Statement Issued: 2017-19 Budget will be Balanced by Patchwork, with Structural Revenue Reforms Needed for Future Biennia
Governor Kate Brown, Senate President Peter Courtney, and Speaker Tina Kotek released the following statement on June 22nd:
“For the past several months, the Legislature has worked hard to balance the state’s budget. There is now a clear path to rein in costs and protect vital services in this biennium. To protect access to health care and keep premiums lower, the Legislature has passed a package of bills that will save coverage for a million low-income Oregonians on the Oregon Health Plan. To reduce the cost of delivering state services, we have offered a plan to save nearly $1 billion in total funds through the Governor’s executive actions and the bipartisan cost-containment strategies in Senate Bill 1067.
While we are able to protect critical services for now, in the long run we must do more. For two decades, lawmakers have struggled to patch together budgets that fund the basic needs of our state amidst the ups and downs of the economy. As we have said since the start of session, the shortfall in the current two-year budget is a red flag – a sign that short-term fixes will not keep up with the priorities of our growing state for much longer.
Recognizing that imbalance, we have worked for months with legislators in both parties, business leaders, and labor leaders, to identify ways to reduce state spending, contain costs going forward, and finally reform our revenue system. While we are moving forward on several major cost containment measures, it has become clear that the Legislature will not have the necessary support to achieve structural revenue reforms this session.
Still, we have laid the groundwork for long-term reform to bring balance to our budget and tax system. As the Legislature closes out its business, we will also start planning the next steps to lead to success in the 2019 session. We appreciate the leaders who have come forward to provide meaningful input so far, and look forward to continuing that work. To achieve resolution for our state, all parties will need to stay at the table, focus on structural reform rather than short-term patches that merely shore up the next two-year budget, and be ready to compromise for the good of the state.”
The upshot is that the legislature is running out of time. The Constitution requires the session to end July 10th. The reference to structural reform is an acknowledgement that despite good economic conditions, there is insufficient revenue to cover all the state’s medium and long-term obligations.
The legislature has had enough successes to predict a balanced budget for the 2017-19 biennium. One of the most notable of these is funding the Oregon Health Plan by continuing an existing tax on large hospitals, extending it to other hospitals, OHSU, and certain health plans. Nearly all of these fees will come back to the hospitals either directly via federal payments or indirectly through avoided “charity care” costs for uninsured patients who are unable to pay out of pocket.
Support for K-12 funding has settled on $8.2 billion, higher than the amount initially proposed by the Governor and Way & Means Co-Chairs.
The legislature continues work on cost containment measures and a comprehensive transportation funding package. The transportation funding proposal is in virtually constant change, including bringing down the cost of the original proposal to address concerns of truckers, AAA, auto dealers, and fuel suppliers.
The statement above acknowledges that there are not sufficient votes this session to move business taxes to a commercial activities tax (CAT), which would constitute a dramatic change for Oregon. The CAT is akin to the Ohio system and the Washington State Business & Occupation Tax, which are based on gross receipts rather than profits, have very low tax rates applied to various sectors, are stable (unlike the corporate income tax that fluctuates significantly with economic conditions), and apply to all business enterprises but at such a high threshold that a recent proposal would not tax 92 percent of businesses. It seems that the CAT is too big of a change to be accepted in the length of a single session. What is more likely is an increase to rates of the existing corporate income tax system.
But as the statement indicates, work on the CAT will continue beyond this session with full support of the current leadership and the implied expectation of its eventual adoption.
Contributed by: Gil Riddell | AOC Policy Director