Oregon Democrats hailed “a historic moment” Monday when the state Senate voted along party lines to approve billions of dollars in new business taxes, money earmarked for the state’s struggling education system.
The bill became law Thursday with Gov. Kate Brown’s signature but that doesn’t necessarily mean the tax will take effect as scheduled in January. Supporters and opponents of the tax agree it’s likely to end up before voters in a special election, probably at the beginning of next year.
Oregon voters rejected a similar gross receipts tax just three years ago when they voted down Measure 97. Opponents say they expect the same result this time.
“We strongly believe this tax can be beat at the ballot,” said Shaun Jillions, executive director of Oregon Manufacturers and Commerce, which is rallying an effort to put the tax before voters.
“The question really comes down to whether or not there are enough financial resources available to run the type of campaign we would need to run,” Jillions wrote in an email. “We’ve had some very positive conversations on that front over the last two weeks.”
While both this spring’s tax bill and Measure 97 levy taxes on businesses’ sales within Oregon, there are big differences between the two proposals. And that could produce a different reaction from voters:
· At $2 billion over each two-year budget cycle, House Bill 3427 is just a third the size of Measure 97.
· The business community, united in opposition to Measure 97, is split over the new tax. While manufacturers and some other groups are fiercely critical, Nike is strongly in favor of it and the state’s largest business organization has agreed to remain neutral.
· Critics of both Measure 97 and the new business tax note it will producing “pyramiding” effects as the tax piles up as products move through an industry’s supply chain. To partially offset that for consumers, lawmakers included a 0.25 percentage point reduction in personal income taxes in three of Oregon’s four tax brackets.
Most significantly, perhaps, lawmakers dedicated the new tax specifically to education instead of the state’s amorphous general fund.
“Out of the gate voters are going to think it’s a tax on businesses and it’s going to their No. 1 priority, education,” said John Horvick, director of political research at the Oregon polling firm DHM Research. His firm has worked with business organizations and education advocates in the past but anticipates supporters of the tax will hire DHM on this issue.
Measure 97 lost in a landslide, with nearly 60 percent of Oregon voters opposed. While Horvick declined to handicap the new tax’s chances at the ballot box, he said its differences from Measure 97 give it a better chance.
“Any observer would have to say that,” Horvick said.
Opponents need to collect nearly 75,000 signatures within 90 days after the end of the legislative session to put the tax to voters. Political observers consider that a relatively low bar and say it’s all but certain business interests will succeed in their signature gathering.
If opponents succeed, existing law would put the issue before voters in November 2020. And the tax wouldn’t take effect until voters have their say, instead of kicking in at the start of 2020 as scheduled.
However, capitol insiders say Democratic leadership is preparing a bill that would direct any referendum on the tax to a special election next January. It’s a similar strategy that Democratic lawmakers used in 2017 to avoid any delays with Ballot Measure 101, which attempted to block parts of another new tax.
A different gross receipts tax
Measure 97 was among the most heated fights in Oregon political history, with supporters and opponents spending more than $40 million on the campaign. Most of the campaign spending came from opponents, led by supermarket chains.
The new tax specifically exempts grocers, though, with additional exemptions that benefit health care providers and sales that take place outside the state. Last-minute negotiations created an allowance for businesses to deduct a portion of their capital spending or labor costs from their taxable sales.
Those exemptions took some major potential opponents out of the fight altogether, including Oregon Business & Industry, the state’s largest business association. Oregon’s largest company, Nike, has been a vocal advocate for more education spending and has already contributed $100,000 to a political action committee supportive of the tax hike.
That strikes opponents as extremely cynical, since Nike – which is based in Oregon but does nearly all its business outside the state – will be minimally impacted.
“Of course Nike supports this tax. They are hugely insulated from it,” said Julie Parrish, a former Republican state representative who remains among the state’s most outspoken and politically connected conservatives.
Parrish said she is hearing from other Oregon businesses and individuals who are committed to a fight. She said voters will note the legislature hasn’t done anything yet to address the state’s public pension crisis, which could consume most of the new tax in just a few years.
And Parrish said voters are frustrated that steady growth in school spending hasn’t closed the achievement gap between black and white students or meaningfully improved graduation rates.
“You’re just raising billions in taxes to preserve a status quo Oregonians aren’t happy with,” Parrish said.
But Jim Green, executive director of the Oregon School Boards Association, said the new tax has built-in accountability measures to ensure school districts spend the money effectively. Green said he expects voters will respond to this tax differently than they did to Measure 97, which would have dumped tax money into the state’s general fund without any strings attached.
“The difference is this one is dedicated” to schools, Green said. “It’s a lot different than Measure 97 in that respect.”