Tensions flared in the capitol this week as lawmakers raced against the clock to keep measures alive before the first major deadline of the session. Yesterday marked the first “chamber of origin” deadline, leaving any bill remaining in its original policy committee effectively dead. This thinning of the herd typically shifts the attention of the legislature to a narrow set of measures remaining for the session, but not this session, as three-quarters of the introduced bills remain in play.
Lawmakers advanced the cap-and-trade measure to the Ways & Means Committee, upping the ante on the politics for the session and, perhaps, increasing the likelihood of Republicans once again fleeing the building. During a radio interview with Lars Larson on Thursday, Senate Republican Leader Herman Baertschiger reaffirmed his caucus’ willingness to leave to prevent a floor vote on the measure. Meanwhile, Democratic leadership advanced several bills, including a gun storage requirement and ban on a widely used pesticide, as potential bargaining chips in the negotiation.
Taxes typically play an outsized role in these short sessions as politicians ready for the campaign cycle but these debates have largely stayed above the fray, focusing on technical and industry-specific issues. Behind the scenes, however, the politics of carbon and tax policy are converging and will become more apparent in the week ahead. The revenue committees are expected to consider an exemption to the new business tax on gross receipts for sales of carbon offset credits sold under the cap-and-trade program. The concept brings the weight of the cap-and-trade debate to an otherwise bridled policy space, opening the door for a new frontline in the negotiation.
State Economists Predict Rosy Revenue Outlook
“We have a consistent pattern of every time we come in front of you saying, ‘More money, more money, more money,'” state economists told a joint meeting of the legislative revenue committees on Wednesday. Oregon’s economy is beginning to see slower economic growth as a result of the slackening labor market, trade uncertainty, and risk associated with the potential coronavirus outbreak. Nevertheless, the state is expecting a rosy revenue outlook for the foreseeable future.
The economists are puzzled by the continued growth of the state income tax and its ability to persistently grow despite a slowing economy. Recent changes to state and federal tax laws are said to be the most significant factors playing into the outsized tax collections, but it remains unclear if the revenue changes are permanent or a momentary influx. The economists suggest the changes are more likely to be permanent the longer the trend holds.
Among the factors contributing to the upward revision in the revenue forecast is the federal tax on the repatriated earnings of multinational corporations. In 2018, Oregon lawmakers enacted a measure requiring businesses subject to the federal tax to pay a portion to the state. State economists initially relied on the revenue estimate from the legislature to build their forecast around these tax payments but actual collections have been significantly larger than anticipated, exceeding the $145 million estimate.
The strong revenue outlook marks the first time the state general fund will exceed $25 billion and lawmakers have been told there will be an additional $674.3 million to allocate or save as they work to rebalance the state budget for the remainder of the biennium. Lawmakers were quick to respond to the positive budget outlook. Democrats began outlining areas in need of critical investment, specifically naming housing, earthquake and wildfire preparedness. Meanwhile, Republicans decried the forecast as evidence of burgeoning taxes from the legislature on individuals and businesses.