Legislative Report - Week of 2/23

Revenue Team

Coordinator: Peggy Lynch

REVENUE

Patricia Garner, Josie Koehne, Peggy Lynch

We understand that we are $650 million in the hole related to revenue needs vs. expenses. But this number doesn’t reflect all the legislation being considered this session. According to Rep. Owens, “Budget rebalancing discussions will begin next week,…” That was this last week! We are beginning to see bills that were sent to Ways and Means because they had costs (fiscals) being assigned to Ways and Means Subcommittees. By next week we should see more bills being assigned to those Subcommittees if they might be fully or partially funded. A reminder: These Subcommittees have the ability to change policy in the bills sent to them as well as determine what and how much to fund them.

SB 1507 A that “disconnects” a few sections of the federal tax code from our state tax system could provide another $311 million of revenue to reduce that $650 million deficit. The Legislative Revenue Office provided this chart to help explain the revenue impact. Here is the Staff Measure Summary, the Fiscal Impact Statement and the Revenue Impact Statement. The measure provides for an increase in the Earned Income Tax Credit that the League has long supported. Our partners at the Oregon Center for Public Policy (OCPP) have provided a video that might help explain this complicated tax policy. The Oregonian provides another explanation of the committee’s work. The League provided testimony in support of the amended bill.

There was a Minority Report filed (Staff Report) and that report’s Revenue and Fiscal Impact Statements are available in the bill’s meeting materials. After an attempt to substitute the Minority Report, the Senate passed SB 1507 A 17-13 on Feb. 16, and it went to the House Revenue Committee. Public Hearing Feb. 18. Work Session Feb. 19. A number of amendments were posted but, after learning of the effect of the amendments, none were adopted and the bill passed the committee (4/2/1) and is headed to the House floor where another Minority Report may be considered.

HB 4014: Requires the Legislative Revenue Officer to study the state financial system. Public Hearings held Feb. 2 and 11. Work Session Feb. 20 -2 amendment replaces the bill. Staff Measure Summary. The bill passed the committee and was sent to Ways and Means.

SB 1510: Updates the terminology used to describe certain income earned by multinational corporations to reflect a change in the term used in federal law. This omnibus bill, with amendments, would provide an opportunity to explore additional tax policy for consideration in the 2027 session. It is likely easier to understand the many provisions of SB 1510 by reviewing the summary provided by the Legislative Revenue Office of the bill and its -4 amendments. Public Hearing Feb. 11. Although the League was disappointed that this policy was not included in SB 1507 A, we can support a continued conversation around corporate tax policy. On Feb. 16, the Committee adopted the -4 amendments and passed the bill out of committee unanimously.

SB 1511: Modification of the estate tax. A -3 amendment was posted for a Feb. 18 Work Session and was passed with a “do pass” recommendation (3/2). The Committee also considered a -4 amendment which was proposed by Senator Mike McLane. It was rejected on a party line vote. SB 1511 -4 sought to raise the current $1 million estate tax exemption to $1.5 million, while retaining the newly proposed $2.5 million threshold. It also called for an annual adjustment to account for inflation. The staff has provided this analysis on the -3s that indicates no expected revenue loss for this biennium but $35 million by 2029-31. Public Hearing Feb. 11. OCPP provides an analysis of this tax.

The bill relates to revisions in Oregon’s estate tax computational system. Chris Allanach from the LRO testified that the revisions are easier to understand if they are divided into three groups: estates valued under $2.5 million will result in zero tax; estates over $3 million will incur tax using tables similar to those today but with higher rates, which are designed to make the policy revenue neutral. The third category includes estates between $2.5 and $3 million. The rates were increased to minimize the impact of the new policy, and the $2.5 million threshold is indexed to inflation. Estates valued below $2.89 million will pay less in tax than in previous years and those over that amount will be paying more, with an average tax increase of approximately 2.7%. Estimated net revenue impacts in fiscal year 2025-27 are considered minimal; for 2027-29 the net loss is $3.2 million and for 2029-32, $35.4 million. Processing fewer returns is likely to reduce operational costs but how much is unknown.

Tax Fairness Oregon supports the bill on the grounds that the changes would improve the equity and efficiency of the estate tax system. Small business representatives, including from OBI, opposed the - 3 amendment on the grounds that Oregon should instead eliminate estate taxes just as most states have and the plan to increase taxes is not wise as it would continue to disincentivize growth and investment in Oregon. Courtney Graham, SEIU Local 503’s Political Director, supports raising tax rates on the largest estates in Oregon, is neutral on raising the tax threshold to $2.5 million and opposed the indexing of the estate tax threshold. She proposed including a cap for that index. Work Session Feb. 18. -4 amendment considered. -3 amendment was adopted and the bill goes to the Senate Floor by a 3/2 vote.

SB 1549 seeks to increase the maximum allowable political tax credits from $50 for a single taxpayer and $100 for joint taxpayers to $1,000 for a single taxpayer and $2,000 joint taxpayers. The bill’s Chief Sponsor is Senator Robinson who also testified at the Public Hearing on Feb. 11. A Work Session has not been scheduled for SB 1549.

SB 1586: the tax credit allowed for semiconductor research. Creates and amends certain programs offering tax breaks related to advanced manufacturing, enterprise zones and regionally significant industrial sites. See more on this omnibus bill in the Land Use section of the Natural Resources Report. Oregonlive provided this comprehensive assessment of the bill. This Oregonlive article indicates that the bill’s chief sponsor is listening to concerns: “The enterprise zone part is being removed from the bill.” But there’s still a chance that the tax breaks will expand this session. Gov. Tina Kotek has similar language in an economic development bill she is promoting. Public Hearing Feb. 16. The League provided testimony in opposition to this bill. A -4 amendment was provided by Sen. Sollman and she testified on the bill. Another Public Hearing set for Feb. 18 where a -5 amendment was mentioned (but not posted) and many “analysis” documents were posted, including one from the Legislative Revenue Office on R&D Tax Credits. Another Public Hearing Feb. 23. We may see additional amendments. See the meeting materials posted in the Analysis section of the bill’s Overview for more information. OPB provided an article on this contentious bill.

SB 1562: Allows city and county services for which net local transient lodging tax revenue may be used to be provided either directly by the city or county or indirectly by a special district. With the movement of HB 4148, this bill is likely dead.

HB 4148: Allows city and county services for which net local transient lodging tax revenue may be used to be provided either directly by the city or county or indirectly by a special district. Changes the division of allowable uses of net local transient lodging tax revenue. Allows units of local government with restricted grandfathered local transient lodging tax regimes to take advantage of the new provisions of the Act. Establishes biennial reporting by local governments of amounts and uses of local transient lodging tax revenue. Public hearing Feb. 9. Work Session Feb. 19. -7 amendment adopted that changes the percentage to 50/50 and passed the committee to the House floor.

HB 4125: Prescribes methodology for the preparation of revenue estimates used in the budgeting process and as applicable to the surplus revenue refund process. Applies to estimates prepared on or after January 1, 2027. Requires the Department of Revenue to estimate the difference in surplus revenue calculations using stated methodologies, and transfer an amount equal to the difference for use for various purposes. Establishes the One-Time Emergencies and Finance Fund. Public hearing Feb. 2.

HB 4136: Disallows, for purposes of personal income taxation, a mortgage interest deduction for a residence other than the taxpayer’s principal residence, unless the taxpayer sells the residence or actively markets the residence for sale. Establishes the Oregon Homeownership Opportunity Account. Transfers an amount equal to the estimated increase in revenue attributable to restrictions on the deduction of mortgage interest to the account, for the purpose of making down payment assistance payments. Applies to tax years beginning on or after January 1, 2026. Public Hearing Feb. 16.

SJR 201: Kicker Reform: Proposes an amendment to the Oregon Constitution to require a portion of surplus revenue that would otherwise be returned to personal income taxpayers to be used for funding public kindergarten through grade 12 education, community colleges and wildfire prevention and suppression, if surplus revenue exceeds a certain threshold. Refers the proposed amendment to the people for their approval or rejection at the next regular general election. OPB covered a story about the bill. Public Hearing Feb. 18. At the present time the kicker is triggered when actual state tax revenues are 2% or greater than what had been forecast; if that amount is exceeded, that amount goes back to taxpayers. SJR 201 proposes that the kicker will “kick” only if the excess revenue is greater than $300 million for any biennium, in which case 50% would go back to the taxpayers and the remaining 50% would be split between K-12 and community college funding and wildfire prevention and suppression. The threshold amount would be adjusted for inflation at the end of each biennium. SJR 201 -1 amendment has also been filed. It refines the educational portion to include K – 12, for higher education purposes and community colleges. Senator Prozanski testified that since the kicker became effective, out of 23 biennia, the kicker has “kicked” only 8 times. He also stated that the legislature cannot on its own change the kicker as it was placed in the Constitution by the voters after referral by the legislature. A Work Session has not been scheduled. The League has long supported kicker reform but we also note that, with our new state economist, another kicker is not expected in the near term.

There continue to be questions around the health of the economy. That’s SO important in an income tax state like Oregon. OPB provided this article on lack of job openings. The Oregon Capital Chronicle Jobs Report article also noted this concern. The federal government announced the last quarter growth was down to 1.4% and inflation moved up to 2.9%.

Are the Education Stability Fund and Rainy-Day Fund in play to help reduce the budget cuts? Conversations are happening, but there are special processes/votes needed to access these funds. With the gap between revenue and expenses having been reduced, it is unlikely these funds will be accessed for now.

On Feb. 20, the US Supreme Court declared that President Trump does not have authority to impose widespread tariffs under a specific federal statute. Oregon’s Attorney General, Dan Rayfield, led the coalition of states arguing that the President did not have this authority. However, the President then ordered 10% global tariffs—tariffs that can only last for 150 days. Canada and Mexico will be exempted from these new tariffs. However, the ruling offers no relief for the American tariffs harming key Canadian manufacturing sectors — auto, steel and aluminum — as well as the Canadian lumber industry. It is time for Congress to retake control over taxation—which is what tariffs really are. We don’t know yet what effect this SCOTUS decision will have on Oregon’s revenue.

The Full Ways and Means Committee met Feb. 6^th and introduced 6 budget bills for the session. Here are the bill numbers. Expect amendments by the end of session:

SB 1601: Amends an incorrect internal reference in a law relating judicial compensation. Program Change.
SB 5701: Modifies previously approved lottery bonding provisions. (Includes monies for the Port of Coos Bay) Bond Authority. Public Hearing Feb. 13 where the Housing Alliance requested funds for preserving existing housing that will no longer be regulated as “affordable”.
SB 5702: Establishes and modifies limits on payment of expenses from specified funds by certain state agencies for capital construction. Capital Construction 6-year limitation. Public Hearing Feb. 13 where the committee heard 3.5 hours of 2-minute requests from across the state—from infrastructure to housing to resilience hubs to a variety of economic development projects. Legislators were allowed only two requests each but even that meant up to 180 requests!
SB 5703: Establishes biennial appropriations and expenditure limitations for ______ for the biennium ending June 30, 2027. Placeholder for agency allocation changes.
HB 5203: Approves certain new or increased fees adopted by state agencies. The bill includes the Dept. of State Lands Wetlands processing fees set forth during rulemaking for which the League engaged. Fee Ratification.
HB 5201: Establishes biennial appropriations and expenditure limitations for ______ for the biennium ending June 30, 2027. Placeholder.
HB 5202: Establishes biennial appropriations and expenditure limitations for ______ for the biennium ending June 30, 2027. Placeholder.
HB 5204: Modifies certain biennial appropriations made from the General Fund to specified state agencies and the Emergency Board. Establishes and modifies limitations on expenditures for certain biennial expenses for specified state agencies. The items populated in this bill as introduced reflect tentative decisions made by Ways and Means during the January Legislative Days. Omnibus Budget.

Here is the material from the Oregon State Debt Policy Advisory Commission. Tentatively the General Obligation bond capacity for the 2026 session is $513 million and $86 million lottery bond capacity.

Revenue Committees and Ways and Means don’t need to follow the session deadlines. They work until close to the end of session.

See other sections of the Legislative Report about the cuts in each area and what’s being considered to address the revenue shortfall.