Session Ends, Leaving Important Work Unfinished
The 2023 Legislature adjourned on June 25, bringing to a close an eventful session that produced meaningful progress in some areas, including economic development, transportation and policy alignment, but ultimately failed to take the bold steps needed to produce the growth and investment the state needs. Much work remains, particularly work to alleviate regulatory burdens that hamper economic development. This area received almost no attention this session at all.
The session consisted of three distinct phases: a four-month period of relative harmony and productivity; a six-week walkout by Senate Republicans that produced a large backlog of bills in the upper chamber; and a mad dash to sine die.
During the session’s first phase, the Legislature approved a package of incentives for semiconductor and advanced manufacturing projects. The package also gives the governor temporary authority to circumvent land-use restrictions that might hinder semiconductor projects. And roughly a week before the Republican walkout brought floor sessions to a halt, the Senate approved a bill that takes important first steps to better align the Oregon Family Leave Act (OFLA) and the state’s new paid family and medical leave insurance (PFMLI) program, moving it to the House for passage.
During this period, OBI’s policy team testified more than 100 times on good bills and bad ones. Among many beneficial bills that received consideration are those that would reduce Oregon’s estate tax, re-establish a research and development tax credit, address organized retail crime, simplify the use of hiring and retention bonuses and streamline the creation of child-care centers.
The list of harmful bills on which the policy team testified is much longer. It includes proposals to increase the state’s carbon-reduction targets dramatically, leading to complicated additional rulemaking; ban petroleum-based diesel fuel well before we have a dependable supply of reasonable alternatives; make contractors responsible for subcontractors’ nonpayment of wages; increase litigation against insurers, which would raise premiums for nearly all Oregonians; limit large farming operations; and push the state closer to a staggeringly expensive and unworkable universal health care system.
The May 3 Republican walkout stalled many of these bills and threatened to derail work on critical issues that had not progressed in earnest during the session’s first four months. Perhaps the highest profile potential casualty was the Interstate 5 replacement project. To remain eligible for significant federal grants, Oregon needed to come up with a plan to pay its $1 billion share.
The legislative floodgates opened when Senate Republicans returned June 15, a mere 10 days before the session’s mandated end date. Language from both good and bad legislation was cobbled together in omnibus bills. The Legislature ultimately did approve a research and development tax credit, though it applies only to semiconductor work and is far smaller than Oregon’s competitive needs require. Meanwhile, significant effort by the policy team was required to remove potentially harmful carbon-reduction language from a climate omnibus bill that would have led to a wave of complicated rulemaking.
In the waning days of the session, the Legislature did include $250 million in bonding for the I-5 bridge project in an omnibus bill, anticipating similar contributions over the next three biennia. The incomplete nature of the funding echoes what became a theme during the session as lawmakers consistently provided only partial solutions to significant problems. The R&D tax credit is too small and too limited, as are changes to the state’s estate tax. Legislation involving OFLA and PFMLI addresses only some alignment problems. The land-use authority granted the governor for semiconductor projects does not address larger problems with the state’s aging land-use system, which limits industrial, commercial and residential land to a harmful degree. Still, the progress made in these areas matters, and the policy team will work with legislators in coming sessions to build upon the progress made this session.
Regulatory reform will be an area of particular focus for the team. OBI, the Oregon Semiconductor Competitiveness Task Force and many others have emphasized the need for regulatory reform, and to that end OBI’s Growth and Innovation Roadmap recommended many policy changes. These include, among other things, the elimination of moving-target permitting and the establishment of an office of business ombuds. Despite holding hearings for several of OBI’s reform bills, however, the Legislature made no significant progress this session. OBI will be back at the table with good ideas in future sessions.
OBI plans to release a full session report toward the end of July.
‘Christmas tree’ bill
SB 5506A was the much-anticipated “Christmas tree” bill this session. It includes a variety of specific allocations and funds the Legislative Emergency Board. It passed both chambers June 25. The bill appropriates $1.04 billion in general funds, $1.79 billion in other funds and $515 million in federal funds through 320 separate spending items, packages and adjustments to other budgets. Notable items include $525 million for state employee compensation changes; $50 million for increased patient caseload support; $50 million for additional Legislative Emergency Board reserves; an additional $11.2 million to hire and retain public defenders; $39 million in additional long-term rental assistance for low income Oregonians; and an additional $50 million in support of Oregon semiconductor industry grants through Business Oregon (which is in addition to the $190 million that was previously allocated through SB 4).
HB 5006A, this biennium’s capital construction budget bill, passed June 25 with strong support in both chambers. The bill appropriates $1.4 billion for various capital improvement projects that begin in the 2023-25 biennium. This is a reduction from the $1.9 billion authorized for the 2021-23 biennium. Among other items, HB 5006 includes $600 million for acquisition and construction of affordable housing; $56 million for expansion of state police facilities; $71 million to improve state corrections facilities; $215 million for the final phase of the Capitol building project; $328 million for public university capital projects; and $38 million for community college capital projects. HB 5006 is directly supported by HB 5005A, which is the biennial bonding authorization bill. It also passed June 25 with strong bipartisan support in both chambers.
I-5 Bridge Funding
Funding for the Interstate 5 bridge replacement project unfolded differently than anticipated, but the Legislature produced the outcome necessary for federal grant eligibility. In HB 5005A, the bonding authorization bill, the Legislature dedicated $250 million in general obligation bonds for the upcoming biennium (2023-25) with additional authorizations for future general obligation bonds of $250 million in each of the following three biennia. This gets to the $1 billion commitment. This path became necessary when the Joint Committee on Transportation failed to act on a standalone bridge bill at its final meeting. In the end, HB 5005A passed easily and without fanfare. However, a lot of work and energy went into advocating for the bridge and supporting a funding package: coordinating with partners, convening stakeholders, writing letters, testifying, etc. These efforts helped ensure that this vital project will move forward. OBI will now focus on generating support from coalition partners and OBI members for the grant application(s). Federal grant funding opportunities are expected to open any day.
SB 900, which will help fund sting operations to combat organized retail crime, passed during the session’s final days. The $5 million this bill provides local law enforcement is a significant step in Oregon’s battle against this problem. The bill’s counterpart, SB 318, earmarks funding for an analyst and two investigator positions within Department of Justice to help coordinate organized retail crime efforts. It was included in the so-called “Christmas tree” bill.
R&D Tax Credit
HB 2009A passed the House and Senate during the session’s final days. The bill was the vehicle for a research and development tax credit, which OBI and other stakeholders worked aggressively to pass all session. Given cost and budget limitations placed on the credit by the speaker of the House and Senate president, the credit was limited to the semiconductor industry only. While we advocated for a credit that would be available to all advanced manufacturers in Oregon, we are happy that Oregon will finally have a competitive new tax credit on the books, and we are also confident that this credit will create a significant competitive advantage for Oregon’s semiconductor industry going forward. We will work to expand the credit’s eligibility to other industries during the next biennium.
HB 3409, an omnibus climate bill that contains pieces of 15 policy bills, passed over the weekend. Amalgamated bills that feature loosely related policies are problematic, especially when they appear with little notice. This omnibus bill contained two particularly objectionable components, which ultimately were modified before passage. First, the introduced version of HB 3409 included the original language from SB 522, which sought to increase the state’s greenhouse gas reduction targets. This proposal threatened to outpace available technology and infrastructure. It also would have produced new and modified rules, even reopening complicated rules established just last year. Second, a section in the original bill would have allowed municipalities to adopt building codes that exceeded state requirements. This would have resulted in a patchwork of codes, producing compliance problems and higher costs. Even as amended, the bill contains some frustrating components, including changes to the Global Warming Commission (now the Oregon Climate Action Commission), new heat pump installation targets (500,000), and some energy performance standards for new and existing buildings. However, it is far more workable and sensible than introduced version.
Bad Insurance Bills
A pair of potentially harmful insurance bills failed during the session’s final weeks. HB 3242 would have allowed lawsuits against insurance companies for “bad faith” actions under the Unfair Settlement Practices Act. Increased litigation would have strained Oregon’s court system, and insurance rates for Oregonians would have soared. HB 3243 would have allowed lawsuits against insurance companies under Oregon Unlawful Trade Practices Act for violations of the Unfair Settlement Practices Act. It, too, would have encouraged lawsuits and increased premiums. While the failure of these bills is good news, they are likely to reappear in 2024.
Like other states, Oregon hosts a 9-8-8 behavioral crisis hotline service. HB 2757B creates a per-line monthly tax of 40 cents to support a new 9-8-8 Trust Fund. The fund will expand the existing hotline and support new behavioral crisis services. The original bill proposed a tax rate of $1.25 per month per phone line, which would have raised enormous sums. While the tax rate reduction is good news, the agreed-upon rate is still high, and OBI has concerns about accountability for the use of funds. Also, this tax represents yet another one-off measure to support services that otherwise would be covered by the general fund. Even at this lower rate, Oregon’s 9-8-8 system will be among the highest funded per capita in the country. This was the only tax increase to pass during the 2023 session.
Universal Health Care
Unfortunately, SB 1089 passed during the session’s final week. SB 1089 establishes a Universal Health Care Governing Board to continue the work of the Task Force on Universal Health Care. The board must present a comprehensive plan for a single-payer universal health plan by Sept. 16, 2026, which could lead to legislative recommendations for the 2027 session. A universal health plan could require more than $20 billion in new and higher taxes, according to the final report presented by the Task Force on Universal Health Care. Of that $20 billion, around $10 billion would come from excessive employer payroll taxes and the balance from increased taxes on individuals. Establishing a universal health plan will be difficult. No state that has explored the idea has created such a system. The federal government would have to sign off. And a three-fifths vote in the Legislature would be required to raise the necessary taxes. OBI will remain engaged on this issue.
DEQ Permit Fee
HB 3229A raises money for the Department of Environmental Quality’s Title V air quality permitting program. It passed on the final day of the session. DEQ had indicated that an 83% increase in Title V permit fees was necessary to retain staff and fill vacant positions in the program. The existing Title V program provides for CPI increases, but the Legislature must approve larger increases. There had not been a significant fee increase since 2011. While the regulated community did not dispute the need for a fee increase, an 83% hike was alarming and came without discussion. Given DEQ’s lack of restraint in adopting new and costly rulemaking, an increase of that size would have exacerbated compliance costs that are rising already. A small modification was made to split the increase into two steps: a 43% increase in 2023 and a noncompounding 40% increase in 2024. The bill passed.
DEQ Budget Notes
Importantly, two budget notes addressing accountability in the Title V program were included in DEQ’s budget bill (HB 5018), and key performance measures for the agency are also tied to the fee increase. The budget note also indicates that the agency will examine its fees to determine whether a different structure makes sense. Fees currently affect facilities with high emissions most heavily, but do not account for the complexity and time DEQ spends on administering Title V permits. OBI believes the current fee structure is unsustainable and that DEQ must be required to rein in the complexity and time associated with the program’s administration. That can be done without sacrificing outcomes.
OBI testified twice during the session’s final week in support of HB 2083A, which ultimately passed. The bill is a two-year sunset extension, through 2024, for Oregon’s SALT workaround program, which originally passed in 2021. High-tax states like Oregon began implementing SALT workaround policies after passage of the federal 2017 Tax Cuts and Jobs Act, which limited itemized deductions for state and local taxes through 2025. The program allows Oregon pass-through entities to elect payment of an alternative business income tax while receiving a correlated personal income tax credit. This structure is revenue neutral for the state but allows Oregon pass-through entities to exceed the $10,000 deduction cap in the 2017 federal law.
Many legislators expressed a desire this session to address Oregon’s child care shortage. Two significant bills passed both chambers during the session’s final week. HB 2727 directs the Department of Land Conservation and Development, in consultation with the Department of Ealy Learning and Care, to convene a workgroup to examine the impact land use regulations, zoning ordinances, building codes and permitting practices have on the supply of child care services and facilities. The workgroup must produce strategies that mitigate these barriers. While this bill provides no immediate relief, testimony from child care providers this session pointed to significant administrative and regulatory hurdles. HB 3005, a priority of Gov. Kotek, creates the Early Childhood Infrastructure Fund, a $100 million grant and loan program to help eligible child care providers increase capacity. The program will be administered through Business Oregon in coordination with Department of Early Learning and Care. It is effective upon passage. OBI will monitor the rollout of this program.
Several proposals that would require personal finance education for high school students were considered this session. SB 3 passed during the session’s final week. To graduate, Oregon students will be required to take a half credit of personal finance education and a half credit in higher education and career path skills. OBI has supported mandatory personal finance education for Oregon students.
Public Works Apprenticeship
HB 2649 increases the share of apprenticeship hours required by public works contracts. Required hours will jump from 12% to 15% by 2027, and contractors that fail to meet the requirement will be penalized even if they try to comply in good faith. The bill also expands the types of public works contracts to which that requirement applies to ODOT projects and every higher education project, including community college projects. The Senate passed the bill during the session’s final week. Prior to earlier House passage, OBI and others secured commitments from some of the bill’s proponents to work on fixes during the 2024 session. The coalition will begin working with those legislators during the interim.
HB 2057 would have made contractors liable for wages owed by subcontractors. The bill died. OBI and other stakeholders had emphasized the fact that a BOLI process for unpaid wages already exists. The bill would have reduced opportunities for new construction companies, as contractors would have been incentivized to work with subcontractors they know and trust. OBI expects this bill to return in future sessions.
Child Tax Credit
HB 3235B will provide refundable tax credits for low-income families with children. It passed the Senate and House during the session’s final week. OBI supported this bill, as it helps working families. However, it does not fix any of Oregon’s larger tax challenges.
OBI advocated strongly for SB 498, which passed both chambers. It will exempt the first $15 million of assets from estate taxation for agricultural and natural resource family businesses if those businesses remain in family hands for at least five years after the decedent’s death. This is a major step forward in our continuing efforts toward broader estate tax reform. SB 498 will help protect family farms, family fishing businesses and family forestlands.
Unfortunately, the Legislature passed HB 2763, which creates a task force to plan for the establishment of a state bank in Oregon. A state bank is completely unnecessary. Oregon’s banking and financial system already provides financial services, competitive pricing and access to credit. Task force recommendations are due by Sept. 1, 2024. They likely will be put into legislation for the 2025 session. OBI will work closely with key stakeholders to monitor the task force.
HB 2008 would have changed Oregon’s debt collection statutes by, among other things, substantially increasing the wages exempt from garnishment. It died. OBI and others opposed this bill throughout the session because it would have hampered the ability of retailers, medical offices and small businesses to collect debts for the goods and services they provide. Moreover, the bill would have limited the availability of credit for lower-income Oregonians. Unfortunately, this bill is likely to be considered again in future sessions.
HB 3043 expands Oregon’s Toxic-Free Kids Act by including “classes of chemicals” among the substances that must be removed from certain products. The bill passed during the session’s final week and will substantially increase the number of products that are regulated in Oregon and Oregon alone. OBI will continue to work on this issue through the rulemaking process to mitigate the harm to businesses that sell products here.
HB 3568 would have included Oregon among the growing number of states to adopt a so-called Warehouse Worker Protection Act. It died. As OBI and others argued consistently, the bill was extremely broad, overly burdensome and unnecessary in a state that already features strict employee protections. This bill is likely to be resubmitted for consideration in future sessions.
SB 546 bans the sale of cosmetic products that contain specified high priority chemicals of concern. The Legislature approved the bill despite the fact that Oregon’s economy is too small for the supply chain to accommodate the burdensome requirements it imposes on manufacturers and retailers. Consumers can expect to find fewer and more expensive products when visiting the cosmetic aisle in their favorite department store.