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Oregon heads for ballot brawl over tax increase

Despite tradition of compromise, rivals say deal is unlikely

TIMES FILE PHOTO - Oregon Governor Kate Brown has thus far tried to stay neutral in what may be a coming political battle over a gross receipts tax hike known as Initiative Petition 28. When a proposed statewide $15-an-hour minimum wage measure gave businesses heartburn, Gov. Kate Brown intervened to float a compromise plan earlier this month.

In contrast, Brown has stayed squarely on the sidelines when it comes to an initiative aimed for the November ballot that is arousing just as much opposition: a $2.6 billion annual tax increase on many large corporations.

Aside from some Democratic senators, nobody is proposing an alternative — including the business community that would be affected.

That might seem surprising in light of Oregon’s long history of compromise and alternative measures to defuse impending ballot warfare.

So why is Oregon headed for a serious political rumble?

Some say there’s scant incentive for supporters to consider common ground, thanks in part to an expected federal court ruling that could drastically reduce the clout of public employee unions in future election cycles. The sponsors of the measure say they’re done compromising on tax measures as they did under former Gov. John Kitzhaber.

“I think the coalition that’s behind the measure is saying we don’t want to just have peace, we want to make people’s lives better,” said Ben Unger, the former Hillsboro lawmaker who leads the group spearheading the initiative, Our Oregon. “I would rather help people than avoid disagreeing.”

Huge budget boost

Initiative Petition 28 focuses new taxes on a swath of corporations with $25 million or more in Oregon sales. The tax is not on profits, but on gross receipts. It would generate $5.2 billion in Oregon’s next two-year budget period. That money, which is supposed to boost education and health spending, will increase the state’s $18.5 billion general fund by nearly a third.

The money raised would be seven times the amount raised by the corporate tax measures that spawned a bruising labor-business fight in 2010. Observers already are predicting the opposition campaign alone will spend $15 million to $20 million — a staggering, record-shattering sum.

Supporters already are airing out their arguments that Oregon schools and other services desperately need funding, and that out-of-state companies will bear the brunt of the hike. Opponents, however, say the increase will result in higher prices for consumers and local companies, too.

Senate President Peter Courtney, D-Salem, has called for a compromise, predicting the initiative will spark a political bloodbath with lasting negative effects on the state. And Sen. Mark Hass, D-Beaverton, has sought to build momentum behind the idea of an alternative measure, introducing a bill Monday that would cut income taxes for many low- and middle-income Oregonians and levy a new gross receipts tax on all corporations.

However, so far there’s little evidence that other political players have been persuaded. And past compromise revenue efforts have not panned out.

Local politicians weigh in

State Sen. Betsy Johnson (D-Scappoose), who represents Banks and Gaston, said more needs to be done. “I think it is incumbent on the entire Legislature to avail ourselves of every opportunity to seek middle ground,” Johnson said.

But, she added, with a “looming election season, I think that middle ground is harder and harder to find.”

State Rep. Susan McLain, who represents Forest Grove and west Hillsboro, said she wasn’t surprised the initiative wouldn’t be taken up in the short session and that she’s spoken with several groups of business owners who appeared lukewarm on the subject.

“They don’t believe [the initiative] is the best or most fair way to achieve the goal,” said McLain. “I’d like to see [the conversation] spread out over months or years.”

“It’s definitely something we need to work on,” state Sen. Chuck Riley said of the petition. The senator, who represents Forest Grove and west Hillsboro, added he hadn’t yet perused the agenda for the short session. TIMES FILE PHOTO - Opponents of Initiative Petition 28, a measure that would impose a gross receipts tax on several of Oregons biggest businesses, say that its passage would hurt both business as well as Oregon consumers.

Johnson also worried about the petition’s potential impact on the state economy.

“When does the burden become so much that companies make the strategic decision that it is no longer friendly to do business in Oregon? Those are all elements that policymakers like me will have to take into consideration.”

She said she was surprised the topic wouldn’t be addressed during the short session: “This is one of the big issues that affects Oregon. I don’t know if it can be addressed in the short session. I don’t know who is offering the leadership to talk about this gross receipts tax, but I think the gross receipts tax could have economic ramificiations well into the future.”

Johnson also said she fears the tax could have a “significant chill on the business environment in the state and the very real possibility that

some of Oregon’s flagship companies ... will actually leave the state.”

Kitzhaber effort failed

The initiative has its roots in a Kitzhaber-led push to tackle the belief, widespread in Salem, that the money flowing into state government has not kept up with demands for government services. After his return to office in 2011, he sought to forge a compromise between business and labor, involving talks, polling and focus groups in Eugene and Bend. Those efforts were put on hold when all sides concluded the hoped-for sales tax measure wasn’t the answer.

Kitzhaber always planned to seek out other alternatives in his final term, participants and former aides agree. That

never happened, thanks to escalating controversy over the appearance that his fiancee, Cylvia Hayes, profited personally from her role in his office.

In January 2015, as Kitzhaber struggled to cope with the situation, the union-backed Our Oregon group filed its petition for the tax increase. They measure likely wouldn’t have had the governor’s support because of his belief in avoiding large-scale ballot warfare, participants in the talks say.

Weeks later, that became less of an issue for the public employee unions backing the measure, when Kitzhaber resigned.

Unions not in compromising mood

Meanwhile, a ruling by the U.S. Supreme Court that is expected this summer could hamper those unions’ ability to raise political funds in the future, potentially adding to the urgency behind the measure, several Democrats say privately.

Heather Conroy, executive director of Service Employees International Union Local 503, said the urgency is primarily because years of talks have gone nowhere. “We really just cannot wait any longer to put forward a solution. ... We need to see change.”

Brown, who’s running for re-election and is expected to receive strong union support, has not taken a position on whether the initiative makes sense. “It’s a complicated issue, and she’s consulting with stakeholders, and she has not reached a conclusion about it herself,” said spokeswoman Kristen Grainger. “There’s definitely still time to consider the measure and what’s going to happen.”

House Speaker Tina Kotek, D-Portland, who generally leans in support of the measure, said she hadn’t heard of alternatives from the business community, and added that a much smaller measure probably would not be enough to make Initiative Petition 28 go away.

“We have a revenue problem in this state,” Kotek said. While the measure is not perfect, she said, “it would solve our revenue problem.”

Oregon Business Association head Ryan Deckert says the magnitude of the tax increase has businesses focused on beating the measure, rather than modifying it. “It kind of focuses the mind, job one is to defeat that. ... I think there’s just a collective ‘No way.’”

He, like initiative supporter Unger, expressed confidence over who will win.

“We think that when consumers and citizens in Oregon see how this will affect them, they will react negatively,” said Deckert, a former Democratic state senator.

Duncan Wyse of the Oregon Business Council sounded resigned to a brawl. “We’re not negotiating with the unions on this proposal. ... If they want to take the proposal off the table and have a conversation, fine, but they haven’t done that. They’re very committed, as I understand it, to put it on the ballot.”

Though efforts by Hass and others did not lead to a serious push for the February legislation session, an April special session is still possible if a compromise is within reach.