INFORMATIONAL MEETING

RESERVE FUND OVERVIEW

 

TAPES 47 A-B, 48 A

 

SENATE REVENUE COMMITTEE

FEBRUARY 28, 2005† †8:30 AM† †STATE CAPITOL BUILDING

 

Members Present:††††††††††††††††† Senator Ryan Deckert, Chair

††††††††††††††††††††††††††††††††††††††††††††††† Senator Gary George

††††††††††††††††††††††††††††††††††††††††††††††† Senator Rick Metsger

††††††††††††††††††††††††††††††††††††††††††††††† Senator Floyd Prozanski

††††††††††††††††††††††††††††††††††††††††††††††† Senator Charles Starr, Vice Chair

†††††††††††††††††††††††

Witnesses Present:††††††††††††††† Paul C. Parker, Oregon Business Plan Public Finance Task Force

 

Staff Present:††††††††††††††††††††††††† Paul Warner, Legislative Revenue Officer

††††††††††††††††††††††††††††††††††††††††††††††† Barbara Guardino, Committee Assistant

 

 

TAPE 47, SIDE 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. Kitzhaberís tax review task force. Their primary recommendation was establishment of a stability fund. Directs membersí attention to Review of Oregonís 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

 

145

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: Oregonís 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 bienniumís estimated corporate kicker.

 

196

Warner

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

 

213

Sen. George

Would Oregon Business Plan support eliminating the kicker?

 

216

Parker

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

 

226

Sen. George

Comments concerning Californiaís tax system. The taxes in Parkerís presentation would hurt lower income people. Is that what the business community desires?

 

244

Parker

Business communityís desire is to find how to deal with Oregonís economy. Oregon is the most dependent state in the country on one source of tax. Sales taxes, although regressive, arenít as volatile as Oregonís current system. Other means of taxation might be helpful, although Oregon taxpayers arenít 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 donít.

 

287

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.

 

317

Parker

Corporate kicker in itself wouldnít solve the stability funding issue. Many businesses wonít be penalized by elimination of corporate kicker because they are ďSĒ 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 membersí attention to C+ Oregon (EXHIBIT 4) paragraph 3.

 

TAPE 48, SIDE A

025

Warner

Directs membersí attention to exhibit 1, Review of Oregonís 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. Georgeís 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.

 

057

Warner

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

Page 1, slide 2: Oregonís Post World War II Downturns

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

 

089

Warner

Slide 3: Oregon Remains a Goods Producing State

 

101

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

 

118

Warner

Slide 6: General Fund Revenue History

 

126

Warner

Slide 7: Coping with Volatility: Periods of Revenue Decline

 

144

Warner

Slide 8: Key Stability Fund Decisions

 

175

Warner

Slide 9: Educational Stability Fund

Constitutional, revenue source, triggers

 

234

Warner

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

 

265

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 committeeís work for the week.

331

Warner

Comments, the current education stability fund doesnít 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.

 

TAPE 47 SIDE B

010

All

Continued discussion on Fridayís field trip, topics to be discussed.

 

056

Chair Deckert

Adjourns meeting at 9:32 a.m.

 

†††††††††††

 

Tape Log Submitted by,

 

 

 

Barbara Guardino, Committee Assistant††††††††††††††††††††††††††††††††††††††††††††††††††††††

 

Exhibit Summary:

1.      Informational, Review of Oregonís Tax System: Policy Recommendations, January 1999, Warner, 11 pp.

2.      Informational, slide presentation: Oregon Stability Fund, Ronald C. Parker, 7 pp.

3.      Informational, The Oregon Business Plan, A Guide for the 2005 Legislature, Parker, 17 pp.

4.      Informational, C+ Oregon, Warner, 1 pp.

5.      Informational, slide presentation: Stability Fund Issues, Legislative Revenue Office, Warner, 5 pp.