SALEM — Major changes to the way Oregon taxes businesses won't materialize before the Legislature adjourns, the governor and top legislative leadership said Thursday.
The announcement comes after several weeks of heightened revenue discussions at the Legislature, and months of disagreement between business and labor groups over how the state should tax businesses after a divisive ballot measure campaign.
The decision effectively tables reforms to the state's public pension system and "clears a path forward" for a major transportation funding package, said Gov. Kate Brown.
It also means that a state hiring freeze will continue and that legislation attempting to curb the costs of state government from education to forestry will likely advance.
Brown, Senate President Peter Courtney, D-Salem, and Speaker of the House Tina Kotek, D-Portland, say structural changes to the state's tax system will have to wait until the next long legislative session in 2019.
The Oregon Legislative Assembly meets for approximately five-month long sessions in every odd-numbered year, alternating with short month-long sessions in even-numbered years, and is constitutionally required to finish its business — primarily, balancing the state budget — by July 10.
With a $1.4 billion gap between projected revenue and expenses in the next two-year budget, only partially closed with the Legislature's passage Wednesday of a new tax on health care providers and insurers, Courtney, Kotek and Brown say that they'll push for cost containment to make up the difference.
"...We have worked for months with legislators in both parties, business leaders, and labor leaders, to identify ways to reduce state spending, contain costs going forward, and finally reform our revenue system," Brown, Courtney and Kotek said in a joint statement Thursday morning. "While we are moving forward on several major cost containment measures, it has become clear that the Legislature will not have the necessary support to achieve structural revenue reforms this session."
Those cost containment strategies won't include proposed cutbacks to the Public Employees Retirement System, a sticking point for many Republicans.
Some Democrats had hoped to achieve structural changes to state taxes on business, shifting the basis from income to sales.
But this week there were already indications those ambitions may not come to fruition.
Lawmakers were considering alternatives, such as increasing the existing corporate income tax, which could raise $530 million for the next budget, and narrowing eligibility for a pass through tax break, which would shore up nearly $200 million in the next two years.
Brown said she didn't think that a proposal to increase the corporate income tax had "traction" in the Oregon House.
And Republicans are already up in arms about the other proposal, which Senate Minority Leader Ted Ferrioli, R-John Day, dubbed a "tax heist."
Brown said she wanted to "set the table" for a tax overhaul in 2019. She blamed the rancorous Measure 97 fight last year for the impasse.
Measure 97, backed by union groups, would have taxed certain corporations with annual Oregon sales of more than $25 million.
"It is really clear to me, as I mentioned, that it takes a full legislative session to vet structural changes to Oregon's revenue situation," Brown told reporters Thursday. "I think I would have liked to (have had) a process leading up to that. Ballot Measure 97 and the battle over that prohibited that table or that level of collaboration."
A rematch over business taxes is already shaping up for the November 2018 ballot.
The state's largest teachers' union, the Oregon Education Association, is backing a ballot measure that would create a gross receipts tax on businesses with annual sales of more than $3 million.
House Majority Leader Jennifer Williamson, D-Portland, contended Republicans were to blame.
Democrats in both the House and Senate are one vote shy of the three-fifths majority required to pass revenue-raising measures, meaning that if all Democrats were to vote in favor of revenue reform, they'd still need one Republican on board.
"Unfortunately, Republicans have chosen to stand in the way rather than work collaboratively in order to solve the biggest problems facing our state," Williamson said in a statement. She argued her caucus had floated proposals to reduce costs, address the state's "broken" revenue system and stabilize education funding.
House Minority Leader Mike McLane, R-Powell Butte, shot back, arguing that Republicans had worked "in good faith."
"We said before the session began that we would be open to raising revenue if Democrats were willing to engage in a serious effort to grow the economy and control costs," McLane said in a prepared statement. "The Democrats were not willing to do that. House Democrats failed to produce this session the budget changes needed to support our communities."
Hanna Vaandering, president of the Oregon Education Association, accused both Republicans and Oregon businesses of obstruction in a statement Thursday.
"We met with the business community nearly 10 times and not once did they bring forward a long-term, sustainable solution for our students," Vaandering said. "They said it would be easy to find common ground, but instead have spent months obstructing."
But Vaandering also said the Legislature had "ample time" to pass a bigger revenue package before the final gavel falls later this summer.
Business leaders such as a Brighter Oregon, a coalition of businesses and business groups including the Portland Business Alliance, were adamant that their support for new revenue was contingent on curtailing the state's costs, which the state now appears poised to do out of necessity.
Jim Green, head of the Oregon School Boards Association, called Thursday's announcement "disappointing."
"Now there will be a lot of finger-pointing on both sides, but ultimately this is a failure by our elected state leaders to put aside their differences and do what is needed," Green said in a statement. "Instead of a solution, what we are left with is a short-term patch."