INFORMATIONAL MEETING

RESERVE FUND OVERVIEW

TAPES 47 A-B, 48 A

010

Chair Deckert

Calls meeting to order at 8:35 a.m. Welcomes Paul Parker.

INFORMATIONAL MEETING, RESERVE FUND OVERVIEW

022

Paul Warner

Notes, Paul Parker was a member of Gov. Kitzhaber’s tax review task force. Their primary recommendation was establishment of a stability fund. Directs members’ attention to Review of Oregon’s Tax System: Policy Recommendations, January 1999 (EXHIBIT 1).

035

Paul Parker

Comments on stability fund. Now is the time to do the right thing. Begins slide presentation: Oregon Stability Fund (EXHIBIT 2).

Page 1, slide 2: Why a Stability Fund?

Oregon needs a stability fund more than most states because our tax system is so volatile. Business is overwhelming convinced that this is needed.

056

Parker

Page 2, slide 1: Public Services are Critical for Business

Slide 2: Oregon Has a Volatile Tax System: In 2002, during the recession, Oregon experienced the second largest decline of any state in the nation in tax revenues

068

Parker

Page 3, slide 1: Personal income taxes are extremely variable.

Slide 2: Most of the personal income tax is paid by higher income households

100

Parker

Page 4, slide 1: Corporate taxes are extremely variable.

Slide 2: General Fund Resources, Discretionary Lottery, and One-Time Revenue

121

Parker

Page 5, slide 1: There Are Two Broad Solutions

Slide 2: Most States Have Stability Funds

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Parker

Page 6, slide 1: Only Oregon Has a Limited Stability Fund

In 2002, the voters approved Ballot Measure 19, establishing the Education Stability Fund

Slide 2: Oregon’s 5% General Fund cap is well below recommended levels for stability funds.

157

Parker

Page 7, slide 1: What Proposals Will Business Support?

Slide 2: Conclusions

165

Chair Deckert

Notes, some of the proposals that committee will hear tomorrow involve the kicker fund.

179

Parker

Fact that it needs to go to voters is a hurdle, but it also means it would remain in place. Businesses are open-minded to creating a stability fund. Believes the state could get broad support among businesses and individuals, even in talking about the kicker.

184

Chair Deckert

Committee will ask for participation from the business community.

190

Parker

Business community is supportive of stability fund regardless of how it is accomplished.

193

Sen. George

Asks, what is this biennium’s estimated corporate kicker.

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Warner

Economic forecast estimate raised it from $43 million to $60 million.

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Sen. George

Would Oregon Business Plan support eliminating the kicker?

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Parker

Cannot say whether business community would favor elimination or not, but wouldn’t rule it out.

226

Sen. George

Comments concerning California’s tax system. The taxes in Parker’s presentation would hurt lower income people. Is that what the business community desires?

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Parker

Business community’s desire is to find how to deal with Oregon’s economy. Oregon is the most dependent state in the country on one source of tax. Sales taxes, although regressive, aren’t as volatile as Oregon’s current system. Other means of taxation might be helpful, although Oregon taxpayers aren’t receptive of consumption tax. Can still deal with the problem through a stability fund.

265

Sen. George

Other states that have stability funds seem to grow government slightly faster than those that don’t.

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Parker

That is a valid concern. Oregon Business Plan shares that concern. A stability fund could be structured to avoid this.

311

Sen. Metsger

Comments, with strong support in the business community about the nexus between business and education, it would seem an obvious answer that a corporate kicker should be redirected to stability fund.

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Parker

Corporate kicker in itself wouldn’t solve the stability funding issue. Many businesses won’t be penalized by elimination of corporate kicker because they are “S” corporations.

336

Sen. Metsger

Continues discussion on educational stability fund. Wonders if it would be easier to raise the existing cap as opposed to creating another fund.

360

Parker

Business community would not object to raising the cap.

425

Warner

Directs members’ attention to C+ Oregon (EXHIBIT 4) paragraph 3.

025

Warner

Directs members’ attention to exhibit 1, Review of Oregon’s Tax System. Observations were done in 1998. The first recommendation is to create a stability fund. See page 21, Solutions: The committee recommends that Oregon establish a stabilization fund.

035

Warner

Fifth bullet point addresses Sen. George’s concern: Reserve fund should not be used to eliminate all budget cuts during difficult economic times. It should be used along with budget cuts.

045

Warner

Table on page 18 details long-term and short-term stability options.

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Warner

Begins slide presentation (EXHIBIT 5): Stability Fund Issues, Legislative Revenue Office

Page 1, slide 2: Oregon’s Post World War II Downturns

Recessions of the 1950s are more typical of what lies ahead.

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Warner

Slide 3: Oregon Remains a Goods Producing State

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Warner

Slide 4: Consequences of Being Goods Producing State

Nationally, the economy is less sensitive to recession than Oregon. Slide 5: National Data Reflects Relative Volatility of Income and Sales Taxes Over Past Decade

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Warner

Slide 6: General Fund Revenue History

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Warner

Slide 7: Coping with Volatility: Periods of Revenue Decline

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Warner

Slide 8: Key Stability Fund Decisions

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Warner

Slide 9: Educational Stability Fund

Constitutional, revenue source, triggers

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Warner

Fund Size: 5% of general fund budget in prior biennium, uses of funds

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Warner

Slide 10: Reserve Fund Proposal: SJR 2/SB 5 from 2003 Session

Revenue source, triggers, fund size, fund uses

299

Chair Deckert

The stability fund will be the committee’s work for the week.

331

Warner

Comments, the current education stability fund doesn’t retain its interest earnings. That affects the growth over time.

358

All

Committee discusses its March 4 field trip to Metro in Portland, which will be a public hearing on low income housing, from 9 a.m. to noon. It should be well attended.

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All

Continued discussion on Friday’s field trip, topics to be discussed.

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Chair Deckert

Adjourns meeting at 9:32 a.m.