At Tax Fairness Oregon, we “Read the Bills and Follow the Money,” working to promote a tax code and spending priorities that serve the common good.
Facing the projected huge budget deficit for the 2017-18 period, our approach during the 2017 legislative session had to be this:
- protect current education and social services,
- support reductions in spending and curtail tax giveaways,
- support a broader and more balanced revenue stream.
There was simply no money for new tax breaks and unfunded expenditures, even some we would otherwise have supported as serving the common good, such as encouraging low income parents to save for college, fully funding Outdoor School, and enhanced vocational training. Repeatedly, we used nearly the same “there’s no money.”
NO FREE MONEY
TFO proposed a bill designed to remove the existing financial incentive for companies – like Comcast – to appeal their large property tax bills. Six companies currently have $158 million in outstanding property taxes which they get to keep and use until their court cases are final. HB 2407, signed by Governor Kate Brown, requires up-front payment and puts the taxes into an escrow account while court cases proceed. Businesses will no longer get free use of the money for years.
INDUSTRIAL SITE READINESS
Another success: while we disagree with the premise of the Industrial Sites Readiness program which has taxpayers paying for the streets and sewers of new industrial business developments – we did successfully increase the integrity of the bill. The original version SB 333 removed all wage requirements for the jobs created at these sites.
We called foul on eliminating the wage requirements and got new ones added which require higher wages than the original requirement! The bill has been signed by the Governor.
SPECIAL SPENDING FOR WINE BUSINESS
Our work on SB 316, which would have given three million taxpayer dollars every two years to the flourishing wine industry for “research and promotion,” reduced it to a one-time gift of half a million. And reductions elsewhere in the budget effectively made this a one-time $250,000 allocation.
TAX HAVEN NO MORE
HB 2191 seeks to curb use of Oregon’s business registry program as a Tax Haven, a bill we wrote you about months ago, calling for Oregon’s end as a Cayman Island. Our business registry requirements are so low that hundreds of businesses were registering to one address. We don’t like that the provision to disclose the principal owners of a business was stripped from the bill. But this was a big step in the right direction.
THE RESEARCH AND DEVELOPMENT and THE FIRE INSURANCE TAX CREDITS DIED
Continuing the R&D tax break would have cost an estimated $15 million a year, and there is no evidence that it increases R&D work in the state. New companies can’t use it, since they generally aren’t profitable and therefore don’t pay taxes. Excellent testimony by John Calhoun helped kill this tax break along with the words of another businessman saying his business would do nothing different without it. TFO research by Rachel D’Sa on the Fire Insurance tax credit put that unnecessary tax break to rest saving an estimated $1.4 m a year.
THE NEW MARKET TAX CREDIT PROGRAM DID NOT RETURN
Though killed last session, the advocates who love this program because it lines their pockets while pretending to help the poor were challenged by TFO and Marcia Kelley of the Oregon Women’s Rights Coalition when they tried to re-start the NMTC program. Their “catch” this session was helping with low income housing. We argued – successfully — that there are far, far more efficient ways to do that.
LIMITING THE MORTGAGE INTEREST DEDUCTION TO LOWER AND MIDDLE INCOME HOMEOWNERS FAILED
We started the session with the hopes that mortgage interest deductions would be income-capped at the top, eliminated for second homes, and the money saved used to help first time homebuyers, those unable to stay in rentals, and the homeless. Despite a strong coalition and exceptional legislative effort, the idea disappeared in favor of the tenant protections bill, which also ended up failing. The realtors associations spent half a billion dollars working against the bill. But we’re not quitting – the coalition met this week to discuss plans to address the housing issue in future sessions.
THE TAX BREAK FOR BUSINESS OWNERS LIVES ON
Even HB 2060, a bill to end the crazy-making tax break left over from the failed 2013 “Grand Bargain” that gives “pass through” business owners a lower tax rate than the rest of us, failed. The last “dead” version of HB 2060 would have sent an extra $196 million to the General Fund, enough for two weeks of school.
THE GIGABIT TAX BREAK ALSO REMAINS ON THE BOOKS
HB 2770, the Gigabit Tax Break control bill, would have eliminated a tax break originally designed for extra-fast broadband services. These services are part of a mature business market and something that competitive services will need to provide regardless of tax incentives. TFO feels that Oregon should not try to interfere in basic market drivers. Unfortunately, this bill failed to leave committee in the waning days. It would have saved $30-$40 million.
THE CORPORATE TAX INCREASE BILL – aka “THE CAT,” FAILED
Of course, the biggest disappointment was failure of corporate tax reform. The CAT (Corporate Activities Tax) was the idea with the strongest chance of winning, but the votes weren’t there. TFO supports the basic concept of a broad source of revenue that will restore the taxes-paid balance between individuals and corporations in Oregon. This bill was complex and much of the negotiation was done behind closed doors, thus limiting TFO’s ability to directly comment.
We suggested back up plans in case the CAT’s gross receipts tax failed. Either changing the structure of the Corporate Minimum Tax or increasing business property taxes, could have brought significant revenue, but these measures were also lost in the unsuccessful CAT-fight to create a new revenue stream.
SEISMIC UPGRADES TO PRIVATELY OWNED BUILDINGS WILL BE AT PUBLIC COST
School kids and fire departments will lose funding so private property owners can get property tax breaks for making seismic upgrades to their buildings because the legislature passed SB 311. Of course, maintaining your properties is a normal responsibility for owners of commercial properties, but not if you can convince the legislature, Governor and local city leaders that the costs should be recovered through property tax exemptions.
THREE REVENUE INCREASES!
Last week the Governor signed SB 936, which increases property taxes for any big businesses (think data centers and wind farms) that get the preexisting property tax advantages of the Rural Strategic Investment Program (SIP). This is one of only three bills that passed this session that actually increase tax revenue.
The other revenue measures that passed are the Transportation Package and the Hospital and Insurers Providers Tax. The latter succeeded because hospitals realize that increases in funding for health care will both reduce the use of emergency services which are far more costly than preventative, non-emergency care, and bring in more Federal dollars, which is particularly needed in rural areas. This may be challenged by some members of the minority Party in a special election in January 2018.
UNFORTUNATELY and FORTUNATELY – SUNSETS AND OTHER FINAL ISSUES
The tax credits sunset/review process was established by the 2009 legislature. Most existing credits have a six-year sunset. Roughly one-third of the credits are reviewed during each long session. The process culminates in an omnibus tax credit extension/modifications bill (HB 2066) coming from the Joint Tax Credit Committee in the final hours of the session. The bill included nine different tax credit issues.
- Several tax credits will not continue, since they weren’t mentioned in the bill—including the fire insurance and research and development tax credits mentioned above.
- Extends the affordable housing lenders credit and increases the cap,
- Extends and modifies well the rural health provider credit WITH significant restrictions that limit its duration and focuses on lower revenue medical providers,
- Extends the fish screening and reservation enterprise zone credits and
- Modifies and caps the manure digester credit.
- Makes permanent the stipulation that no tax credits can be used to offset Oregon’s Corporate Minimum tax.
UNFORTUNATELY, several Not-So-Good changes were also made:
- Changes were made that reduce the pay requirements for five different business tax credits, at most of our 5-year and 15-year enterprise zones. While there is a nod to our recommendations – pay can’t be less than the county average pay when Oregon hands out tax breaks – the compensation requirement dropped from 150% to 130% – this is an issue we will continue to work on.
- Early in the session, someone masterminded getting the sunset for the film industry’s labor rebate program extended six years, and its value to the industry increased by $5 million a year – all without being part of the tax credit review process! HB 2244 absolutely should have been part of the full review process.
Also unfortunately, Legislators were convinced that public funds should be used to help farmers continue farming and pay for succession planning when passing on their estates. We objected to HB 3249 on the basis of fairness since other business sectors do not get this “perk.”
Transparency saw only so-so improvements in the 2017 session. The bill asking Business Oregon to report on how it will do a better job of evaluating and providing transparency about its supports for business got watered down as did a bill looking at the 500 exemptions from public disclosure in Oregon’s laws. But at least something passed, so there’s work to be done going forward on three transparency bills: HB 3377, HB 2101 and HB 2191.