Education funding boost in Oregon PERS package appears temporary

SALEM — Gov. John Kitzhaber and legislative leaders are pitching a plan they say would free up millions of dollars for education, allowing school districts to hire more teachers and add additional school days.

But much of the influx of money they're touting would be temporary, offset in future years by tax credits for certain business owners. Critics have pounced on that point ahead of a special session scheduled to begin on Monday.

"The governor wants to make an investment in some important stuff — education, mental health and senior services," said Chuck Sheketoff, director of the left-leaning Oregon Center for Public Policy. "But the money he says is doing it isn't there."

The proposal would increase the tax bill for some businesses and individuals while lowering it for certain small businesses and low-income workers. They're part of an agreement that also includes cuts in public-employee pensions and restrictions on the ability of local governments to regulate agriculture, including genetically modified crops.

Even though the amount of new revenue may diminish over time, say proponents of the package, state and local governments would continue benefiting from billions of dollars in pension savings.

The plan would increase taxes on businesses organized as C corporations earning between $1 million and $10 million, eliminate the personal exemption tax credit for individuals earning at least $100,000 a year and limit use of a tax deduction for senior medical expenses.

Beginning Jan. 1, 2015, businesses known as pass-through entities — those whose income is passed through to the owners for taxation purposes — would pay a lower rate.

In the current two-year budget cycle, which ends in June 2015, the tax increases minus the tax cuts amount to an estimated $201 million in additional revenue for the state, with about half of that allocated for primary and secondary schools. But in the following two-year budget cycle, the net revenue increase for the state would drop to $75 million.

That significant drop would require schools cut back on any teachers or school days they add with the additional money they're getting now, said Arthur Towers, political director of the Service Employees International Union.

The Legislature ultimately sets the budget for schools, so future lawmakers can make sure their budgets don't decrease, said House Speaker Tina Kotek, D-Portland.

The real long-term benefits are in the savings on pension costs, said Tim Raphael, a spokesman for Kitzhaber.

Business groups touted the benefits of the tax cuts, saying it would help small businesses grow and compete.

"This is the first movement that they've seen that they have something that could improve their business," said Jan Meekcoms, Oregon state director of the National Federation of Independent Business.

Liberal groups dispute that point, saying the tax cuts aren't tied to any requirement that new jobs are created.

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