TIMOTHY J. GONZALEZ /PHOTO
Dean Braa, a sociology professor at Western Oregon University, fears that rising tuition costs will price some students out of a college education. He supports Measure 30, which would spare deep cuts to education.
January 18, 2004
Barbara Prince’s husband has cancer and their mom-and-pop truck repair shop is losing money.
They would face $1,000 in higher business taxes under the Legislature’s 2003 tax-increase plan, so they are voting “no” on the Feb. 3 referendum to ratify the new taxes.
Aidan Braa-Stanley’s art, music and physical-education teachers all received pink slips warning of impending layoffs. His mother’s teaching load at Oregon State University was chopped in half because of recent cutbacks.
His parents are voting “yes.”
As mail-in ballots go out for the special election on Measure 30, Oregonians are divided.
Some remain spooked by Oregon’s laggard economy and are in no mood to raise state taxes by $1.2 billion. Others worry about looming cuts to schools, colleges, health care and public safety — on the heels of other cuts that eroded public services since a recession gripped Oregon in mid-2001.
Measure 30 represents a stop-gap plan enacted by a bipartisan coalition of lawmakers in the 2003 Legislature to fill a nagging budget gap. It temporarily would raise income taxes for most Oregonians, reduce an elderly medical tax break, increase business taxes, keep a 10-cents-per-pack cigarette tax and lower a property tax break for early payment.
Those opposing the tax increase easily gathered enough signatures to force it on the ballot.
If Measure 30 fails, that could force lawmakers back into a special session, or force cuts, starting on May 1, that amount to nearly 10 percent of the state’s discretionary funds for the rest of the 2003-05 budget cycle.
Gov. Ted Kulongoski warned last week that Oregon won’t become another poverty-stricken Appalachia if the measure fails, but neither will the economy tank if it passes.
Oregonians simply need to choose between preserving services and raising taxes, the governor said.
“It’s an investment in them, in their lives, in their future.”
Barbara Prince doesn’t think so.
She and her husband opened Pyramid Truck Repair in Silverton in 1975, and they once employed five workers. Now, it is down to the two of them, and the company grossed only $106,000 in sales for 2002. After paying for rent and other expenses, and drawing $33,600 in combined salary for the two of them, their company finished the year with a taxable loss of $16,000.
Under that scenario, Measure 30 would boost their corporate minimum tax from $10 to $1,000 per year. Even money-losing companies would pay higher taxes based on overall sales.
“This corporate minimum tax truly is a killer for small corporations like ours,” said Prince, 60, who lives in Keizer. “We’re just trying to keep this going until we can retire.”
School, college woes
Dean Braa and Kathleen Stanley figure that they would pay about $244 per year more in income taxes under Measure 30, based on their combined $71,000 in taxable income in 2002. They think it is worth it.
He is a Western Oregon University professor, who worries that rising tuition will price some students out of college. “We already worry about money for Xerox paper and chalk,” he said.
Stanley is an adjunct professor at OSU, and lost half her salary from recent cuts that reduced her teaching hours. “Adjuncts are one of the first to go” under budget cuts, she said, because their schedules are easily juggled.
Their son Aidan’s fifth-grade class already has 32 students and little space for more desks. “Two years ago at Independence Elementary, they had to let go most of their teaching aides,” Stanley said.
Braa was surprised to see the Central High School football coach out maintaining the field last summer. There wasn’t money to pay a groundskeeper, and the coach also must raise money to pay half his salary, Braa said.
Spending up, down
Oregon has no sales tax and strictly limits property taxes, so the state’s budget is highly dependent on income taxes. Led by an unprecedented high-tech boom, the state’s economy sizzled in the 1990s. That produced a bounty of income taxes.
Overall state spending more than doubled in a decade.
“The Legislature in that period of time spent every single penny,” Kulongoski complained. It even committed future lottery profits to pay for short-term school expenses, he said.
Voters forced much of the spending increase.
A 1990 ballot initiative limited property taxes and forced the state to assume most of the school funding burden. Other initiatives forced the state to pay significantly more for prisons and health care for the poor.
The Legislature also managed to send more than $1 billion in taxes back to citizens and corporations under a “kicker” law requiring rebates when taxes flow in higher than expected. In the fall of 2001, the Legislature sent back $254 million in kicker rebates, based on 1999-2001 tax collections.
The recession hit Oregon before the checks were in the mail. Each of the state’s key economic sectors — high-tech, tourism, timber, foreign trade, agriculture, and truck manufacturing — was ailing. Income taxes sagged. Capital-gains taxes plummeted after surging in the late-1990s stock market boom.
Oregon’s income-tax reliant budget was one of the hardest-hit in the country. Its unemployment rate rose to worst in the nation.
The crisis sent lawmakers scurrying back to Salem for a record five special sessions in 2002 to fill budget gaps. They put a temporary income-tax and corporate-tax increase on the January 2003 ballot, but voters defeated it.
When lawmakers met for a regular session in 2003, they could not muster the votes to order the added cutbacks needed to balance the budget. After eight frustrating months at the Capitol, a group of Republicans bolted from party leaders and helped craft a $1.2 billion tax-raising plan to preserve services.
Public safety fears
Over on High Street in South Salem, hoodlums recently broke into neighbors’ cars on either side of Paul Krissel’s house. He worries that a defeat of Measure 30 will curb money for after-school programs, youth corrections, indigent defense and courts.
Paying an extra $240 on his state income taxes is a good deal, said Krissel, an AFL-CIO national field representative.
“We’re talking about prosecutors not even prosecuting theft,” Krissel said. “If they happen to hit my car instead of the neighbor’s car, it probably would cost me this much to get the windshield repaired.”
He figures that South Salem High would tack more onto the $80 he already pays in fees so his youngest daughter can play soccer.
Krissel worries about bulging class sizes and reduced high school course offerings. His older daughter had a rich experience with Sprague High’s music program, and now is majoring in music in college.
“Too often, people talk about a tax burden rather than a tax responsibility,” Krissel said. Measure 30, he said, “buys me more than it costs as a citizen of Salem.”
As an added benefit, he said, Measure 30 will avoid future situations in which Enron paid only $10 in state corporate taxes for its Portland General Electric subsidiary, because of the state’s low corporate minimum tax.
“It’s a travesty that corporations get away with $10 taxes,” he said.
Tax hits in many ways
Wayne Brady of Salem sees the tax increases in Measure 30 as the real travesty. Brady, 67, lives off his real estate and other investments, and figures that Measure 30 will hit him three different ways.
He would pay about $350 more in income taxes from his $40,000 in adjusted gross income. He would lose $425 per year from new limits on Oregon’s tax break for elderly medical expenses. He also would pay $530 more property taxes on his string of rental properties.
“It’s not going to break my back, but it’s a significant amount when you figure that I’m earning maybe $20,000 out of that,” he said. “If this thing passes, I think a lot more businesses are going to be thinking about going across the river or Idaho,” he said.
Brady thinks the state could retain its essential services without the money from Measure 30.
“I think if we just keep on feeding them, they’re just going to keep on spending,” he said.
If voters concur with Brady, public schools and the state’s health plan for the poor could see the deepest cuts.
“It’s going to mean teacher layoffs, or perhaps shortened school years,” said Susan Castillo, state school superintendent.
The Oregon Health Plan, once praised as among the most expansive state programs for insuring the poor, could face deep cuts. The state spread its federal dollars wider by establishing a list of medical priorities and reserving dollars for more essential treatments. With the cuts from Measure 30, people added to the state’s basic Medicaid plan will be stripped of coverage.
Community colleges and universities will feel pressure to raise tuition and trim course offerings. State crime labs could lose more than half their staff members.
“I think it gets pretty ugly, pretty fast,” said Sen. Kurt Schrader, D-Canby, who helped craft the 2003-05 state budget.
Rep. Randy Miller, R-West Linn, said there are alternatives to protect students in the classroom. School districts could renegotiate labor agreements that granted benefits increases, he said. Lawmakers could consider eliminating some tax breaks, or perhaps re-pass the cigarette tax, he said.
“Increasing the income tax is nuts at any level,” Miller said. “We still are a high-spending state.”
Citizens for a Sound Economy, a national group that is leading the campaign against Measure 30, says that companies are leaving Oregon because of its taxes and burdensome regulations.
“Oregon cannot afford to give more companies and jobs reasons to leave,” wrote the group’s policy analyst Max Pappas in a report on Measure 30.
Chuck Sheketoff, who runs a liberal public-policy group in Silverton, argues the opposite.
“If Measure 30 goes down, we’re in trouble because we stop spending. You stop bringing in federal money to Oregon.”
No Oregon business could so easily provide the economic stimulus brought by the hundreds of millions of Medicaid matching dollars for the Oregon Health Plan, he said. That showers money on hospitals, nursing homes and other businesses throughout the state.
Paul Warner, the Legislature’s nonpartisan revenue officer, said the state has no good option for the economy when it comes to Measure 30.
“The state’s choice is either cut spending or raise taxes,” he said. “Either one of those things is going to slow the economy.”
Steve Law can be reached at (503) 399-6615.