Some pieces of the puzzle to generate an extra $1 billion per year in business taxes to spend on K-12 education are starting to come together in Salem.

And, somewhat to our surprise, the proposal might be going hand in hand with some serious thoughts from Gov. Kate Brown about reforming the state's underfunded public-pension system.

A legislative subcommittee, chaired by Sen. Mark Hass, D-Beaverton, and Rep. Nancy Nathanson, D-Eugene, has been laboring since the start of the session to find ways to raise $2 billion per two-year budget cycle to invest in K-12 schools. Late last week, details of the plan were officially released: It's a so-called "hybrid" gross receipts tax based on a system used in Texas. Unlike a straight gross receipts tax, the proposal would allow Oregon businesses to deduct 25 percent of their cost of labor or purchases from other businesses, whichever is larger.

The proposal includes tax cuts for low- to middle-income wage earners, in an attempt to offset costs that businesses would be able to pass on to consumers.

The tax would not apply to groceries. (An earlier attempt to impose a gross receipts tax on businesses, Measure 97, would have included groceries; lawmakers clearly learned something from the vote against that initiative.)

Only businesses with at least $1 million in sales would have to pay the tax, which would be equal to 0.49 percent of their sales plus $250. Hass told The Oregonian newspaper that the tax would likely be paid only by roughly 40,000 businesses out of 460,000 total businesses in Oregon, including sole proprietorships. Gas would be exempt from the tax; under the state constitution, gas taxes can only be spent on transportation. Agricultural businesses would not have to pay the tax on sales to wholesalers and agricultural cooperatives, if the buyers certified the products were going to be exported. 

Hospital and nursing homes would be exempted from the tax; both are subject to temporary taxes that the state uses to help pay for the Oregon Health Plan, the state's version of Medicaid. Hospitals agreed to an extension of these taxes through 2026 earlier in this session, but as part of that deal wanted to avoid the gross receipts tax.

The proposal, which will be the subject of lively debate, has been crafted to minimize opposition from businesses. But at least one prominent Oregon business group has argued it makes little sense to raise taxes without some kind of substantial reform to the state's Public Employees Retirement System; without that reform, the argument goes, rising PERS premiums will quickly eat away that additional revenue.

In fact, a business-funded group, Oregon PERS Solutions, is working on a pair of proposed ballot initiatives to reduce future retirement benefits for current and new public employees starting in 2021. (The state's 145,000 current retirees in PERS wouldn't be affected.) 

Brown's PERS proposals possibly were crafted at least in partial response to Oregon PERS Solutions. Her proposals include, most notably, asking public employees to share in the cost of funding their own pensions — a proposal which immediately drew protests from the Oregon Education Association, one of the governor's most reliable supporters. Brown's plan also would create a dedicated fund, started with $800 million in one-time money, to help pay down the PERS debt of Oregon's K-12 school districts.

Some parts of Brown's plans are troublesome — particularly, tapping into the surplus of the SAIF Corp., the state-owned workers' compensation company, to help pay for that dedicated fund. And the plan's focus on K-12 schools could leave other state entities in the lurch.

But Brown's proposal is a display of leadership from the governor that we haven't seen before. They give the Democrat-dominated Legislature something solid to chew on. And it could put yet another piece of the puzzle into place for legislators. (mm)

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