corporate Activities Tax. The amendment was originally posted to OLIS, but was pulled about an hour later. NFIB managed to download it while it was available. Click here to read it.
The tax revenue component of the proposal appears to be what was originally dubbed a “modified commercial activities tax,” which is a gross receipts tax – with some exclusions and deductions. The Oregonian/OregonLive first reported on a “hybrid” approach last week. Some of the details being considered include a reduction in three of the four personal income tax rates, an exclusion for transportation fuels (which constitutionally must go to the state’s highway trust fund), an exclusion for “groceries”, and an exclusion for medical providers who are already subject to the taxes passed in HB 2010 earlier this year.
The “hybrid” part of the plan comes from the deductions: 25 percent of either a business entity’s business inputs (purchases from other businesses) or its labor costs. The tax rate is 0.49 percent – and would apply to a company’s Oregon sales above $1 million, regardless of whether the business is structured as a C corp, S corp, LLC, partnership or sole proprietorship. The state’s corporate income tax would remain unchanged, and it’s still unclear what will happen to the Small Business Tax Cut – the reduced tax rates for pass-through entities.
Paid Family & Medical Leave Still Alive
There was no shortage of bills introduced this year to create a new paid family and medical leave program in Oregon. Nearly all of them died April 9 with the passing of the Legislature’s first chamber deadline, but one of them survived – House Bill 2005 is alive and well.
HB 2005 is very similar to HB 3031, the bill that NFIB members opposed in dramatic fashion. Our members sent hundreds of emails to their lawmakers expressing their opposition to this bill, and 62 members submitted written testimony to the committee describing the challenges small businesses would face under such a program.
The key differences between the two proposals are that HB 3031 provided up to 38 weeks of paid leave while HB 2005 provides up to 26 weeks. HB 2005 also includes a section on “employer assistance,” which would create a new grant program for small businesses with fewer than 25 employees.
However, these subtle changes hardly amount to a compromise, as they do little to address the concerns that NFIB raised in a public hearing on this issue March 25: how the program is funded (the 50/50 employer/employee payroll tax) and how small businesses are going to find replacement workers that are willing to work on a temporary basis – with little chance they will keep their jobs when the employee on leave returns, which would be a new requirement under Oregon law.
State Budget & Public Pensions
In a time of record tax revenues, Oregon’s state budget is still under significant strain. Rising state health care spending and public pension debt have resulted in difficulties maintaining “current service levels” for many of the state’s key services, including schools.
The Oregonian/OregonLive’s Ted Sickinger wrote an in-depth article this week about the budget challenges facing the Legislature and Gov. Kate Brown if they are looking to protect schools from the rising cost of their Public Employees Retirement System (PERS) obligations.
Simply put, most of the governor’s proposals are not likely to infuse enough cash into the system to shield schools from higher PERS payments. Raiding SAIF’s reserves, signing a bill recently to claw-back $108 million from the 2020 kicker, and other schemes are not long-term PERS reforms.
Ironically, it’s another Oregon governor, and a former state senator, talking about actual solutions. Gov. Ted Kulongoski and Sen. Chris Telfer have joined with business groups to propose ballot measures for the 2020 general election. Oregon Capital Bureau’s Claire Withycombe has the full story on this here.
Previous Reports from the State Capitol
