The legislative session: defeats, modest wins and one total victory
It is hyperbole for an interest group to claim it achieved a particular legislative outcome. Many ingredients go into Salem Sausage over a six-month session. Tax Fairness Oregon sent 11 members to speak at 70 committee hearings and held hundreds of meetings with legislators and staff. Our often-lonely voice against bad bills perhaps gave a committee chair the backbone to say no to colleagues. And we drove one bill from its introduction to the governor.
We had four priorities going into the 2023 session:
- Minimize a resurrected research and development tax credit, which the business lobby began pushing for a year ago
- Reform Enterprise Zones and the Strategic Investment Program (SIP), which authorize localities to reduce property taxes for businesses
- Disconnect from the 2017 federal Opportunity Zones provision, which gives investors and landowners tax benefits
- Eliminate the tax credit auctions that fund a slice of Opportunity Grants for low-income college students
How’d we do?
The R&D credit was resurrected, but not as generously or broadly as the business lobby wanted.
Early in the session, former House Revenue Chair Phil Barnhart told Senate Finance Committee Chair Mark Meek why the R&D had been allowed to sunset in 2017. TFO followed Barnhart with testimony to its ineffectiveness at the state and federal level. Demonstrating that we don’t have a vote, the next day Meek championed a robust R&D in another committee stacked with industry supporters. It was an indication of how the session would go.
In a later Finance hearing and in meetings with scores of legislators, we submitted evidence that states’ R&D subsidies have no correlation with semiconductor research. Legislators pushed it anyway, ignoring Biden administration guidance warning states that handouts to companies would not boost their applications for federal subsidies.
After debate that ran through four committees until the last week of the session, the R&D provision, in HB 2009, installs a credit costing perhaps $25 million in the next biennium (and more than twice as much in those following). But only semiconductor research is eligible. The state will pay companies up to $4 million, at 15 cents per dollar of qualified expenditures (which also are deductible). Proposals for a more generous subsidy were dismissed, apparently at the insistence of House Revenue Chair Nancy Nathanson. The provision is a waste, but considering the drumbeat to give away more, it could have been worse.
The Oregonian has spent a year documenting abuses of the Enterprise Zones program: secret deals between county governments and corporate beneficiaries and the absurdity of giving tax breaks for Amazon and UPS warehouses (which must be near their customers) and data centers in Washington County (which consume scarce industrial land but provide little employment). We have long criticized the legislature for allowing counties to give away property-tax funding for schools, only to be reimbursed by the state and thereby drain school budgets statewide. The education unions brought political heft to our argument, even as many lawmakers backed their counties and the businesses that suck at the government teat.
Nathanson and Revenue Republican Greg Smith devised reforms, among them slashing the “Gain Share” subsidy, under which the state compensates localities for property tax abatements they give to business. Washington County gets more than 90% of state Gain Share payments, and many county reps in Salem defend it like Patrick Henry defends liberty. The payments survived unchanged in the give-and-take in the Joint Committee on Tax Expenditures.
HB 2009, bound for the governor, is a modest success. It eliminates tax breaks for warehouses but not urban data centers. It establishes a fee Enterprise Zone businesses must pay to compensate some losses to K-12. Under the three-decade-old SIP, required minimum property tax payments are indexed for inflation. The bill requires measured public disclosure of pending tax abatements. Overall, it resolved a vociferous debate between reformers (including TFO) and cheerleaders for the business lobby. The tally in Joint Tax reflected the balance, as both liberal Senator Jeff Golden and conservative Rep. Bobby Levy voted no.
Our bitter loss was the legislature’s failure, as in 2020, to disconnect from Opportunity Zones. We had gathered cosponsors for HB 3039, testified in House Revenue and Joint Tax, and gone head to head with the business lobby while our allies were mostly engaged elsewhere. We were excited when the disconnect—effectively requiring investors to pay taxes on O Zone profits just like any other capital gains—was included in HB 2009 as introduced by Nathanson and Speaker Dan Rayfield. Their intention was that the investor class pony up a little for all the generosity otherwise bestowed. But in the backroom, the advocates for the rich said no.
Speaking of the rich, Meek held a half-dozen hearings on bills to reduce the estate tax. The worst of them was SB 498, an idea hatched by Rep. Kevin Mannix to open a loophole for hobby farmers—people who diversify their portfolios with “natural resource property” (a tax carveout for small farms, fishing firms and timber owners)—to exclude part of their holdings from the estate tax. The bill went through multiple permutations as Meek worked with Republicans, settling on one that allows billionaires to exclude up to $15 million from the estate tax.
Republicans and the business lobby claimed the bill would save family farms—which are protected under a 2007 law TFO helped fashion. The Oregonian twice misstated current law and the bill as helpful to family farms. Meek’s bill appeared to have been part of the deal Democrats cut to get Senate Republicans to call off their six-week walkout. We spent two days in Salem during the final fortnight lobbying against it, with some effect. SB 498A split the Democratic caucuses: 9 of 17 senators and 20 of 34 representatives present—including Nathanson—voted against it on the floors. We have asked the governor to veto the bill.
TFO had one unalloyed victory that would not have happened had we not identified the inefficiency of tax credit auctions providing some of the funding for Opportunity Grants. We found that the auctions had cost students $3.8 million in grants over the past four years, the money instead going into the pockets of in-the-know taxpayers who bought the tax credits. It made no sense for the state to use a wasteful financing mechanism rather than appropriate all the money out of the budget like any other program.
Under current law, another round of auctions was scheduled for December. We sought amendment to a routine bill, SB 129, that would have extended the auctions for six years, instead ending them immediately. At the same time, we lobbied the Ways and Means Committee for months to increase funding to make up for the auctions. (It did, from $200 million to $300 million).
The amended bill unanimously passed Chair Michael Dembrow’s Education Committee in March and Joint Tax in June. In the final week, the Senate approved it 25-0, the House 45-7. The seven nays came from Republicans. Perhaps US Bank had whispered in their ears: Department of Revenue records, which were released to us after we appealed DOR’s refusal to disclose to the attorney general, showed the bank had profited $1.29 million over two years by buying tax credits.
Committees heard dozens of other bills. Most of the time we said: This is dumb, and it died or was amended. Occasionally we said: Sounds okay, and it passed. Sometimes we said: This is outrageous, and it was sent to the governor. But our points were acknowledged.
As when we opposed motherhood and apple pie in a Senate Finance hearing on SB 540. The bill would exempt $17,500 in military pensions from income tax for individuals younger than 63. Advocates said the bill, which would cut taxes by up to $1700 ($17,500 multiplied by the top marginal income tax rate), would spur new retirees with in-demand skills to move to Oregon. We said: For those already living here, isn’t it just a gift? Who’s going to disrupt their family and move to Oregon for an obscure tax benefit worth maybe $1700? What revenue would then pay for the services those residents require?
It’s dangerous to cross words with Patriots. Upon finishing our testimony, Chair Meek contended that a room full of veterans “would be very insulted by what you just said.” We’re used to it. Few others advocate a rational and equitable tax code.
The committee sat on the bill for three months, then passed it three days before sine die. The next day, we told leaders of the conflict between SB 540 and a provision the Ways and Means Committee approved: $220,000 to study veterans retirement taxation. The study money went through; SB 540 died.