2019 Session At-A-Glance The 2018 general election yielded great results for Oregon Democrats as they rode a blue wave to a supermajority in both the Oregon House and Senate. For the 2019 legislature, Democrats held a 38-22 majority in the House and an 18-12 majority in the Senate. Without the need for Republican votes on tax policies, moderate Democrats, particularly in the Senate, became the focal point of nearly all policy discussions. The lack of need for bipartisan deal-making drew a stark contrast from previous sessions.
The 2019 legislative session began with significant revenue-raising policy ambitions. Following the failure to pass a Cap-and-Trade measure in the 2018 short session, legislative Democrats worked throughout the interim on a new version of the policy, while Governor Kate Brown ran a well-staffed parallel effort, all aimed at passing a Cap-and-Trade bill and having it on the Governor’s desk for a signing ceremony on Earth Day. But in reality, negotiations on this carbon and tax policy would overshadow much of the legislative session right up to the end. Another major revenue issue loomed alongside Cap-and-Trade.
Despite Oregon voters’ overwhelming rejection of Measure 97’s gross receipts tax in 2016, legislators eager for new revenue for K-12 schools worked the issue again in 2019. In addition to the need for new school revenue, the legislature faced a $950 million funding gap for the Oregon Health Plan. Proposals for new or increased taxes were plentiful in 2019, but their passage was contingent on some sort of PERS debt-reducing legislation. The new composition of the Oregon legislature changed the flow of bills through the system. Unlike previous years, very few bills died with the first posting deadlines as they breezed through policy committees with ease. Bills flooded the Ways and Means and the Rules committees, which are exempt from committee deadlines. As sine die drew closer, Cap-and-Trade (HB 2020) stayed true to its controversial nature and overshadowed everything else. Both sides organized rallies and public displays of grassroots strength. Tension grew as the bill passed out of committee, and then passed the House floor on a party line vote.
With only 11 days until sine die, HB 2020 hit the Senate floor, but Senate Republicans did not. Instead, they organized a walkout in a final effort to stop the legislation. By denying the Senate a quorum for nine days, HB 2020 died. Having achieved their objective, Senate Republicans did return in the final two days to pass the remaining budget and policy bills that piled up and avoided the prospect of a special session. The legislature adjourned on Sunday, June 30th, using all 160 days allotted by the Oregon Constitution.
Here’s what happened: Oregon moves from the red to the black with unexpected surge of revenues At the outset of the 2019 session, the State of Oregon was in the red. Revenues were expected to generate $23.6 billion, while current service level (CSL) expenditures were projected at $24.2 billion. But almost immediately, the legislature began raising resources. House Bill 2010 raised insurance premium taxes to pay for the Oregon Health Plan, netting about $330 million. Then the legislature passed HB 3427, a commercial activities tax on all businesses with gross sales above $1 million that would net the state an additional $2 billion per biennium.
Then, just days after the passage of the major business tax increase, legislators were greeted with the shock of the session – the May quarterly revenue forecast projected yet another $770 million of additional, unanticipated general fund revenue. In addition to the new revenue, Oregon’s unique 2% ‘kicker’ law would send back an additional $1.4 billion back to Oregon taxpayers in tax credits in 2020. Very quickly, the state became flush with money. The historic May revenue forecast fueled legislative debates over revenue and taxes, but largely served to tamp down on calls for additional tax proposals. Republicans touted the influx of revenue as evidence that new taxes were unnecessary while the Governor and Democrats pivoted toward using some of the $1.4 billion ‘kicker’ to fund additional needs. Although there was much discussion about the state keeping some of the ‘kicker’, the votes did not materialize. All $1.4 billion will be sent back to taxpayers. Democrats flex their supermajority muscle
Following a successful November election for Democrats, the party was well-primed to pass policy priorities in the legislature. With a supermajority in both chambers, both policy and tax bills could be passed and signed into law without Republican votes. Democrats leveraged their new majorities for some significant policy wins. Perhaps most notable was the nation’s first statewide rent control policy (SB 608), which was fasttracked to the Governor’s office for signing by late February. National Popular Vote (SB 870), another Democrat priority, finally passed after having failed the previous several sessions. In another key Democratic objective, legislators moved to ease Measure 11 mandatory prison sentencing provisions for juveniles with SB 1008. Oregon Democrats also won passage of several environmental policy wins with the passage of HB 2509 (a statewide ban on single-use plastic bags) and SB 90 (plastic straw ban). They pushed HB 2250, requiring DEQ and OHA to assess changes to the Clean Air Act, the Water Pollution Control Act and the Safe Drinking Water Act in an effort to undo any rollbacks enacted by the Trump administration. Finally, they pushed through a ban on old diesel engines (HB 2007), both on road and off road, in the Portland metropolitan area. Commercial Activities Tax (CAT) passes with the Student Success Act HB 3427 proposed a $2.8 billion commercial activity tax on all Oregon businesses with sales above $1 million. It was the top priority for legislative Democrats. The bill went through several rounds of hearings and amendments, bringing educators, advocates, parents, students and businesses to the capitol.
Business groups remained opposed to the taxes in the bill, while Republicans and moderates demanded that additional revenue be accompanied by debt-reducing legislation on PERS, the state’s pension program. In an 11th hour deal, the Oregon Business & Industry trade organization marshalled an agreement with legislative leadership to be neutral on the tax bill in exchange for PERS reforms and a less-costly version of a Paid Family Leave program (HB 2005). This agreement broke the logjam and facilitated passage of the tax bill. HB 3427 passed the House on a party line vote before being sent over to the Senate. Senate Republicans brought the legislature and the Student Success Act to a halt for nearly a week by organizing a walkout. Within hours of their return to the capitol, HB 3427 passed the Senate on another party line vote. Prior to registering her ‘aye’ vote, the swing vote, Senator Betsy Johnson, made it known that her vote was contingent on the passage of substantive changes to the Oregon PERS system. Oregon legislature passes PERS reforms
PERS reforms became the focus of the legislative leadership immediately on the heels of the passage of the major business tax hike. Governor Brown was the first to release a plan. The Governor set her sights on one-time-funds that could be used to buy down PERS liabilities. She was met with strong business opposition as she proposed redirecting the $1.4 billion ‘kicker’ tax rebate and using reserve funds from the State Accident Insurance Fund (SAIF). Labor unions opposed the steep 3% employee contribution diversions in her proposal. While the Governor’s proposal collapsed under the opposition, it allowed the legislature to design a less sweeping PERS bill, Senate Bill 1049, which authorized a 2.5 percent diversion of Tier 1 and Tier 2 member contributions to reduce pension liabilities. It also authorized all new sports gaming revenue to be directed to buying down the PERS liability. SB 1049 was a tough sell for Democrats who were effectively harming their primary support base – public employee unions – but it passed the House and Senate with the bare majorities needed.
Medicaid funding shortfall plugged with new premium tax and general fund support Prior to the 2019 session, Oregon faced a $950 million Oregon Health Plan funding shortfall. This immediate need was met with immediate action. HB 2010, which proposed a 6 percent Medicaid tax on hospitals and a 2 percent tax on health insurance premiums, was the first major bill to pass. HB 2010 raised over $330 million and was signed by the Governor in less than two months. A second leg of the Governor’s proposal to plug the Medicaid budget was HB 2269, the ‘Employer Assessment’ legislation that would assess all employers of 50 or more employees with a tax to cover the health care costs of all their employees. The bill met with stiff opposition from the business community and was killed when the deal was struck by OBI to stand down on the corporate activities tax hike. Ultimately, the Medicaid shortfall was solved in 2019 due to the huge influx of general fund revenues that came from the state’s booming economy. The additional $770 million that materialized with the May revenue forecast provided enough to keep Medicaid fully funded.
Lack of agreement causes Cap-and-Trade to crash spectacularly at the finish line On the heels of a failed 2018 effort, Cap-and-Trade Proponents spent the interim working on a revamped policy for 2019 with well-funded committees, research staff, and economic reports. HB 2020 was destined to become an all-out fight over this carbon pricing policy, with momentum growing for proponents. The newly-created Joint Committee on Carbon Reduction held multiple informational and public hearings each week through February, March and April, before passing the bill to the Ways and Means Committee in May. By that time, the bill had seen 94 different amendments, significant representation from impacted businesses concerned with the economic impacts of the legislation, and a slew of proponents demanding action on climate change.
When the time came to pass HB 2020 out of Joint Ways and Means, several Democrat Senators had voiced apprehension toward the policy. Cracks were staring to show. The vote for passage in the Ways and Means Committee was tenuous. One vocal democratic opponent was replaced. Another gave just a ‘courtesy’ yes vote. HB 2020 was on the House floor on June 17th and passed on a 36-24 party line vote after nearly 7 hours of grueling debate. With sine die only 11 days away, Senate Republicans used the only tool they had left to stop Cap-and-Trade: a walkout. By denying the Senate the necessary 20-member quorum, Republicans essentially closed the Senate and were willing to leave hundreds of budgets and bills on the table to die in order to kill HB 2020. Ultimately, they succeeded. It was an unprecedented ending to the 2019 session.
Going forward … what we are watching for:
Resignations, special elections, and new legislators. A number of legislators are rumored to be considering quitting, which would necessitate some special elections. There could be a slew of new legislators appointed in the coming months.
Will Oregon’s economy continue to generate huge revenue gains? Oregon’s balanced budget is built on unprecedented revenue growth over the past two years. Any hiccup in revenues will cause major budget disruptions. The budget is dancing on the head of a pin and probably not sustainable.
What will be the fate of Cap-and-Trade? Will it gain momentum for a special session? Will it regain momentum for the 2020 session? Both sides accumulated very impressive grassroots organizations that in many ways was the culmination of a growing statewide culture war in which Cap-and-Trade is the clear flash point.
Will opponents of PERS reform legislation be able to make their case to the Oregon Supreme Court? Opponents of SB 1049 will likely challenge the legislation in court. If successful, PERS reforms may never be considered again. And budget holes will need to be filled.
The 2020 legislative session will convene again February 3rd The 2020 session is Constitutionally limited to 35 days. Session will convene Monday, February 3rd with a legal end date of 11:59 pm on Sunday, March 8th. In the meantime, the legislature will convene for “legislative days” and committee meetings on September 16 – 19, November 18-21, and January 13-16.