Governor Robert D. Holmes' Administration

Governor's Special Session Message, 1957


Mr. President, Mr. Speaker, Members of the Assembly:

You are here, because under the authority vested in me as Oregon’s chief executive, and on the considered advice of your legislative leaders, the Chairman of the State Tax commission, and the Director of Finance and Administration, I have called a special session of the legislature to enact legislation that will give both income and property taxpayers of our state some relief, in light of the surplus the state will enjoy at the end of the present fiscal period.

Two bills have been prepared for you consideration. One puts into effect a cut of ten percent on personal income taxes for this year and next year. The other provides for a ten dollar per census child increase in basic school support.

Before I explain briefly the thinking that resulted in the two proposals contained in the bills, I wish to put the record straight.

Your governor had exactly the same information regarding Oregon’s tax situation that you had as legislators during the regular 1957 legislative session. This information was furnished by the State Tax Commission which, over the months between the day the former Governor’s budget was prepared and the period just preceding adjournment of the regular legislative session, revised the estimates form time to time.

I had no special or private knowledge that the surplus would exceed the several estimates made, though I shared with many of you the general suspicion --- based on long legislative experience --- that the surplus would exceed by a considerable amount the largest estimates given all of us. I refused during the legislative session and after it to indulge in the surplus guessing game.

Mistrusting guesses, even intelligent ones, I invited the State Tax Commission which I had reorganized by the appointment of a new tax commissioner who is now the Chairman, to make and immediate and through investigation of the surplus situation, and I likewise asked the commission to take the unprecedented step of consulting with the experts available to the state in the Department of Finance and Administration.

The Tax Commission accepted the invitation and at once established direct and cooperative working relationships with the Department of Finance.

I announced this to the public, and I stated publicly that when the facts were forthcoming I would immediately inform the citizens of Oregon on the fiscal position of the state. I also stated on the record that if the surplus were substantial, I would seriously consider calling a special session of the legislature for the purpose for which I did ultimately call it.

When the Tax Commission advised me that the surplus would be considerably larger than any amount heretofore projected, I immediately called the President of the Senate, the Speaker of the House, the Chairmen of the Senate and House Tax Committees, the Cochairmen of the Joint Ways and Means Committee, the Director of the Department of Finance and Administration, and the Chairman of the Tax Commission into conference.

“Gentlemen”, I said to the legislators, “you are the elected leaders of the legislative assembly. It is now clear that an error has been made in the estimates made of how much money our tax program will produce during the coming biennium. I am advised that at the end of June 1958, we will have a surplus of some 69 million dollars.

“The question of fixing blame for errors in estimates of our fiscal position in past years is not important. We are faced with the situation as it is. You are the leaders who met the necessity to balance the most realistic budget you could produce consistent with the programs necessary for the general welfare of the people of Oregon with a tax program that would raise the necessary money. In view of the new appraisal of our fiscal position, how much do you feel we could safely reduce the tax load without endangering the state’s long-range needs?”

It was the consensus of your elected legislative leaders that we could do two things:

1. Reduce the income tax load by six millions dollars a year.

2. Increase the basic school support fund by ten dollars per census child, and thus, to a degree, offer property tax relief.

These two proposals were agreed upon only after the most searching discussion; for neither you legislative leaders, the Chairman of the Tax Commission and the Director of Finance and Administration, nor you governor had any desire --- either for political gain, or for passing public acclaim --- to offer the people a tax gift now that would have to be paid for in 1959 by increased tax burdens. In short, we felt that prudent management of the surplus could result in tax relief without depleting reserves to the point where future tax rate raises would be inevitable.

A look at not so ancient Oregon history reminded us that Oregon’s resent tax plight was caused in considerable part by the careless disposition of tax surpluses during the peak income tax collection years of World War II. At that time we returned surpluses to the people in such generous amounts that they have been paying the piper ever since. We had no wish to repeat this kind of fiscal foolishness.

Since the time of our first deliberations on the problem of the surplus, your legislative leaders have held subsequent meetings. As a result of these subsequent conferences they have recommended that the legislature authorize a straight 10 percent cut in personal income taxes.

I think that this plan, mainly a ten percent reduction in personal income tax payments, plus increase of ten dollars per census child for basic school support is fiscally sound, prudent and wise for several reasons.

First, the proposed plan will balance receipts and expenditures within the biennium so that taxpayers will pay no more than the current costs of government. Taxpayers in the current biennium will not contribute to any material increase in the existing surplus; neither will they be given back surplus from previous biennium’s which can better be retained for necessary future purposes.

Second, the plan will leave an approximate surplus for the 1959 legislature of 50 million dollars, a surplus that can be amply justified for the following reasons:

1. To bring the state’s budget in line with a realistic tax program, the legislature of 1957 had to defer necessary capital outlay expenditures both for institutions and for higher education. Both institutional and school construction programs were put off, even though we all know that tremendously increased school enrollment at all levels in our educational system will force us to face up to building problems in 1959. Our situation with state institutions is exactly the same, the problem of going ahead with the Dammasch hospital being a case in point.

We were also obliged to refuse to expand personnel requirements for institutions, particularly in the case of our hospitals which will increasingly need staff. The 1959 legislature will be required to acknowledge and cope with these costly problems.

2. The major part of surplus should not be dissipated in view of the fact that without an ample reserve, the 1959 legislature would almost certainly have to raise tax rates. The uncertainty as to where such taxes might fall would have an unfavorable influence on business within the state. This points up the importance of establishing stable, long-range fiscal policies.

3. What burdens we may have to bear as our share of a possible national emergency we do not presently know. However, Sputnik has demonstrated dramatically that, in spite of protestations and disclaimers form high officials in our federal government, Russia has won an important lap in the international scientific and psychological race. If greatly augmented military budgets require economies in the federal budget that will be reelected in cut-back domestic programs, our state should be prepared to meet whatever needs face us, to the best of our ability. We can face those needs more fully if our state has not spent the greater part of the present surplus.

4. Estimated revenues may shrink considerably between now and January 1959, because of economic conditions in our state, we are acting at the state and on local levels to shore up our economy and to bring new businesses and industries to Oregon. But unless the federal government modifies its tight money policy with its high interest rates and thus removes the brakes that have brought building to a standstill, our great lumber industry will continue to suffer. And that means that all Oregon suffers, because basic to our economy is the lumber, which, as the greatest timber producing state in the country, we market on a nation-wide basis.

Moreover, unless the present national administration changes its power policies, we shall be unable to offer industry the advantages it wants from abundant, cheap electricity.

In view of these facts, prudence will insist that we retain a large financial cushion against the threat of a depression, the prevention of which rests wit the national administration.

These then are compelling reasons why we should not dispose of our surplus with a more lavish hand than has been proposed in the two bills that will shortly be before you.

In the past few months there has been a great deal of talk about Oregon’s tax structure. There have even been those who would make us believe that our present economic slump is due to our tax structure rather than to the present federal policies that account fro the depressed lumber market and the shortage of cheap power.

No one will argue that our tax laws cannot be improved. Fortunately we have the vehicle properly to evaluate our over-all tax situation --- namely the Interim Tax Committee created by yourselves. It can and should study carefully and objectively such matters as realistic depreciation, loss carry forward, capital gains and other tax consideration were improvement in our tax laws might improve the climate for existing and new industries. The finding and recommendations of the Interim Tax Committee should be presented at the regular legislative session in January 1959.

I am sure that all of you know that many suggestions have been made --- in fact, some have been offered by several of you own membership --- for legislation that will be helpful to segments of Oregon’s economy. But I must in good conscience say to you that these should be presented at the next regular legislative session.

This special session was called for a specific purpose: tax relief prudently given in light of our surplus.

The people of Oregon want and are entitled to receive this relief. The people of Oregon are united in the opinion that this assembly should confine itself to action to accomplish this relief. The hob can be done quickly. I am confident it will be done quickly.

In conclusion, let me say that I consider it to have been a deep honor and great privilege to serve in four legislative sessions. I think I know Oregon Legislators. I believe that they are desirous of performing in the public interest. The public interest will, I feel you agree, be served best if you provide tax relief by passage of the two bills prepared, and adjourn.

Several states have has special legislative sessions this year. These sessions have convened; have done the job assigned, and have adjourned. I know that you will complete you special assignment quickly, at the least possible cost to the taxpayers, and that you will put aside many other legislative matters in order properly to present them at the next regular session of the legislature.

My best wishes to you all. God speed you, and may you adjourn sine die before the week-end.

State Archives • 800 Summer St. NE • Salem, OR 97310

Phone: 503-373-0701 • Fax: 503-378-4118 • reference.archives@state.or.us