HOUSE SPECIAL SESSION COMMITTEE ON TAXATION

 

 

February 27, 2002   Hearing Room HR A

5:45 p.m.      Tapes 1 - 4

 

MEMBERS PRESENT:            Rep. Bruce Starr, Chair  

Rep. Mark Hass

Rep. Tim Knopp   * See vote explanations (Exhibit N)

Rep. Jerry Krummel  * See vote explanations (Exhibit L)

Rep. Jan Lee

Rep. Tootie Smith * See vote explanations (Exhibit M)

Rep. Diane Rosenbaum

Rep. Vicki Walker

Rep. Jackie Winters   * See vote explanations (Exhibit O)

 

STAFF PRESENT:                  Paul Warner, Legislative Revenue Officer

                                                Richard Yates, Economist, Legislative Revenue Office

                                                Ed Waters, Economist, Legislative Revenue Office

                                                Greg Chaimov, Legislative Counsel

Cara Filsinger, Administrative Support

 

MEASURE/ISSUES HEARD:            Adoption of committee rules

                                                Introduction of committee bills

                                                Public Hearing and Work Session – HB 4024

                                                Public Hearing and Work Session – HB 4039

                                                Public Hearing and Work Session – HB 4040

 

These minutes are in compliance with Senate and House Rules.  Only text enclosed in quotation marks reports a speaker’s exact words.  For complete contents, please refer to the tapes.

 

TAPE/#

Speaker

Comments

TAPE 1, A

005

Chair Starr

Opens the meeting at 6:29 p.m.  Opens a work session for the purpose of adopting committee rules.

WORK SESSION TO ADOPT COMMITTEE RULES

009

Rep. Winters

MOTION:  Moves to ADOPT the proposed Committee Rules (EXHIBIT A).

010

 

VOTE:  7-0

 

Chair Starr

Hearing no objection, declares the motion CARRIED.

WORK SESSION TO INTROUDCE COMMITTEE MEASURES

011

Chair Starr

Explains process for introducing measures.

013

Paul Warner

Legislative Revenue Officer.

020

Warner

Explains LC 44 (EXHIBIT B) relating to a two year delay in the implementation of Measure 88.

028

Warner

Explains LC 48 (EXHIBIT C) relating to an increase in the cigarette tax.

033

Warner

Explains LC 49 (EXHIBIT D) relating to an increase in the privilege tax on beer and wine.  Says all measures require a 3/5 vote.

048

Rep. Rosenbaum

Asks about beer tax exceptions for small producers.

054

Warner

Answers there is an exception for producers of less than 200,000 gallons.

060

Rep. Rosenbaum

Asks how many companies are affected by the tax increases. Asks if Widmer Brewery would be affected.

065

Warner

Responds he does not know.

066

Dick Yates

Legislative Revenue Office.  Answers that the measure would exempt all Oregon producers of malt beverages.

070

Rep. V. Walker

Asks which wines will have the increase of $1.05.

072

Warner

Answers most wines are taxed at 67 cents and dessert wines at 77 cents. Says the increase of $1.05 is for both.

077

Rep. Winters

Asks about volume limitations for wineries.

081

Yates

Responds that existing law exempts US producers with a domestic production volume of less than 100,000 gallons from tax on the first 50,000 gallons.  Comments on tax credit measure that passed in 2001 session.

099

Rep. Winters

Asks how many Oregon wineries would be affected by the $1.05 increase.

100

Yates

Replies he does not know, but says there is a person from Oregon Liquor Control Commission available to answer questions.

102

Chair Starr

MOTION:  Moves LC's  44, 48, 49 BE INTRODUCED as committee bills.

 

 

VOTE:  7-0

105

Chair Starr

Hearing no objection, declares the motion CARRIED.

099

Chair Starr

Recesses the committee at 6:35 p.m.

 

 

NOTE: The Speaker appointed Representatives Krummel and Lee to the committee during the recess.

100

Chair Starr

Reconvenes committee at 7:20 p.m.

120

Chair Starr

Opens public hearing on HB 4024, HB 4039, and HB 4040

PUBLIC HEARINGS – HB 4024, HB 4039, HB 4040

123

Ed Waters

Legislative Revenue Office. Reviews the revenue impact statement for HB 4024 (EXHIBIT E). Says the effective date is 91 days after sine die.

140

Rep. Krummel

Asks about the revenue impact in 2003-05 biennium.

143

Waters

Responds that the measure affects revenue in the two tax years in the current biennium.

148

Rep. Krummel

Asks clarification about when the measure would be in effect.

150

Waters

Answers the measure would be in effect for tax years January 1 – December 31, 2002 and January 1 – December 31, 2003.

153

Chair Starr

Points out revenue statement is available to the committee.

157

Rep. Krummel

Asks what income level is required to take advantage of the increased deduction.

150

Waters

Responds that need at least $3,000 of federal tax liability.

168

Rep. Krummel

Inquires what the poverty level is for a family of four.

169

Waters

Responds he will get back to the committee with the answer.

181

Chair Starr

Discusses process for public hearings.

192

Rep. Hass

Expresses disappointment in late hour for the public hearings.  Comments on possible technical errors in the bills.

203

Chair Starr

Comments on public testimony received in December and January.

215

Rep. Rosenbaum

Comments on process by which the committee was appointed.

250

Dick Yates

Provides revenue impact statements for HB 4039 and HB 4040(EXHIBITS F and G). Discusses reductions in distribution to counties.

311

Rep. V. Walker

Asks about the transfers to counties versus the General Fund.

321

Yates

Responds the tax from the existing rate would continue the current distribution through the Oregon Liquor Control Commission (OLCC) (56% to General Fund, 10% to counties, and 34% to the cities). Says that for the new revenue, OLCC will have to keep track of the additional tax collected, and that money will go directly to the General Fund.

336

Rep. V. Walker

Asks whether OLCC would need to add staff to account for increased tax collections.

342

Yates

Responds he does not think they would.

346

Rep. V. Walker

Clarifies that no money would go to mental health, cities, or counties.

321

Yates

Responds they get the same distribution as under current law, except that due to the tax increases in the measure, consumption will be reduced and the total revenue will decrease slightly.

357

Rep. Winters

Asks about reduced consumption.

361

Yates

Responds yes.

363

Rep. Hass

Asks about section 3 in HB 4039.  Asks if it was the intent to eliminate the tax on the smaller microbreweries.

371

Yates

Says that is how the measure reads.

372

Rep. Hass

Asks if smaller producers would benefit because the tax is removed.

374

Yates

Answers yes.

384

Chair Starr

Says the draft was intended to be that way.

386

Rep. Rosenbaum

Asks if the revenue impact statement includes removal of the tax on small producers.

389

Yates

Answers yes.

390

Rep. Rosenbaum

Asks if there are figures available reflecting revenue impact if the tax on small producers was not removed.

400

Rep. Hass

Comments on the issue of fairness.

415

Yates

Reviews revenue impact statement for HB 4040 (EXHIBIT G). Comments on consumption decline.

463

Rep. Winters

Asks about reduction in consumption.

474

Yates

Responds that the tax rate is fixed per pack.  Says there is typically a decline in consumption due to tax increases.

480

Rep. Winters

Asks if campaign to reduce tobacco consumption is included in the figures.

490

Yates

Responds no.

500

Rep. Krummel

Asks what effect tax evasion will have on beer and wine or cigarette tax.

TAPE 2, A

030

Yates

Responds the beer and wine tax is relatively low. Says he is not aware of problems with smuggling relating to the beer and wine tax.  Speculates that this measure would not increase illegal activity.  Says relating to cigarette taxes, the Western states are relatively high.  Comments on efforts to reduce illegal activity.

058

Rep. Krummel

Asks if it is illegal to purchase wine, beer, or cigarettes over the Internet.

061

Yates

Says no, but that buyers are liable for the tax.

065

Rep. Winters

Asks about cost for enforcement.

070

Yates

Responds that was addressed during 2001 session.  Says that the Attorney General (AG) and Department of Revenue are  scheduled to begin the process of enforcement.

085

Rep. Winters

Ask about the tax per pack for Idaho.

089

Warner

Responds it is 28 cents.

096

Chair Starr

Says the bills before the committee are drafted the same as the Governor’s proposals.

100

Rep. Haas

Says there may be some disagreement about whether the measures are drafted that way.

107

Rep. Randy Leonard

District 48.  Comments on his past legislative experience. Discusses status of the budget in Oregon.

160

Rep. Leonard

Relates his disappointment in the process. 

200

Rep. V. Walker

Comments on Rep. Leonard’s testimony.  Discusses public hearing process.

223

Rep. Krummel

Asks if the Governor should reconsider his vetoes of the budget bills.

230

Rep. Leonard

Clarifies his position.  Relays personal experience with firefighters union.

308

Rep. T. Smith

Asks if Rep. Leonard supports tax increases to balance budget.

311

Rep. Leonard

Responds that he supports a balanced process.

317

Rep. T. Smith

Comments on the tax increases proposed by the measures. 

332

Rep. Leonard

Responds to Rep. Smith’s statements.

367

Rep. Ben Westlund

District 53.  Comments on the negotiations of the “Group of 5” . Outlines the revenue proposals that were discussed by the group. Comments that Sunday liquor sales was the only long-term revenue proposal that had consensus.

445

Rep. Westlund

Discusses the Education Endowment Fund proposal. 

TAPE 1, B

011

Rep. Westlund

Says that it is necessary to determine whether the legislature will approve increased taxes before the budget process can continue.

033

Rep. V. Walker

Asks about sending tax proposals for a vote instead of as part of a whole package.

045

Rep. Westlund

Comments that during a special session, it is necessary to know the revenue first.

070

Chair Starr

Says that if any of the measures pass the House floor, there would be a bi-partisan group making determinations on how to allocate the revenue.

075

Rep. Westlund

Replies that a special session is different.

092

Chair Starr

Says that Legislative Counsel reports there are no drafting mistakes in the measure.

096

Rep. Hass

Comments on the drafting process for the measures.

103

Paul Romain

Oregon Beer and Wine Distributors Association.  Discusses HB 4039. Explains privilege taxes on beer and wine. Says that the tax should be on the end transaction, not the wholesalers. Points out the tax increase in HB 4039 is very large.  Discusses effect of tax increase on consumers.

120

Romain

Provides examples of other states’ taxes.  Comments on the effect of HB 4039 on microbreweries.

210

Romain

Says the measure is not constitutional.  Comments the measure will be challenged in court.

230

John Powell

Miller Brewing Company.  Comments on HB 4039 and excise taxes. Relates personal experience relating to excise taxes.

258

Powell

Discuses the difference between average and median taxes. Comments that beer is also taxed federally. Relates the proposed tax increase in HB 4039 compared to other state’s rates.

302

Powell

Comments on the regressive nature of excise tax on beer.

348

Rep. V. Walker

Asks if Oregon’s tax on beer and wine is fair.

355

Romain

Says the tax is too high.  Comments that consumers pay more than others, for example costs such as the bottle bill and wages.

400

Powell

Comments on tax fairness issues as compared to other states.  Relates examples of other kinds of taxes.

428

Rep. Winters

Asks about microbreweries and the production threshold contained in the measure.

441

Powell

Defers question to Mr. Romain.

438

Romain

Answers the largest microbrewery, Widmer Brothers, produces about 127,000 barrels. The next largest, Deschutes Brewing Company, produces about 103,000 barrels.  Says the exemption level in the bill was increased in later versions of the measure. 

TAPE 2, B

002

Romain

Comments that the brewers are growing fast. Outlines increased distribution for various breweries. Says exemptions are a bad policy.

010

Chair Starr

Says Legislative Counsel will explain constitutionality of the measure.

020

Rep. Krummel

Asks for a percentage of people that earn under $30,000.

021

Powell

Says he does not know.

030

Rep. Krummel

Asks what percent of consumers earn less than $30,000 per year.

035

Powell

Responds that it varies across the state.

040

Rep. Rosenbaum

Asks what effect a price increase will have on consumption.

050

Powell

Comments that beer consumption has remained about the same over time. Says there would be some reduction, but he does not know how much.

060

Rep. V. Walker

Asks about how other types of alcohol products (e.g., coolers, Zima) are taxed.

068

Powell

Responds that he does not know how the other kinds of products are taxed.

074

Romain

Discusses “malt-ernatives”. Says they are taxed the same as beer.

097

Ken Strobeck

Oregon Winegrowers Association.  Says the bulk of the product sold in Oregon comes from out of state, so consumers will end up paying for the cost of HB 4039.  Comments on small family farm wineries.

110

Strobeck

Says only ten wineries in Oregon produce above 100,000 gallons.  Says one half of the larger wineries will go out of business if HB 4039 passes. Outlines other taxes imposed on wineries.

137

Nancy Baker Kroft

Comments on difficulties to get the public to testify.  Says local wineries should be exempted from taxes.  Says she represents teachers and schools and is concerned about the future of education. Comments on cutting services without increasing taxes.  Says wine and beer are not a necessity, so the taxes on them cannot be considered regressive because they are optional.

188

Dan Kohler

Keizer small business owner.  Discusses the nature of his business. Comments on detrimental effect on his business if taxes were increased. 

259

Rex Daines

Salem.  Comments on alcohol and cigarette taxes.  Says as a bankruptcy lawyer, his business will increase if taxes are increased. 

295

Chris Mickelson

Keizer.  Asks that taxes not be increased.

311

Rep. V. Walker

Provides example of the Alaska state budget.  Asks about Oregon government services and what services they would cut.

345

Mickelson

Comments on past increases in the budget.  Emphasizes the more money taken from the “public’s pocket”, the less money they have to spend.  Urges the committee move forward with the “Group of 5” proposal.

393

Kohler

Reiterates that more cuts should be made than increasing taxes.

410

Laura Aviani

Candidate for House District 7.  Urges prioritizing cuts in food, shelter, and safety first.  Says anything less is unacceptable. 

451

Aviani

Says that only making cuts, without considering revenue, creates more problems in the future. Asks legislators to contact the federal government to urge cuts not be made.

TAPE 3, A

040

Rep. Jeff Merkley

District 47.  Asks for a different process to get bills to get these issues to the floor.

070

Greg Chaimov

Legislative Counsel.  Comments on constitutionality of HB 4039. Says as long as there are neutral criteria it would be acceptable.

114

Steve Dixon

OSPIRG.  Says his organization is neutral on HB 4040. Says (EXHIBIT H)was prepared before HB 4040 was printed. Comments on tobacco tax increases as a tool for tobacco use reductions.

159

Dixon

Comments on health care costs due to tobacco use. Says that tobacco is a luxury purchase.

180

Rep. Winters

Asks what he means by “luxury” purchase.

187

Dixon

Replies that it is not necessary for a day-to-day living.

188

Rep. Winters

Asks for clarification.

189

Dixon

Says people may need a haircut to look presentable.  Says tobacco is a luxury.

198

Rep. Winters

Asks if a latte or soda qualifies as a luxury.

200

Dixon

Says he would not qualify them as a luxury. Says tobacco is an addictive substance.

206

Rep. Winters

Comments that caffeine is also addictive.

216

Rep. Krummel

Asks about tobacco education programs and whether Mr. Dixon would support future tax increases.

220

Dixon

Responds he may support a future tax increase.

223

Rep. Krummel

Clarifies that the revenue source will decrease.

228

Dixon

Responds his interest in reduction in tobacco use.

230

Rep. Krummel

Asks about Oregon Health Plan (OHP) data cited in testimony.

233

Dixon

Says he can get the source of the data.

238

Rep. Krummel

Asks if OHP clients should pay for their health care services by increasing taxes on tobacco products. 

243

Dixon

Says all people who smoke will pay the tax.

251

Rep. Krummel

Repeats the question.

253

Dixon

Responds that in a way it would require the OHP clients to pay for part of the cost of their services.

266

Rep. Krummel

Asks why smokers should pay to solve the budget problem.

267

Dixon

Replies that it is a privilege tax. Says if people do not want to pay the tax, they should not smoke.

276

Rep. Lee

Asks about the $350 million in medical expenses cited in his testimony.

280

Dixon

Says he will review his handout and get back to the committee.

290

Phyllis Rand

Governor’s Commission on Senior Services. Says the commission has not reviewed the measures at hand, but is in favor of increased beer, wine, and cigarette taxes to offset budget cuts, and also supports delaying Measure 88 implementation.

310

Rep. V. Walker

Asks if the commission would like more time to review the measures.

313

Rand

Responds that would be nice, but understands that it might not happen.

320

Rep. V. Walker

Asks if Ms. Rand could review them with the commission tomorrow.

321

Rand

Answers yes.

329

Bob Castagna

Oregon Catholic Conference. Presents (EXHIBIT I). Comments on status of the economy and post-September 11 issues.  Says things will probably get worse. Says government is not like a business.  Comments on role of government in providing social services.

407

Castagna

Reviews page two of (EXHIBIT I) citing budget figures. Says churches and charities cannot replace government services.

TAPE 4, A

010

Castagna

Says most affected by budget cuts are children.  Says the safety net should be supported.  Says the Catholic Conference opposed Measure 88.

057

Rep. Krummel

Asks how Mr. Castagna would define wealth.

060

Castagna

Says it is a question of resources.

064

Rep. Krummel

Asks for a dollar figure.

066

Castagna

Says it depends on the situation.

075

Rep. Krummel

Asks for further clarification.  Questions how many taxes are enough.

087

Castagna

Says they are looking for equity. Comments on saving lives.

100

Rep. Lee

Comments on chart in (EXHIBIT I).

102

Rep. Krummel

Asks whether counties should have responsibility to provide services.

112

Rand

Replies they should provide senior services.

121

Russ Walker

Oregon Citizens for a Sound Economy. Describes the purpose of his organization. Says budget issues are not solved by increasing taxes.

140

Walker

Discusses other state’s efforts to address revenue issues. Says the tax proposals are regressive.

172

Walker

Comments on testimony provided earlier in the evening.

190

Rep. V. Walker

Discusses letters she has received from her constituents.  Says many letters ask for tax increases. Asks if $900 million should be cut from the state budget.

202

Walker

Says his organization has suggested an across the board cut. Comments on tax policy.

244

Rep. V. Walker

Comments her constituents would want to testify in public.

252

Rep. Winters

Asks if there are other indicators of the economic downturn, prior to September 11.

254

Walker

Responds there were signs as early as November 2000.  Says September 11 exacerbated the problem.

264

Rep. Winters

Asks about Oregon conditions.

267

Walker

Replies that economists rank Oregon’s fiscal discipline low.  Says we rank well in some areas.

286

Joe Schweinhart

Associated Oregon Industries.  Comments on HB 4024.  Says Measure 88 is a middle class tax cut and necessary for economic stimulus.  Says that HB 4024 would harm the economy. 

318

Rep. Krummel

Asks if the witnesses can define “wealth”.

333

Schweinhart

Answers that every person has a level where they feel comfortable. Says he cannot give a number.

341

Chair Starr

Closes the public hearings on HB 4024, HB 4039, and HB 4040.

347

Chair Starr

Recesses committee until 10:00 p.m.

353

Chair Starr

Calls the committee to order at 10:04 p.m.

356

Chair Starr

Opens a work session on HB 4024

WORK SESSION – HB 4024

360

Rep. Hass

Asks for more time to review the issues.

375

Chair Starr

Responds that the process will be moved along.  Says it is necessary to know what revenues are on the table.

441

Chair Starr

MOTION:  Moves HB 4024 to the floor WITHOUT RECOMMENDATION as to passage.

TAPE 3, B

003

Rep. Rosenbaum

Says the measures need more work.  Comments that there needs to be more public input.  Says she is concerned about public perception of the process.

050

Rep. Knopp

Says he will provide courtesy votes to move the process forward.

072

Rep. V. Walker

Asks about tax pledge.

081

Rep. Knopp

Responds to question.

086

Chair Starr

VOTE:  5-4

AYE:               5 – Knopp, Krummel, Smith T, Winters, Starr

NAY:               4 - Hass, Lee, Rosenbaum, Walker V

088

Chair Starr

The motion CARRIES.

 

 

NOTE: Four  members submitted vote explanation letters (EXHIBITS L, M, N, and O).

094

Chair Starr

Closes work session on HB 4024 and opens a work session on HB 4039.

WORK SESSION – HB 4039

100

Chair Starr

MOTION:  Moves to ADOPT HB 4039-1 amendments dated 2/27/02 (EXHIBIT J).

 

 

VOTE:  9-0

101

Chair Starr

Hearing no objection, declares the motion CARRIED.

105

Chair Starr

Comments on new revenue statement that reflects the –1 amendments(EXHBIT K).

119

Warner

Explains the revised revenue statement.

125

Yates

Explains the change is the reduction for mental health services.

146

Rep. Krummel

Asks what the HB 4039–1 amendments do.

150

Yates

Explains the effect of the amendments.

163

Rep. Knopp

Clarifies his vote.

166

Chair Starr

States the nature of certain votes on the committee.

172

Rep. Krummel

Comments on shared revenue for cities and counties.

185

Chair Starr

MOTION:  Moves HB 4039 to the floor AS AMENDED WITHOUT RECOMMENDATION as to passage.

 

 

VOTE:  5-4

AYE:               5 - Knopp, Krummel, Smith T, Winters, Starr

NAY:               4 - Hass, Lee, Rosenbaum, Walker V

189

Chair Starr

The motion CARRIES.

 

 

NOTE: Four  members submitted vote explanation letters (EXHIBITS L, M, N, and O).

193

Chair Starr

Closes the work session on HB 4039 and opens a work session on HB 4040.

WORK SESSION -  HB 4040

196

Chair Starr

MOTION:  Moves HB 4040 to the full committee without RECOMMENDATION to passage.

198

Rep. Krummel

Reiterates comments regarding county revenues.

 

 

VOTE:  5-4

AYE:               5 - Knopp, Krummel, Smith T, Winters, Starr

NAY:               4 - Hass, Lee, Rosenbaum, Walker V

203

Chair Starr

The motion CARRIES.

 

 

NOTE: Four  members submitted vote explanation letters (EXHIBITS L, M, N, and O).

208

Chair Starr

Comments on the process.

213

Chair Starr

Closes work session on HB 4040 and adjourns the committee at 10:30 p.m.

 

Submitted By,                        Reviewed By,

 

 

 

Cara Filsinger,                        Kim Taylor James,

Administrative Support                        Revenue Office Manager

 

EXHIBIT SUMMARY

 

A – Proposed committee rules, Staff, 1 p

B – LC 44, Staff, 14 pp

C – LC 48, Staff, 5 pp

D – LC 49, Staff, 6 pp

E – HB 4024, Revenue Statement, Staff, 1 p

F – HB 4039, Revenue Statement, Staff, 1 p

G – HB 4040, Revenue Statement, Staff, 1 p

H – HB 4040, Written Testimony, Steve Dixon, 1 p

I – HB 4024, 4039, and 4040, Written Testimony, Bob Castagna, 5 pp

J – HB 4039-1 Proposed Amendments, Staff, 1 p

K – HB 4039-1 Revenue Statement, Staff, 1 p

L – HB 4024, HB 4039, HB 4040, Vote Explanation, Rep. Jerry Krummel, 3 pp

M - HB 4024, HB 4039, HB 4040, Vote Explanation, Rep. Tootie Smith, 1 p

N - HB 4024, HB 4039, HB 4040, Vote Explanation, Rep. Tim Knopp, 1 p

O - HB 4024, HB 4039, HB 4040, Vote Explanation, Rep. Jackie Winters, 1 p