Attempt to Create Rainy Day Fund in Oregon Defeated by House Republicans

Standard & Poors has assigned Oregon a AA- credit score, three rungs from the premium AAA rating. The mediocre bond rating costs the state taxpayers millions of dollars each year in increased borrowing costs.

Photo by: Tim King

(SALEM) - Legislation that supporters believe would have helped to ensure Oregon’s financial future failed Tuesday in the state House of Representatives amid Republican opposition, forcing Democrats to look to voters to create the rainy-day fund they so doggedly seek.

The plan, supported by an unusual coalition of Democrats and business groups, would have redirected an estimated $275 million in corporate tax rebates this year into a budget reserve created to help avert the type of deep budget cuts that lawmakers made in the 2002-03 recession.

“We cannot cast the future of this state into further doubt … with little recourse in the worst of times,” Democratic Rep. David Edwards of Hillsboro told lawmakers in an impassioned plea to support the bill.

Under the proposal outlined in HB 2707, one-percent of the state’s general fund budget would have been squirreled away, and money unspent at the end of this and subsequent biennia would have been deposited into the account, with the interest earned devolving back into the general fund.

It failed to muster the supermajority vote needed to pass after lawmakers were unable to agree on, among other issues, how large the fund would be allowed to grow, how it would be administered, and under what circumstances reserves could be tapped.

Marking the session’s first partisan skirmish, in a straight party-line 26-31 vote, all the House’s 31 Democrats voted in support of the bill, 29 Republicans voted against it. Three Republicans were absent. Nine Republican votes were needed to give Democrats, who control the House, the needed votes to advance the measure to the Senate.

In floor debate that lasted nearly two hours, Rep. Dennis Richardson, R-Central Point, told his colleagues that as they continue spend every penny at their fingertips, and try to raise taxes along the way it affirms something voters “sadly” think they know.

“The Legislature is an addict, and the drug of choice is money,” he said. Oregonians, he added, would eventually realize the bill was “fatally flawed.”

“Once again, the citizens of Oregon will find over time the Legislature has promised much and delivered little,” he said. “Let us vote against a bill that makes it too easy to take the money out of the rainy-day fund.”

A proposal in the state Senate, SB 549, would place an outright repeal of the so-called corporate kicker law on the May 15 ballot. To get a measure on the ballot, the Legislature must refer a constitutional amendment by March 15.

With state coffers brimming and revenues exceeding official expectations this year, state Treasurer Randall Edwards was optimistic that lawmakers would allow the kicker to be suspended.

“We have had some tough, rotten times, and now we have a massive amount of (extra) money,” the Portland Democrat said an earlier interview with Salem-News.com. “Now we can really start to save.”

Passed in 1979, the kicker law, unique to the Beaver State, requires that when tax receipts exceed official projections by at least two-percent, the unanticipated gross revenues must be returned at the end of the two-year budget cycle.

That adds to the state’s “financial instability,” said Gabe Petek, director of the state and local government group at Standard & Poors.

In good years, like this one, when the state has more money than is expected, none of it can be saved because surpluses must be returned to taxpayers. Then, he explained, when economic times turn and revenues slump, there is no reserve to cushion the fall.

Standard & Poors has assigned Oregon a AA- credit score, three rungs from the premium AAA rating. The mediocre bond rating costs the state taxpayers millions of dollars each year in increased borrowing costs.

It is believed that once the state has a budget reserve, analysts on Wall Street will upgrade the state’s rating.

-Chris Rizo covers the state Capitol for Salem-News.com. He can be reached by e-mail at csrizo@hotmail.com