General Election Re-Cap and State Budget Preview

By Jack Isselmann, attorney, Tonkon Torp

On November 7, Gov. Ted Kulongoski rode a national wave of Democratic support to turn back a spirited challenge from Republican Ron Saxton and sweep into a second term. At the same time the Oregon House of Representatives swung to Democratic control as the Democrats gained four new seats and took a 31-29-seat advantage. The U.S. House and Senate also turned the reins of leadership over to the Democrats.

SAO enjoyed its first electoral success in Oregon when the tax and spending measures 41 and 48, opposed by the association, went down to a sound defeat as voters rejected campaigns financed almost entirely by out-of-state supporters. The State Senate remained under Democratic control with 17 Democrats, 11 Republicans and two Independents. Rep. Jeff Merkley of Portland will become the new Speaker when the Legislature convenes in January. Sen. Peter Courtney of Salem continues as Senate President.

With the governorship and both legislative chambers secured, Democrats are expected to introduce legislation that increases and secures K-12 school funding, addresses access to health care and elevates investments in higher education and transportation infrastructure. Other than a tobacco tax increase to fund children’s health care and an auto insurance surcharge dedicated to state police, broad-based tax increases are not expected, in part due to the slim margins held by Democrats in the legislature. Tax increases require a three-fifths majority to pass. Democrats are also expected to attempt an increase in the corporate minimum tax (currently at $10) and suspension of the corporate income tax kicker to boost the state’s “rainy day” fund.

The pre-session action got underway on December 4, 2006, with the Governor’s delivery of his recommended budget for 2007-2009. Governor Kulongoski delivered a budget that includes what he termed “consensus” items that allow his budget proposal to increase state spending by about 20 percent to around $15 billion.

The Governor’s budget assumes the Legislature will approve the following:

• Retaining the corporate income tax kicker at over $200 million to create a “rainy day” reserve;
• Increasing the corporate minimum income tax to fully fund the Head Start program and make college education more affordable;
• Raising tobacco taxes to provide access for 117,000 lower-income Oregon children to health insurance; and
• Creating an auto insurance surcharge on policies above the current minimum that establishes a dedicated source of funding for the Oregon State Police to add 139 state troopers.

The Governor’s budget is heavy on education spending, including a dedication of at least 61 percent of the total state budget for K-12 and post-secondary education (his Education Enterprise proposal). This includes a Department of Higher Education capital construction budget that provides $594.5 million in bonds to finance 45 projects throughout the state.

The Engineering and Technology Industry Council (ETIC) program’s proposed higher-ed investments received a $17 million General Fund enhancement bringing total General Fund support for the program to $39.2 million. The General Fund allocation in the Governor’s Budget compares to $20.7 million in the budget for the current biennium. The proposed ETIC investments are a centerpiece of SAO’s 2007 legislative agenda and we will be working actively to secure their passage by the legislature.

The Governor’s plan also bolsters Oregon’s reserve funds to $900 million by the end of the 2007-09 biennium. It includes increasing the state’s Education Stability Fund from revenues produced by retaining the corporate income tax kicker.

Lawmakers convene January 8 for the 2007 legislative session and Democrats will be on the hot seat to produce meaningful policy achievements with their newfound majorities. They will also need to reach across the aisle to obtain sufficient bipartisan support to attain the three-fifths majorities necessary to achieve the targeted tax increase proposals advanced by the Governor. Check this space for dispatches from Salem to SAO members regarding the 74th Oregon Legislative Assembly and updates on SAO legislative priorities.

About the author
Jack Isselmann is an attorney practicing in the Government Relations and Public Policy group at Tonkon Torp. After serving in executive management positions in technology companies and for the State of Oregon, Jack now represents technology companies like Pixelworks and Electro Scientific Industries before state and local governments in Oregon. For more information on Tonkon Torp go to www.tonkon.com. Jack can be reached at jack@sao.org.