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Oregon heads for ballot brawl over tax increase

Government — Compromise in Legislature unlikely on gross receipts tax measure

By Pamplin Media Group and Newberg Graphic staff

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, it appears Brown will remain on the sidelines when it comes to an initiative aimed for the November ballot that is arousing just as much opposition: a 2.5 percent receipts tax on corporations that could raise as much as $2.6 billion per biennium.PAMPLIN MEDIA GROUP FILE - Impact - Opponents of Initiative Petition 28, a measure that would impose a gross receipts tax on several of Oregon's biggest businesses, say that its passage would hurt both business as well as Oregon consumers.

Aside from some Democratic senators, no one else has yet to propose 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.

“The 2.5 percent is a brilliant political move to corner out-of-state corporations, especially with the Sanders and Trump movements pounding the corporate oligarchy,” said state Sen. Brian Boquist, who represents District 12, which reaches from south of Corvallis to Hillsboro and includes Dundee and McMinnville, but not Newberg. “On the opposition side the fact is more than half those impacted are regulated by (federal agencies), so in the end held harmless.”

“The sales pitch on IP 28 is that it will go after 'out of state corporations, not paying their fair share,' when in fact it is on any corporation that grosses $25 million or more, which means just about any large business in Oregon,” said District 25 state Rep. Bill Post, who represents Newberg.

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 lawmaker who leads the group spearheading the initiative, Our Oregon. “I would rather help people than avoid disagreeing.”

Huge boost to the state budget

Initiative Petition 28 focuses taxes on the gross receipts of corporations with $25 million or more in Oregon sales. It would generate $5.2 billion in Oregon’s next two-year budget period. That money, which would be earmarked to boost education and health spending, would increase the state’s $18 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 are predicting the opposition campaign alone will spend $15 million to $20 million — a state record.

Of course, not everyone is confident all the money raised will go toward schools.

“The notion when passed (that) the $5.2 billion will all go to K-12 schools is total bulls—!,” Boquist said. “K-12 might get a billion of it. (Department of Human Services) is 500 million in the hole. (Oregon Health Authority) is 1.5 billion in the hole. (Oregon Department of Transportation) is 400 million in the hole. (Oregon Department of Fish and Wildlife) is 100 million in the hole and then a `plus-up’ needs to go to PERS in order to get the other union support, and help hold PERS rates down.”

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 say the increase will result in higher prices for consumers and local companies.

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.

“The poll numbers widely favor passage of IP 28,” Boquist said. “Then on (other) issues polled, oddly, the opposition to corporations is No. 1 and saving the environment generally No. 2 and education in the top five. So an out-of-state corporation that rapes the environment is the poster child for the yes on IP 28 media campaign.”

Post characterized IP 28 as a “hidden” sales tax that is also regressive. He explained his rationale in an email Friday: “IP 28 would impose a 2.5 percent tax on gross receipts, not net. … In the case of a particular car dealer in the Salem area, he grosses about $92 million a year yet his profit margin is just over 1 percent. Do the math, he will be in the negative.  Now he’s a nice guy but he’s not going to go broke, so he will be faced with either moving to another state (perhaps Vancouver, Wash.) or (he) raises the prices on his vehicles.” 

Kitzhaber effort failed

The initiative has its roots in a push by former Gov. John Kitzhaber to tackle the belief by some that the money flowing into state government has not kept up with demands for government services. After his return to office in 2011, Kitzhaber 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.

“We really worked hard to find something that everyone could agree to,” recalls former Kitzhaber chief of staff Curtis Robinhold. “In the end we didn’t find new revenue options that everyone could agree to or that we thought would pass muster with the voters.”

Kitzhaber always planned to seek out other alternatives in his final term, participants and former aides agree. That effort ended when the governor resigned amid controversy over the appearance that his fiancee, Cylvia Hayes, profited personally from her role in his office.

In January 2015, Our Oregon group filed its petition for the tax increase. The measure likely wouldn’t have had the governor’s support because of his belief in avoiding large-scale ballot warfare, participants in the talks said.

Unions may not be in compromising mood

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

Heather Conroy, executive director of Service Employees International Union Local 503, commented that 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,” she said.

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) 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 said 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 ...,” he said. “I think there’s just a collective ‘No way.’”

Deckert, 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 the former Democratic state senator.

Duncan Wyse of the Oregon Business Council could be resigned to a brawl.

“We’re not negotiating with the unions on this proposal,” he said. “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.”

Although 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.

“Sen. Hass and I have worked together on revenue neutral tax reform for the past year,” Boquist said. “The goal is to develop a stable neutral system then determine afterward if a revenue increase is necessary. Given the dismal failure of the Joint Ways & Means process, the common legislator has no answer as to why any of the … agencies are near bankrupt."

“I am very much opposed to any new taxes as the businesses and citizenry of Oregon are already taxed at a much higher rate than most other states,” Post said. “I would much rather see a more transparent use of the money our state budget has.”