What’s Happening (OSCC Political Observations)
We now have roughly five weeks left in the 2021 legislative session. The big news this past week was the release of the “End of Session” revenue forecast. The key takeaway is that there is no evidence that state budgets have been significantly impacted by the pandemic and economic shutdown. The avalanche of federal spending effectively propped up the state economy and flooded the state with revenues.
With state revenues up by an additional $2 billion, the legislature will have more than enough money to cover agency budget requests and policy bills that require funding. This is a blessing and a curse, as it all but extinguishes any desire for tax increases this session but may also lead to policy bills that would have otherwise died under the weight their projected costs now advancing due to plentiful revenues.
The state revenue projections for the current biennium came in $1.087 billion higher than what economists projected in March. In addition, they projected that the state will receive an additional $1.014 billion for the 2021-23 biennium. Lottery projections are also up by just over $100 million in new lottery funding. All told, this translates into $2.2 billion more for legislators to potentially spend on the upcoming 2021-23 biennium. This is in addition to federal money from the American Rescue Plan Act.
Finally, the state is also projecting a $1.4 billion “kicker” or rebate to personal income taxpayers if the current revenue figures hold up.
Over the next five weeks, budget writers will turn their attention to finalizing the state budgets. We anticipate budget bills to move relatively quickly, and with the influx of revenue, budgets should look pretty healthy. The key for budget writers now is to not overspend and create unsustainable budgets that require more taxes in the future.
A rundown on some key issues affecting local business communities…
Paid Family Leave Delayed Implementation (HB 3398)
The Oregon Employment Department found itself again facing criticism last week as lawmakers held their first public hearing on a bill to delay implementation of the state’s paid family leave program. The department is supposed to begin collecting the tax to fund the program beginning in January 2022, with employees receiving benefits in 2023. However, the Employment Department is nowhere near ready to collect the tax nor distribute the benefits, which led the agency to request a delay in the implementation dates.
Under HB 3398, the new tax would be delayed for one year - until January 2023 - with benefits being paid out later that fall.
Though a delay in the tax would be a welcome reprieve for employers, lawmakers spared no criticisms of the agency during Thursday’s hearing. Despite the tone of the hearing, HB 3398 is still expected to move forward before the end of this year’s session.
Unemployment Insurance Tax Reduction (HB 3389)
Last week we indicated that this important bill was slated for passage. We still believe this to be true.
OSCC testified in favor of this important bill and urged lawmakers to pass it as soon as possible.
HB 3389 allows employers to defer payment (without penalties or interest) until June 30, 2022, of up to one-third of tax owed in 2021 if their tax rate increased by at least 0.5 percentage points between 2020 and 2021. The bill also provides a formula for employers to have a percentage of their tax bill forgiven depending on the rate of increase they experienced (see below).
But perhaps most importantly, the bill attempts to hold employers most impacted by the pandemic harmless from future increases by excluding layoffs that took place during the pandemic when calculating an employer’s experience rating.
100% Clean Energy Mandate (HB 2021)
OSCC remains skeptical of this legislation as it effectively aims to eliminate natural gas as a generating resource for electricity in Oregon. Our concern for the bill is ultimately the reliability issues we’ve witnessed in California with rolling brownouts and blackouts due to lack of available electricity supply in peak times.
The House Revenue Committee adopted the -A52 amendment to HB 2021 before advancing the bill to the Ways and Means Committee on Thursday. The bill remains largely unchanged with the new amendments, with OSCC and allied associations remaining concerned about the impact of the cost and reliability of electricity under the new program.
Stimulus Check Tax Relief (HB 2433)
Despite public commitments to advance legislation that would offset the taxes associated with stimulus checks, lawmakers have so far failed to act. OSCC strongly endorses this policy and believes Oregonians should not be taxed on these payments.
HB 2433, the most likely vehicle for advancing this policy, was sent to the Tax Expenditures Committee on Monday without the adoption of an amendment containing the tax relief. It remains unclear if lawmakers will stick to their earlier commitments on this issue. OSCC will continue to track this bill – alongside its companion bill in the Senate, SB 842 - due to the likelihood it could become a hostage in the waning days of the session.