Post-Measure 97, three business leaders say they will pay for good public services.

Both sides on the Oregon budget debate need to start talking soon, was the message from the panel at Portland Business Alliance breakfast on Jan. 18.

The subject was how the Oregon Legislature might balance its budget when it convenes Feb. 1, given that Measure 97, the corporate sales tax, went down in flames in the November election.

The 2.5 percent increase in corporate minimum tax for sales over $25 million lost, with 59 percent opposed and 41 percent in favor.

And for once the elephants in the room were addressed head on: funding for PERS, Medicare and public education.

John Tapogna, economist and president of ECONorthwest, pointed out that Oregon's projected $1.7 billion deficit will be "certainly a challenge" to chip away at.

Tapogna said expenses are growing faster than revenues. "On the revenue side the general lottery fund is not growing as fast as it was. It is now growing at 8 percent, not the 13 percent when we were just coming out of recovery."

Personal income taxes are growing 5.5 percent but corporate income taxes are falling because of a decline in profitability due to a strong dollar and lower energy prices.

So, he sees 7 to 8 percent growth on the revenue side, but a projected 13 percent growth in expenditures. "The biggest cost in that bucket is the Department of Human Services, which includes healthcare," said Tapogna. He said they are projected to grow 30 percent adding that the baby boomers are starting to get into their 70s, which will mean growth in long term Medicare benefits. "And of course, the gift that keeps on giving is the ongoing increase in PERS rates."

Leaving some room for the idea that corporations could pay more tax, he added, "If we look at taxes per capita compared to other states we are below average. But the overall story is on the corporate tax, the charges from the proponents are pulled out of the accounting of Ernst & Young. And if you buy into that, it's largely because businesses don't pay sales tax on materials they use."

Duncan Wyse, president of the Oregon Business Council, which unveiled the Oregon Business Plan recently, said "for the next decade we'll have a structural deficit, and lose all the gains we've made in education." He said this would undermine the attempts to generate a "high income, high value economy, because education is critical (to that)."

His three steps are 1. Keep growing the economy, 2. Deal with the rate of growth of expenditure, especially Medicare, and 3. Look at revenues and make sure they are paying for services with fair outcomes, particularly education.

Tim Nesbitt, Oregonian Columnist and Public Policy Consultant, said it was achievable. "We've got more people working than ever before, state tax revenues are at record levels, and while growth is slow, inflation is low."

One of the two sticking points is the high cost of PERS. "Public employers are paying 18 percent of payroll to fund it, but it's about to go to about 30 percent of payroll."

Nesbitt said that half the workforce at the state and local level are in the third tier, but they're not the problem.

"If we're not able in this economy to reinvest revenue in a way to make life better for our kids for Oregonians, we're going to see an erosion of confidence in our government." That's the message he wants the elected officials to hear this winter.

Tapogna of ECONorthwest said that we will pay for PERS one way or another, and one way could be in crowded classrooms and reduced emergency services.

Although voters elected a governor (Brown) who supported Measure 97, 59 percent of them rejected Measure 97.

Wyse of the Oregon Business Council added, "I think the voters are distrustful of a blank check to the legislature...but Oregonians do care about having strong public services and a strong economy. How do you get that?"

He went on, "We need to keep repeating the connection between education and jobs. If we can create high quality jobs that require high skills and we import that talent, that's different than if we educate folks here for those jobs. That's what will really reduce the poverty levels in this state."

Tapogna said Measure 97 was one of the worst pieces of public policy he'd ever been asked to analyze. "The proponents didn't even begin to tell the story of what they would buy with that $6 billion. Thirty-four out of 36 states voted that we need more career technical education (Measure 98)."

Asked what they would say if they had two minutes to tell Oregon's top politicians what to do, they answered thus:

Nesbitt said they should convene superintendents and school board leaders, and ask what could they do with additional investment in high schools, given they have the third worst graduation rate in the country. (Oregon is 47th in high school graduation rates but 23rd in spending on education.) He is a proponent of Ninth Grade on Track which shows how failing ninth graders can be brought back on track to graduate high school. "Let's show a big improvement in ninth grade, it's one of the few measures of success that's achievable in one year."

Tapogna said, "A fair amount of the prep work is sitting in the senate," meaning there are good politicians in place. He cited Senator (Betsey) Johnson and Tim Knopp of Bend, who have done a lot of work on PERS options. "You also have senator Mark Hass, who has looked at a wide variety of revenue options more carefully thought through than Measure 97, and you've got Paul Warner in the legislative revenue office."

Wyse said, "I'd invite them to stay in the room for a long time. They've got to leave in June with a balanced budget. We have a special opportunity. We as a business community need to say to them, if you come with a plan we're going to engage with you."

By Joseph Gallivan

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