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A view of the Oregon Capitol in Salem. AP PHOTO.

$724M question: Kicker or PERS?

A pair of Democratic lawmakers in the Oregon Legislature want to divert the state's unique "kicker" tax rebate on a one-time basis to help tackle the state's public pension crisis.

Oregon taxpayers are currently on track to receive $724 million worth of kicker rebates when they file their income taxes in 2020. Under a plan co-sponsored by Sen. Kathleen Taylor of Portland and Rep. Karin Power of Milwaukie, that money would instead go into an account created by Gov. Kate Brown to encourage local governments to pour more money into the underfunded pension system.

It could be one of the more substantial attempts to address Oregon's pension problems this session. The governor and leaders in the Democratically controlled Legislature have pitched few major ideas on the topic and are unlikely to sign onto the pension fixes being offered by Republicans.

If state economists' predictions hold, the kicker tax credits to be issued next year would be the largest in dollar terms in more than a decade, according to the state Office of Economic Analysis. The median taxpayer in Oregon with an adjusted gross income of about $35,000 could get a $174 credit. However, most of the benefit goes to the state’s highest-income households, who pay the most taxes. The top 1 percent, who bring in more than $401,000, could cut their tax bills by roughly $7,175, economists predicted.

Taylor did not respond to requests for comment. Power said Taylor was the driving force behind the bill and referred questions to her.

During a call with reporters on Thursday, Brown said she wants to preserve the tax rebate for certain taxpayers.

“I certainly think that hardworking families should get their kicker rebate,” Brown said. “Certainly, the legislature will have conversations about the kicker and modifications, at least for the short term.”

Sen. Tim Knopp, a Republican from Bend, has repeatedly introduced pension reform bills, including this session. He was also behind measure that voters approved in 2000, enshrining the kicker in Oregon’s Constitution.

In an interview Thursday, Knopp reiterated a point he has made previously, saying the kicker is the “only spending control, essentially, you have on state government at this point.”

Although Knopp did not rule out that he might support diverting the kicker, he said it should be part of “broader conversations about PERS reform, structural spending reform, cost containment and revenue reform.”

Oregon’s kicker rebate is triggered when tax revenues for a two-year budget cycle come in more than 2 percent above economists’ forecast made at the start of the cycle.

The Legislature can hold onto that kicker money by passing a bill on a two-thirds majority vote. But lawmakers have historically been reluctant to do so except in a handful of cases: 1991 for the personal income kicker and 1993 and 2007 for the corporate income kicker, according to the Legislative Revenue Office.

Achieving a two-thirds majority vote would require Senate Democrats to get the support of their entire caucus, which would not be a foregone conclusion given the political sensitivity of getting between voters and a tax credit.

House Bill 2170 would allow Oregon to hold onto the kicker by retroactively resetting the state’s personal income tax revenue estimate for 2017-19 to $17.8 billion, up from the $17.1 billion estimate on which the current budget was built. Since $17.8 billion is state economists’ latest revenue prediction from November, it would likely allow the state to avoid paying out a kicker.

Another bill introduced this session, Senate Joint Resolution 3, would refer a measure to voters asking them to amend the Oregon Constitution to send future “kicker” rebates into a rainy day fund for schools. Some business leaders appear to be onboard: At an event in Portland in December, Oregon Business Council Vice President Jeremy Rogers told attendees that polling has shown roughly 60 percent of respondents would support such a measure, and lawmakers could refer the question to voters in the May 2019 election.

In 2018, the legislature created two funds to help offset increasing pension costs for public employers. The first one is dedicated to schools, and the second would provide a 25 percent match for any employer who makes a qualifying lump-sum payment to a side account with PERS. That’s the fund that would receive the one-time kicker diversion.

Neither fund, however, has been capitalized.

The school fund is expected to receive an $11.5 million transfer this year from interest on unclaimed property from the Department of State Lands. So far that’s its only funding, though Brown’s recommended budget did include an additional $100 million appropriation.

That’s not enough to make a noticeable difference in schools’ pension costs. On average, schools will be making PERS contributions during the next two years equal to 29 percent of their payroll costs on average, excluding any credit from side accounts they’ve established. Offsetting 1 percentage point of those rates would require a balance of $435 million in the school district fund, according to PERS.

So far, the only identified source of revenue for the employer incentive fund is a portion of the state tax revenue generated by repatriation of corporate profits due to recent changes in the federal tax code. Those revenues are not expected until after July 1, 2021, and they may only amount to tens of millions of dollars - inadequate to offset much PERS costs.

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