WORK SESSION:

SB 841, SB 899, SB 896

TAPES 93 A-B, 94 A

005

Chair Deckert

Calls meeting to order at 8:40 a.m. Committee will hear SB 899, SB 841, SB 853 then SB 896. Committee will not hear SB 845 until next week.

WORK SESSION, SB 899

024

Dennis Mulvihill

Gives overview of SB 899-6 amendments (EXHIBIT 1). Abolishes Multnomah County Tax Supervising & Conservation Commission. It also allows any county that reaches 500,000 in population as of July 1, 2005 to decide whether or not to create a TSCC. Moves the decision to the county level. Any county under 500,000 can vote to create a TSCC.

049

Vice Chair C. Starr

MOTION: MOVES ADOPTION OF SB 899-6 AMENDMENTS.

054

Sen. Metsger

Comments that these amendments reflect the thoughts of the committee. This is good policy. If Multnomah County has a need for the TSCC, this bill will allow them to reconstitute it. The bill is permissive and he strongly supports it.

065

Vice Chair C. Starr

Agrees with Sen. Metsger but expresses a slight reservation in that the TSCC has served a good purpose in Multnomah County. Believes local control should prevail.

073

Sen. Prozanski

Concurs on the issue of local control.

078

Mulvihill

Expresses appreciation for the help of Legislative Revenue and Legislative Counsel staff.

099

Chair Deckert

ORDER: THERE BEING NO OBJECTION THE CHAIR SO ORDERS.

VOTE: 4-0-1

VOTING AYE: METSGER, PROZANSKI, C. STARR, DECKERT

EXCUSED: GEORGE

101

Vice Chair C. Starr

MOTION: MOVES SB 899 AS AMENDED TO THE SENATE FLOOR WITH A DO PASS RECOMMENDATION

103

Chair Deckert

ORDER: THERE BEING NO OBJECTION THE CHAIR SO ORDERS.

VOTING AYE: METSGER, PROZANSKI, C. STARR, DECKERT

EXCUSED: GEORGE

106

Paul Warner

Gives overview of SB 841. Statutory proposal that establishes a reserve fund based on general fund ending balance. Cap is at 10%. Discusses the bill’s revenue impact (EXHIBIT 6).

136

Warner

Directs members’ attention to two amendments to the bill: SB 841-1 and SB 841-2 (EXHIBITS 7, 8). SB 841-1 amendments require a policy choice based on discussions with Treasury. The current bill sets up the reserve fund separately from the general fund, and can retain its own interest earnings, which results in faster growth. It does not allow State Treasury to use those balances in its cash management of the general fund.

176

Warner

Discusses SB 841-2 amendments, which address a percent in a calculation.

190

Chair Deckert

Asks question concerning SB 841-1 amendments. Had this been in place in 1990, how would the state have been advantaged the most?

206

Warner

Responds, a separate and distinct account would have been an advantage because the general fund was having large ending balances. More recent ending balances have been smaller, and that has squeezed the liquidity of the general fund. The question is, what will the next decade look like? Senses the 1990s were unique.

227

Chair Deckert

Comments, perhaps this are a recommendation.

231

Sen. Prozanski

Seems like the other alternative is more prudent at this stage. The legislature can always change back if the larger ending balances return.

238

Chair Deckert

Concurs, this is statutory.

242

Vice Chair C. Starr

Expresses preference for the SB 841-1 amendments.

248

Chair Deckert

Asks Warner for more explanation on the interest rate. It appears high. Follow-up questions.

253

Warner

Explains, with the revenue impact statement, there would be gross interest earnings of the general fund, but below that would be an interest expense, for net interest revenue.

315

Lynn Lundquist

Does not know the best outcome for this issue, except that “we need to do something.” It’s a policy choice, whether to leave an account separate or not. One advantage of leaving it separate is to satisfy the naysayers. Also if it is put into the general fund the interest goes into the general fund. It won’t grow as quickly, and therefore the fiscal impact moves from future activity into present activity. He is leaning toward keeping it separate but is open to either policy decision.

350

Lundquist

Continues, one political danger of leaving it in the stability fund is that the cap will have to be raised, and that has to pass a vote of the people.

365

Chair Deckert

Asks about the current 5 percent.

370

Warner

Responds, the stability fund is over $201 million for an ending balance. General fund is about $11.4 million, so less than 2%.

378

Chair Deckert

Asks at what point it would reach 5% in a stability fund.

399

Warner

It could speed it up, probably the soonest would be the 2009-11 biennium.

413

Lundquist

Asks about ending lottery balances and how they affect the stability fund in the various biennia.

420

Warner

Responds to this and follow-up questions.

010

Lundquist

Continued discussion on when the 5% cap would be hit.

021

Chair Deckert

Likes idea of a stability fund. The downside would be cash management.

025

Kate Richardson

Chair’s assessment is correct. However, the State Treasurer would put it in an education stability fund because it is constitutionally protected. A statutory reserve fund could be changed by voters. An education stability has stronger sideboards.

047

Richardson

Clarification, there are many funds within the fund that can’t be used as part of the general fund. They are used as cash flow,. Treasurer recommends placing it in the education stability fund for greater protection. If not, he asks that it become part of the general fund.

071

Chair Deckert

Comments, having protections in place will help with bond ratings.

076

Vice Chair C. Starr

Would not be opposed to drafting of more amendments.

086

Sen. Metsger

Contends lawmakers did an excellent job in establishing the education stability fund. It is the state’s rainy day fund, since education is half the budget. There are other expenditure limitations needed. Putting the money into a stability fund absolutely makes sense, but some lawmakers still believe we still don’t have a reserve fund.

120

Chair Deckert

The question is whether the reserve fund is adequate.

129

Sen. Frank Morse

Endorses the creation of a stability fund. One thing not addressed is the structural deficit in the current system. Oregon’s revenues do not support all the current policies that are in place. Before enacting legislation to create a reserve fund from current revenues, the legislature needs a complete evaluation of the structural budget gap. Lawmakers have refused to come to grips with the most serious of all problems, and that’s the structural budget gap. Some programs are going to have to be eliminated. This structural issue is very serious.

175

Chair Deckert

Asks Sen. Morse, what would foster that debate? It’s only going to get worse, even in a growing economy.

190

Sen. Morse

Suggests letting Legislative Revenue and Legislative Fiscal do projected revenue analyses on issues that require fiscal balance. What is the structural deficit faced today? Structural means ongoing, not temporary. That’s the place to start. Today in both budgets being advanced, the ending balances are so small that they are woefully inadequate. Demand far exceeds Oregon’s ability to supply revenue. Lawmakers must look at the bigger picture and make an informed choice.

223

Vice Chair C. Starr

Agrees emphatically with Sen. Morse. Oregon’s future only gets darker if this is not dealt with. Lawmakers have not evaluated how to find sustained revenues. “We tend to just put it off because we can get by another session. But it only gets thinner and thinner.” We need the debate whether to continue to try to support all of the programs before us. Must also recognize the people have strongly said “no more taxes.” If we don’t deal with these issues here, they will be dealt with on the ballot.

267

Sen. Prozanski

Agrees with Sens. Morse and C. Starr. The voter initiatives are demanding money to be spent, and we have no guidance as to how to do it. We all want public safety and other issues, but they all have costs. We have to either give somewhere else or bring in additional revenue to pay for these services. Supports the initiative process, but there is no accountability.

305

Sen. Prozanski

If this committee wants to set up a reserve fund, can it be set up without being fully funded? We do have an educational reserve fund, but it’s almost half of the general fund’s expenditures. Maybe the state needs another reserve fund. The legislature does not have the ability or time to deal with these issues this session. They are huge issues and need lots of public input throughout the state during the interim.

369

Chair Deckert

The reserve fund, given the volatility of Oregon’s income tax, is just too small. Not acting during this legislature would be a mistake. If the economy dipped again lawmakers would look back at this session and say at least we had the opportunity to put a couple million into the fund.

394

Lundquist

Adds to Sen. Morse’s assertions that this needs to happen, but SB 841 does not preclude that from happening. You just can’t function in a fiscally responsible manner when you don’t have some sort of reserve. It’s not possible to fix the problem by July 1, but there is a resolve in this building like never before to do something now. Don’t lose this opportunity.

438

Chair Deckert

Committee will hear this bill again next week.

023

Dan Yates

Testifies in support of SB 896, which establishes a new employer tax credit for wages paid to employees who assist in the manufacture of a water transit vessel. Gives background of the fast ferry industry. The United States has over 3,000 commercial vessels that carry 300 million people per year. The fastest growing segment of the industry is the fast ferry segment. The U.S. has been slow to adopt fast ferry technology due to regulatory constraints. The domestic ferry market is growing rapidly, and has become part of the solution to traffic gridlock.

075

Yates

Continues, all fast ferries in the U.S. are constructed out of aluminum, since it is strong and light weight. Over the last 15 years hull designs have had “the greatest rate of change in the history of man.” Believes the best hull design for restricted waterways is built by Harley Craft. It produces a material that is used for armored military vehicles. The design leaves virtually no wake.

116

Yates

Discusses the downside of this new technology. It is a slow material to work with, and the industry has lost its primary financing agent. This makes it difficult to finance construction of these vessels.

133

Chair Deckert

The reason the legislature is looking at this new tax credit is so it could create jobs.

147

Yates

Responds, there is a need for 30 of these boats on the Willamette River alone. There’s talk of financing for a new bridge over the Columbia River. Suggests ferry boats might be an option. Oregon has a long shipbuilding history. There’s an opportunity for a West Coast shipbuilder to supply the market with these vessels.

159

Chair Deckert

Asks Sen. B. Starr if he is willing to add a 10- or 12-year sunset.

169

Sen. Bruce Starr

Responds, there is an opportunity here that wouldn’t be here without providing incentive for investors to come here. Understands a sunset, that’s appropriate. This tax can be reassessed any time. Will introduce a sunset in the House if that’s the will of this committee.

207

Sen. Prozanski

Asks for some type of callback – that the builder would commit to remaining longer than the length of the tax credit.

229

Chair Deckert

Responds, if a manufacturer commits to come here, that is a big enough investment.

241

Yates

Shipyards have huge capital up-front costs. A credit is only a small percent of a shipyard’s decision to locate here. Shipyards don’t tend to move away. Portland has shipyards that have gone out of business that could be restarted.

267

Sen. Prozanski

Expresses concern that the state would invest in this company and then it would move. Follow-up questions.

299

Yates

Has spoken to Mr. Harley, and he is interested in locating in Portland.

307

Chair Deckert

Asks whether 10 years is a good sunset time period.

327

Yates

Responds, that would be perfectly adequate. Oregon’s regulatory system is impossible. Portland as a city has forgotten it is marine dependent. There has been an explosive growth of cruise ships in Portland, and Portland has no plan how to deal with it. Envisions that this shipyard would not be located in Portland. The state has not addressed the structural issues of its economic situation, and Oregon will be the first back into the next recession. Summarizes, this tax credit is a step in the right direction.

383

Chair Deckert

Is ready to move this bill. The case has been made that this will create jobs.

395

Sen. Prozanski

Agrees, is ready to move this. Asks whether the shipyard would create “family wage jobs.”

402

Yates

Shipyards pay somewhere around $20 per hour. It’s skilled labor.

412

Sen. Metsger

MOTION: MOVES ADOPTION OF SB 896-1 AMENDMENTS.

415

Chair Deckert

Asks if there is any discussion on this amendment. Asks Lizbeth Martin-Mahar to facilitate drafting of a sunset amendment.

422

Chair Deckert

ORDER: THERE BEING NO OBJECTION THE CHAIR SO ORDERS.

VOTE: 5-0-0

VOTING AYE: GEORGE, METSGER, PROZANSKI, C. STARR, DECKERT.

428

Sen. Metsger

MOTION: MOVES SB 896 AS AMENDED TO THE SENATE FLOOR WITH A DO PASS RECOMMENDATION.

430

Chair Deckert

ORDER: THERE BEING NO OBJECTION THE CHAIR SO ORDERS.

VOTE: 5-0-0

VOTING AYE: GEORGE, METSGER, PROZANSKI, C. STARR, DECKERT.

440

Chair Deckert

Closes work session on SB 896. Committee stands at ease to await the arrival of Sen. Morse to introduce SB 853. Adjourns meeting at 10:10 a.m.