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Gov. Kotek, Voter Survey Highlight Annual Meeting

Gov. Tina Kotek and many members of the Legislature joined hundreds of business leaders Wednesday for OBI’s Annual Meeting. Highlights included a Q&A session with the governor; an assessment of Oregon’s national competitiveness by Kat Saunders, a partner with Economic Leadership LLC; and a presentation on voter sentiments by John Horvick, senior vice president at DHM Research.

Saunders’ presentation echoes much of OBI’s own research about Oregon’s competitiveness, including our 2022 report on the states rapidly increasing business tax burden. Among the challenges Saunders identified are Oregon’s shrinking population, its high cost of living, soaring property crime and the rising cost of doing business.

The latter trend has contributed to a precipitous drop in a key national competitiveness ranking. In 2012, Oregon’s “cost of doing business” ranking was 23rd, according to CNBC’s Top States for Business index. In 2022, it was 34th, a drop of 11 places over a decade.

The economic challenges Saunders described are well known to most employers. They’re also the very problems the legislative agenda contained in OBI’s Growth and Innovation Roadmap is intended to address. Among other things, the agenda includes changes to the state’s tax code, including the creation of a research and development tax credit; several regulatory reform measures; and the creation of an Office of Business Ombuds.

Horvick’s presentation indicates that Oregonians are experiencing similar economic pressures. According to a survey DHM conducted in late April for OBI, only 25% of likely voters believe the state is headed in the right direction, a 20-year low. Fifty-two percent believe the state’s economy is headed in the wrong direction. And 74% say the state, if faced with a recession, should cut spending rather than raise taxes. The pro-restraint sentiment was even stronger in the Portland area, where 76% would rather cut spending than raise taxes.

You can read more about DHM’s survey on OBI’s website here, and you can view Horvick’s presentation here.

You can read more about Oregon’s waning competitiveness on OBI’s website here, and you can view Saunders’ presentation here.

Finally, thank you to the sponsors who made this year’s Annual Meeting such a success. And thank you as well to the OBI members and elected officials who attended.


10 Senators Hit Disqualification Threshold as Walkout Continues

Ten Republican senators reached the 10-absence disqualification threshold last week as a walkout that began May 3 continues. As of Friday, only three Republican senators had not accumulated enough unexcused absences to be sanctioned under Measure 113, which voters approved last year to discourage legislative walkouts.

Senate Minority Leader Tim Knopp, R-Bend, has said that he and other Republicans will return before the Legislature must adjourn on June 25 in order to allow the passage of a budget, the Oregon Capital Chronicle reports. Senate President Rob Wagner, D-Lake Oswego, has said that he will not allow a last-minute return.

Knopp is one of the senators who have been disqualified from holding legislative office for the terms following the conclusion of their current terms, the penalty imposed by Measure 113. The three senators who have not hit this mark are Fred Girod, R-Stayton; Dick Anderson, R-Lincoln City; and David Brock Smith, R-Port Orford.

The walkout has prevented the formation of the two-thirds quorum needed to conduct Senate floor sessions. This has left several important bills in limbo, including those that would provide funding for the Interstate 5 bridge project, create a research and development tax credit, combat organized retail theft, reform Oregon’s estate tax and more.

If a budget is not passed before the session ends, the state would operate under a previously adopted continuing resolution that contains some funding provisions, at least until Sept. 15.


Quarterly Revenue Forecast Shows Continued Growth

The Office of Economic Analysis released its quarterly Economic and Revenue Forecast May 17. This is a critical forecast because legislators will use it to budget for the 2023-25 biennium.

June Forecast: Up again in a BIG way

Economists reported that they have seen stronger than expected economic output since the previous forecast, in March. Notably, every quarterly forecast since the first “COVID-era” forecast, now 12 in a row, has come in better – often much better – than expected. On the one hand, this is good news. On the other, it suggests that these forecasts should be taken with a grain of salt. In fact, state economists said during their May 17 presentation that they were making methodological changes to the modeling.

An increase of almost $1.9 billion in just three months

The June forecast shows strong economic and revenue growth in Oregon over the last few months. Economists continue to project slower growth going forward but also acknowledge a much different economic dynamic driving growth, both in Oregon and nationally. Inflation and borrowing costs (due to Fed rate increases) are a dampening factor. But again, the state is seeing continued job strength, economic growth and incoming tax revenue. Economists also used the phrase “the new normal” this morning.

Projected revenue for the 2021-23 session is up an astounding $1.87 billion since the March forecast. This will produce a much higher ending balance for the current biennium, greater reserves and a much larger kicker payout in 2024. With this forecast, the baseline General Fund revenue outlook for the 2021-23 biennium is expected to be $7.4 billion ahead of the 2021 “close of session” forecast used for the current two-year budget, which runs from 2021-23.

Ending balance and reserves

The ending balance for the current biennium is now expected to be $7.02 billion. Additionally, the Rainy Day Fund is expected to be $1.35 billion, and the Education Stability Fund is expected to be $708 million, resulting in a total effective ending balance and reserves of $9.06 billion.

The 2023-25 biennium

The net general fund and lottery revenue now forecast for the 2023-25 biennium, which will begin on July 1, is expected to be $31.9 billion, up $2.3 billion from the forecast three months ago. This is still more than $4 billion below revenues now expected as we finish the 2021-23 biennium. But it’s important to note that the 2023-25 forecast reflects the expected payout for the personal kicker, which will occur in 2024. It is also important to remember that the $31.9 billion now projected in net general fund and lottery revenue for the 2023-25 biennium is more than $4 billion above what was used by lawmakers to budget for the 2021-23 biennium.

Big kicker on the way

Based on continued revenue growth above earlier forecasts, state economists are now projecting a personal kicker of $5.5 billion to be credited in 2024 and a corporate kicker of $1.8 billion, which would go into state education reserve accounts.

Here is a link to the full June forecast.


Resounding Defeat for Multnomah Capital Gains Tax

A controversial Multnomah County measure that would have taxed capital gains to provide lawyers for tenants facing eviction has suffered a resounding defeat. According to partial returns late May 16, a staggering 82% of voters rejected Measure 26-238, The Oregonian reports.

The measure would have imposed a 0.75% tax on capital gains and would have applied even to the sale of residents’ primary homes. It was expected to raise between $12 million and $15 million per year to provide free representation in Multnomah County eviction court. However, as Willamette Week reported, roughly half of collected revenue would have been used to pay administrative costs. The tax also would have been retroactive to Jan. 1, 2023.

Not only was the tax badly designed, but it would have increased a local tax burden that is now among the nation’s highest, as OBI’s research has illustrated. Thanks in part to a collection of local, county and regional taxes to combat homelessness and fund universal preschool, among other things, Portland’s marginal personal income tax rate is topped only by New York City’s.

In recognition of the growing burden of local taxes and fees, Portland Mayor Ted Wheeler this month announced that he would seek to freeze nearly all planned city increases in taxes, fees and utility rates for one year.

Had Measure 26-238 passed, it would have been the first capital gains tax imposed by a U.S. county.


Legislative and Rulemaking Updates

Bridge Bill: May 19 was the second chamber deadline, the date by which policy bills needed to be out of most committees. Of note, HB 2098 died in the Joint Committee on Transportation. The much-anticipated I-5 bridge funding package was slated for action at the May 18 committee meeting. But the meeting concluded without action or even an update on HB 2098. Presumably, there weren’t enough votes to move the bill. While this was disheartening, some key things are worth noting. First, there is still talk of getting 2023-25 funding into an end-of-session budget bill and a policy statement in an end-of session omnibus program-change bill. Timing is important here. Many have worried that the federal grant application window would close before Oregon passed its $1 billion commitment, a necessary application component. We now know that an application window will extend into July. If Oregon’s commitment is passed at the very end of session (before June 25), we will remain eligible for up to $3 billion in federal funding. Second, the amendment to HB 2098 that OBI supported included a cost allocation study to examine disproportionate impacts on funding methods to freight users. This language was moved into a stand-alone bill, HB 2096, which is moving forward.

PLO/OFLA Alignment: SB 999, the bill that OBI helped negotiate to better align Paid Leave Oregon and OFLA, is set for a House vote this week. Since it already cleared the Senate and wasn’t amended in the House, its fate is not wrapped up in the walkout. We’ve updated our Paid Leave Oregon resources web page with some information, will keep sending more and are working on a webinar with the Paid Leave Oregon folks that we can get online this summer. Again, this is just a first step. It will be a busy interim, and we hope to see full alignment tackled in the February 2024 session.

Renewable Requirement: HB 3055 would have required electric utilities to buy more energy from non-utility renewable projects. This energy has historically been much more expensive for utilities to acquire and would have increased ratepayers’ bills. By all appearances, the Senate Committee on Energy and Environment intended to move the bill, but the chair announced May 18 that a work session would not be held on the bill. OBI, in conjunction with the electric utilities, had testified in opposition.

Voter Registration: On a party-line vote, the House on May 3 passed HB 2107, which would automatically register people to vote when they enroll with the Oregon Health Plan, a program administered by the Oregon Health Authority. This is an expansion of Oregon’s “motor voter” law, which automatically registers people to vote when they interact with the DMV.

Residential Construction: Last week, the Senate Committee on Labor and Business, with little discussion and over OBI’s opposition, passed HB 3385. The bill would prohibit major residential contractors from collecting the full price of contracts over $40,000 until the work on the project was substantially completed. This bill is a solution in search of a problem. The bill awaits a Senate vote, and OBI continues to oppose it.

Retail Theft: SB 340, which would help law enforcement agencies fight organized retail theft, awaits its final vote in the House. Its companion bills are in the Joint Committee on Ways and Means. With the revenue forecast behind us, OBI hopes the committee will start to advance good bills through its subcommittees in order to prepare them for Senate action.

Labor Peace: Earlier this session, OBI led the opposition against HB 3183, which would have required the OLCC to make future cannabis license applications and renewals conditional on those businesses entering into labor peace agreements. OBI has argued that the state should not dictate labor relations in this manner. We also argued that the bill is preempted by the National Labor Relations Act. The chair of the House Committee on Rules agreed and stated on the record that the bill would not move forward.

Ranked Choice Voting: HB 2004 is headed to the House floor this week after a party-line committee vote in the House Committee on Rules. The bill would establish ranked choice voting as the method for Oregonians to nominate (where applicable) and choose the following: president, U.S. senator, U.S. representative, governor, treasurer, attorney general, secretary of state and commissioner of the Bureau of Labor and Industries. The bill also would allow local jurisdictions to use this method. Notably, it would not allow ranked choice voting for legislative races.

Tax Incentives: May 19 was an important day in defense of Oregon’s most important pro-jobs, pro-growth tax incentives. HB 2199A, which would reduce the value of enterprise zones by more than 40%, and HB 3457A, which would gut the gain share provision of Oregon’s Strategic Investment Program, had public hearings at the Joint Committee on Tax Expenditures. OBI argued in favor of these critical job creation and economic development tools. We also noted that the programs mitigate the state’s challenging business climate. We were not alone. Of the 25 people and organizations that testified on May 19, 21 were opposed to the bills. We do not believe they have traction for passage, at least in their current forms.

Insurance Bills: On May 17, the Senate Committee on Judiciary moved both HB 3242 and HB 3243 to the Senate floor on party-line votes. HB 3242 would increase costs throughout the insurance system by affecting settlement behavior. It would do so despite the fact that an amendment clarifies that it would not apply to the workers’ compensation system, medical malpractice claims and litigation defense attorneys. HB 3243 would increase insurance costs by including the insurance industry under Oregon’s Unlawful Trade Practices Act. Together, these bills would create one of the most extreme insurance regulatory schemes in the country, raise consumer costs significantly and produce a great deal of litigation.


Notable News

Semiconductor Workforce: More than 50 projects have been announced since the 2022 passage of the CHIPS Act, which contains $39 billion to support the construction of new and expanded semiconductor facilities. However, The New York Times reports, such investments have run into the tightest labor market in years. Semiconductor manufacturers have long struggled to hire workers, and that will continue amid expected shortages of construction workers, technicians and engineers. The story mentions the two-year advanced manufacturing apprenticeship program initiated by the Hillsboro School District last year in partnership with several agencies and employers, including Intel.

Green Fuel Plant: A Dutch company whose U.S. office is located in Bend has chosen to build a plant to produce sustainable aviation fuel in Washington, The Columbian reports. SkyNRG, whose shareholders include Dutch airline KLM, has not announced the exact location for the $800 million project, which it hopes to have up and running by 2029. Its decision to build in Washington is due in part to legislation signed this month by Gov. Jay Inslee that speeds permitting and environmental review for clean energy plants and provides subsidies for sustainable aviation fuel.

Gunderson Marine: Greenbrier Cos. on May 16 announced the sale of its Gunderson Marine fabrication operation to recently founded Oregon Green Manufacturing LLC. The sale will preserve about 300 family wage jobs at the site, the Portland Business Journal reports.

Portland Population: Portland was among the nation’s most rapidly shrinking cities between 2020 and 2022, The Oregonian reports, citing newly released census estimates. The city’s 2.8% population loss was the sixth steepest among the nation’s 50 largest cities. San Francisco topped the list with a 7.1% drop.

Tax Delinquency Disclosure: Beginning July 14, the Department of Revenue will publish a list of people and businesses that owe at least $50,000 in state taxes, The Oregonian reports. The department plans to notify affected taxpayers during the week of May 21. The Legislature approved a bill in 2019 that allows the department to post such information online.


June 1 Webinar to focus on Regional, Community Banking

Regional banks have dominated business headlines in recent weeks as the valuations of institutions like California-based PacWest, Tennessee-based First Horizon and Arizona-based Western Alliance have experienced wide swings. What’s behind the phenomenon, what’s happening in Oregon, and what should businesses served by regional and community banks know?

Join the CEOs of three Oregon-based regional banks June 1 for a panel discussion, “Banking in the News: What Does this Mean for Community Banking in Your Area?” The discussion will be moderated by Linda Navarro, president and CEO of the Oregon Bankers Association.

The panel will include:

The webinar, presented in partnership with the Oregon Bankers Association, will run from 10 a.m. to 11 a.m. and include time for questions and answers.

Go here to register.