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The Oregonian guest opinion: Tax reform a necessary next step for Oregon
Author: Patrick Burk
Posted: October 22, 2013

Read the original article in The Oregonian here.

Within an hour after the close of the special session, the Gov. John Kitzhaber and other legislative leaders turned to “what happens next?” The governor’s “three session strategy” started with governance changes in 2011, has now achieved significant financial stabilization in 2013, and will focus on tax reform moving into 2015.

The core fiscal problem in Oregon is reliance on inherently unstable state funding. This has been the central issue since the 1990s when Oregon capped property taxes, capped growth of property taxes and decided to finance core services primarily with state income taxes. Maintaining stable revenue is only possible when people are working and, therefore, paying income taxes.  In any significant economic downturn resulting in higher unemployment, the state revenue stream dries up. As a result, the 2008-09 recession brought significant cuts in state services, especially in education, leading to staff layoffs and furloughs, shortened school years, closures, higher tuition rates, etc. As the economy has slowly rebounded, we have seen a modest improvement in both employment and revenue, highlighted by increases in educational funding by the regular session and special session. This revenue roller coaster has taken a severe toll on Oregon. The governor and legislative leadership are correct to call this out as the next major issue that needs correcting.

The governor’s three-session strategy demonstrates complex political and fiscal realities. There may be no better time than now to build consensus going into the 2015 regular session for addressing this problem.

However, there are many potential hurdles to get over between now and then. Here a just a few:

1. Will Gov. Kitzhaber seek re-election? There is a general election to get through prior to the 2015 legislative session. Gov. Kitzhaber has not confirmed that he will run for a fourth term. Given the successes the governor has achieved in 2011 and in 2013, he will be a very strong candidate if he decides to run; but he has not, as yet, made that announcement. His victory in the special session may move him to want to complete the three session strategy.

2. PERS court challenge. The changes made to PERS in the 2013 regular session and the special session were not universally applauded, to say the least. Passionate testimony during both of the recent sessions indicated that significant opposition to these changes exists from public employee organizations. The core issue is whether the existing PERS benefits for current and retired PERS-eligible employees represent a contractual agreement and whether the Legislature has the authority to change that agreement. If the Oregon Supreme Court were to overturn these recent changes, a huge financial hole opens in the state budget.

3. Reauthorization of the Elementary and Secondary Education Act. The governor and the state of Oregon have gained significant national attention as a result of the educational governance changes approved in 2011. These changes came about partially because of a waiver process for some elements of the Elementary and Secondary Education Act (ESEA) which awaits congressional reauthorization. The U.S. House has already approved its version of the reauthorization of ESEA, and the Senate is working on its version. When Congress gets back to work on this, an important question will be how the final version of ESEA reauthorization impacts the changes being made in Oregon.

4. Results. The 2013 regular session appropriated $6.55 billion for schools in Oregon, and the special session has now added an additional $100 million to PK-12 and $40 million in higher education tuition support. The 2015 Legislature will be more open to creating a more stable revenue stream if the 2011 governance changes and the 2013 financial enhancements lead to clear system improvements. The single most important thing supporting current reforms is demonstrating that the modified governance structure and improved funding have produced solid results that put Oregon education back on track for national prominence. When the next regular session opens in January, 2015, a strong case will need to be made that current reforms and additional tax revisions will stabilize a system that is moving in the right direction.

Patrick Burk, Ph.D., is an associate professor in the Department of Educational Leadership and Policy, Graduate School of Education at Portland State University.  He blogs on educational policy at http://oredupolicy.wordpress.com.