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                 bentz                  
September 30, 2013
Special Session
Issue 17
Dear Friends,

 

After three days of delays, stops, starts, and continuous negotiations between legislative leadership and the Governor, the Oregon State Legislature passed five bills, collectively known as the "Grand Bargain," late last Wednesday afternoon.  The package included provisions addressing fiscally unsustainable state policies (PERS and the Senior Medical Deduction), provisions reducing the tax burden on some low-income Oregonians (the EITC and changes to the Senior Medical Deduction), provisions providing funding for some selected services, and provisions cutting taxes on some small businesses.

 

Though the Oregon State Constitution empowers the Governor to call a Special Session, such Sessions are rare because they occur only when the Governor determines that an "extraordinary occasion" exists.  Obviously, opinions as to what is "extraordinary" can vary widely. However, enthusiasm  (or lack of it) of the members of the Legislative Assembly is not a factor.  Legislative action during a Special Session is challenging because the short time frame and lack of public involvement increases the possibility of unintended consequences. However, we successfully slowed what began as a very hurried process and evaluated, one line at a time, the bills in their final form as they emerged from negotiations. Taking the time necessary to read, analyze, and understand the proposals was a positive and essential part of finally adopting this legislation.

 

In addition to time spent prior to the Special Session considering various aspects of the "Grand Bargain," I was also able to spend September 28th and 29th on what were at that time draft legislative concepts. I tracked down the Director of PERS (Paul Cleary) and spent an hour or so with him on the phone on Saturday reviewing the proposed PERS modifications.  Additionally, my cousin, Clint Bentz, a C.P.A. practicing near Salem, helped me over the weekend and during the Session in analyzing the complex tax portions of the "Grand Bargain." 

 

I want to thank all of you who took the time to email me with your thoughts on these proposals.  I read each of your letters and I greatly appreciate the insight and thoughtfulness you shared with me. 

 

I voted "Yes" on 4 of the 5 bills that comprised the "Grand Bargain."  For me and many of my House colleagues, these were difficult votes to cast. Below I provide brief explanations of the reasons for my votes. I also provide a link to a copy of each of the bills. (To summarize, I voted "No" on HB 3601, and "Yes" on the other 4 bills).

 

If you have any questions, please contact me.

 

Representative Cliff Bentz
District 60

(Baker, Grant, Harney, Malheur, and part of Lake Counties)

 

 

NO on HB 3601 (tax package):

 

This was the most complex bill we considered.   It contained five tax increases and a major tax reduction.  As a member of the House Revenue Committee for the past six years, and as an owner (and part owner) of several small businesses, I understand the need for clarity and consistency in our tax code.  Having the able assistance of my cousin, Clint Bentz, C.P.A., before and during the Session (on Saturday, Sunday, Monday, and Tuesday) was a huge help in reaching an understanding of how the changes in this bill would (and now will) actually play out in the real world.   I was able to share his insights with not only the Caucus, but also with the House Revenue staff. 
 
Unfortunately, most of the changes he suggested and that I wanted were not accepted, and as a result I was a "No" vote on the bill.  The changes I wanted included, among others, a different approach to the reduction of the Senior Medical Deduction (with the savings created by the reduction going to senior programs and a provision--in anticipation of the Obamacare increases--allowing a senior to continue to deduct the cost of Medicare supplemental premiums), a broader and better structured approach to the tax reduction for small business, and a link between the increases in taxes and the PERS bill.  
 
I also believe that the small business tax reduction will create substantial confusion and litigation because the definitions defining the businesses that will enjoy this tax cut are not consistent with the normal use of terms in the Internal Revenue Code. 
 
My "No" vote, as a long time member of the Revenue Committee, signaled to the rest of the Legislature and the Governor the need to address these issues in the upcoming 2014 session. 
 
 
YES on SB 861 (PERS COLA adjustment):

  

One can look at this change in one of two ways--either as "reducing the amount of increase" or as a "taking away of a benefit." I appreciate and understand the contributions state employees make, but also appreciate the serious need for long term sustainability of the PERS program.
  

I voted "yes" on this bill because the cost of PERS must be reduced and this bill takes a step in that direction.  Sadly, it does not guarantee any savings whatsoever because its constitutionality is being challenged, and thus, until the Oregon Supreme Court rules on the bill (something that will occur within the next 18 months or so), we will not know if any of the $4.5 billion in long-term savings will be achieved.

 

Because of the importance of this issue, both to the taxpayers and to those who work for the public, I will take some time to discuss this situation.   The explanation that follows is certain to prompt corrections, which I welcome.

 

The "normal" contribution that an employer of an Oregon public worker enrolled in the PERS program (which includes about 300,000 people) pays toward the employee's PERS benefit is about 8% of payroll.  (This does not include the so-called "six percent pick-up," which describes some public employers' decision to pay the employees' part of the annual contribution to the PERS plan)  

 

Because of the drop in the stock market in 2008/2009, the PERS program lost about 25% of its savings, creating an actuarial shortfall of about $14 billion.  To make up for this loss, the employers had to increase the amount that they normally pay into the plan.  If the PERS Board had increased the employer's contribution to the full amount necessary to make up for the 25% loss in the first year following the loss, the employer contribution would have increased from 8% to 24%.  Add in the 6% pick-up, and the employer would have had to dig up an amount equal to 30% of payroll.  This means that the money in budgets that fund schools, towns, fire districts, and the like would have been dramatically impacted resulting in layoffs, curtailment of service, etc.  

 

Rather than immediately raise rates, the PERS Board decided to raise the rates incrementally from 8% up to 24%.  We are currently at about 16%.  The rate increase of 4% that was supposed to have happened this biennium was deferred by SB 822, which passed in March.  The savings achieved by SB 861, when added to those contained in SB 822, will keep these rates at a peak of about 21% rather than the 25% that would otherwise have been the necessary rate.  This saves the Program about $4.5 billion.  It does not affect the need to increase the rates from 16% to 21%, and this increase will occur unless further cuts or other solution are implemented.

 

The savings achieved by SB 861 and SB 822 are effected by a reduction in the 2% Cost Of Living Adjustment (COLA) down to 1.25%.  This reduction of 0.75% over time "saves" the $4.5 billion referred to above.  To offset the impact of this change, the bill contains a supplemental cash payment provision of 0.50% for those receiving less than $20,000 in annual PERS payments and a supplemental cash payment of 0.25% for those receiving more than $20,000, but this is limited to 150.  This limit results in the 0.25% payment stopping at $60,000.  These cash payments, which are funded from the $600 million in PERS reserves, do not compound, and total about $10 million per year.

 

I have suggested to leadership that a true PERS solution would have addressed the issue in a much more comprehensive way.  However, this was as far as my Democratic colleagues would go and we must recognize that we are truly dealing in "the art of the possible" when it comes to PERS. 

 

 

YES on SB 862 (PERS eligibility reform):

 

SB 862 was added to the "Grand Bargain" by the Republican Caucus'.  The idea was to address at least a few of the many issues that make PERS so difficult to manage.   We were able to include and ultimately pass these three changes to the PERS system:

 

1.  Removal of future legislators from PERS: future legislators will have an opportunity to utilize something akin to a 401K plan.  The idea is to keep those charged with overseeing PERS out of the very program they are to supposed to be managing.  The idea is to remove bias.  This may be of help in convincing voters that legislators are not biased toward helping themselves as they address PERS-related issues.

 

2.  Preventing employees from "spiking" their salaries by adding to their salary the cost of their health insurance premium.  This technique has been used, on occasion and certainly not by all public employees, to artificially inflate public employee salaries during the last three years of their employment, driving up the amount of the retirement benefit.

 

3.  Allowing those harmed by a public employee who is convicted of a felony to garnish the employee's PERS account to pay for such damage.

 

https://olis.leg.state.or.us/liz/2013S1/Measures/Overview/SB862

 

YES on SB 863 (seed preemption):

 

This bill does not address whether GMOs should be permitted, encouraged, or completely prohibited. Instead, this bill leaves that determination to the Oregon Department of Agriculture--a state agency with the resources and expertise to regulate statewide agricultural production. Oregon's agricultural community needs consistency and predictability--a statewide policy provides that. A single statewide policy functions more effectively and efficiently than would individual and different policies created by as many as the 278 towns, cities, and counties across Oregon.

 

https://olis.leg.state.or.us/liz/2013S1/Measures/Overview/SB863 

 

YES on HB 5101 (allocating new revenue):

 

This bill makes a one-time allocation of new revenue to seniors, education funding, and mental health services. Here is an outline of how these tax dollars are to be spent:

 

 

https://olis.leg.state.or.us/liz/2013S1/Measures/Overview/HB5101  

In Summation:

 

The negotiators decided to make this an "all or nothing" deal.  This approach has much to do with why the package passed, but it also forces really tough and difficult votes on those who wanted one bill but really disliked another.  

 

A good example is the tax cut--something very good for some small businesses, but to get it, the bill raising taxes on senior citizens had to pass.  Another part of the package placed the regulation of GMO's at the state, rather than local, level.  Many of you wrote to me urging a "No" vote.  Many of you wrote urging a "Yes" vote.   I voted "Yes," for the reasons set out above, but as you can imagine, those of my colleagues who are from urban Districts that had to vote for this bill to assure passage of the other parts of the "Grand Bargain" were not happy at all.  

 

It is important that we acknowledge the hard and excellent work of our Minority Leaders, Rep. Mike McLane (Prineville) and Senator Ted Ferrioli (John Day) who very ably represented the minority Republican interests in the negotiations.  There is no doubt that, but for the quality of their work both at the policy and political levels, the final product would have been much less beneficial to our economy and Oregon's rural interests.

 

Like all members of the Legislature, I find that deciding how to vote is the most challenging and wearing part of being a Representative.  All issues are in some part complex, and almost always are supported by some and opposed by others.  Nonetheless, this so-called "Grand Bargain" is a good example of how by working together we can develop solutions to difficult and dangerous problems such as PERS, tax policy, GMO issues, and funding for education.  Some call it political sausage making, but I would rather call it diplomacy (and not necessarily Will Roger's definition of diplomacy which is "the art of saying 'nice doggy' while you look for a rock").   We can only hope that Washington D.C. takes notice of Oregon's successful approach to negotiation and problem solving. 

 

 

Special Session Contact Information

 

District Office:

  

258 S. Oregon St. 

P.O. Box 1027

Ontario, OR 97914

541-889-8866

Open: 8:00am--5:00pm (MST)

Staff:

Andrea Dominguez, District Director

 

  

Salem Office:

 

 900 Court St. NE, H-475

Salem, OR 97914

503-986-1460

Open: 8:00am-5:00pm (PST)

Staff:

Not staffed during Interim

 

 

Email:

 

rep.cliffbentz@state.or.us

In This Issue:
HB 3601
SB 861
SB 862
SB 863
HB 5101
Summary
Contact Info
Contact
Rep. Bentz:

 

Salem Office
900 Court St. NE, H-475
Salem, OR 97301 
503-986-1460

 

District Office
258 S. Oregon St.
P.O. Box 1027
Ontario, OR 97914
541-889-8866
  
Email
  
State Webpage
bentz/

 

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Rep. Bentz's Legislative Committees:
  
Transportation & Economic Development (Vice-Chair)
  
Revenue
  
Energy & Environment
 
Small Business
 
Legislative Counsel
  
 
Rep. Bentz's other sub-committees and legislative workgroup appointments:
 
STATE
 
Oregon Hunger Relief Task Force
 
Legislative Council on River Governance