Proposed new business taxes to pay for huge state worker payroll increases

by Sen. Doug Whitsett

Over the past several months, representatives of Governor Kate Brown and the progressive liberal Democrat Party majority have been quietly discussing new labor contracts with the State’s public employee unions. Not surprisingly, these labor negotiations, with some of the Democrat Party’s major political contributors, have not gone well for Oregon taxpayers.

It appears the negotiators who “represent the people” have conceded most of the unions’ demands, including annual cost of living increases, step increases and an entire extra day of paid leave. The increasing costs of other payroll expenses such as health insurance premiums, retirement contributions and paid leave contribute significant additional cost to these labor contracts.

Incredibly, the state negotiators did not determine, and apparently even failed to estimate, the future costs of the labor contracts prior to their completion. They still have not disclosed those amounts to Oregon taxpayers. What seems evident is that the negotiators find other peoples’ money too easy to spend.

Several weeks ago, I asked both the Legislative Fiscal Office and the Department of Administrative Services (DAS) to determine, or to even estimate, the long-term costs of these enormous expenditure increases. At the time, they were unable to make accurate predictions, explaining the labor contracts are complex, convoluted and difficult for even these fiscal experts to understand. They are continuing their efforts to accurately quantify my basic cost questions.

It is apparent the new four-year labor contracts will be very expensive for Oregon taxpayers. By my computations, the aggregate concessions made by state negotiators appear to increase total compensation between seven and nine percent per year. It is my understanding that the contracts leave open the potential for additional salary increase negotiations after the first two years. The outcome may well be a 30 percent or more increase in average state public employee total compensation by the fourth year. The full impact will be due and payable by the 2019-21 budget period.

Several years ago, the average Oregon public employee was earning more than $70,000 per year in total compensation, according to calculations made by DAS for my office. The number of public employees is capped at no more than 1.5 percent of Oregon’s population under state law. However, several significant categories of employees that appear to be subject to the terms of the new labor contracts are technically not state employees.

My own calculations are admittedly rough. However, I believe they represent “in-the-ballpark” predictions. I estimate the increase in compensation to state employees, and other quasi-state employees that may be subject to the terms of the new labor contracts, may well exceed $1.5 billion per year by the fourth year of the contracts. My estimate assumes no significant growth in the number of employees subject to the terms of the contract and no further negotiated salary increases.

Unlike our federal government, the State is prohibited by its Constitution from borrowing money to pay for ongoing operations. Escalating employee costs must be met by either increasing tax revenue or decreasing expenditures in other parts the budget. Decreasing budget costs appear to be anathema to most majority Democrats.

The immediate question demanding an answer is: How will the State pay the enormous costs of the new labor contracts?

Our Oregon, a political arm of the public employees’ unions, is working on that answer. Their solution is an initiative petition designed to raise as much as $5 billion per budget cycle, allegedly needed to pay for critical shortages in public services, by enacting a new tax on a supposedly wealthy minority of other Oregon taxpayers.

Initiative Petition 28 would increase state General Fund revenue more than 25 percent by enacting a 2.5 percent gross receipt tax on most corporations with Oregon sales greater than $25 million per year. This is not a tax on corporate profits. The tax is for the privilege of doing business in Oregon. It is an enormous new tax on gross revenue, due and payable, regardless of whether the company makes a profit.

The Our Oregon petition further attempts to convince voters the more than 25 percent increase in new General Fund revenue will be used to pay for public safety, education and services for senior citizens. However, no Oregon law can direct or bind the purpose for which future Legislative Assemblies spend General Fund revenue. In reality, the preponderance of the new money will be spent to line the pockets of their public employee union members.

The Initiative Petition represents a “must pass” issue for the public employees’ unions. Their recently negotiated 30 percent or more increase in compensation must be paid for with either new revenue or other budget reductions. Those rich new contracts will require a similar, significant reduction in the number of public employees, and of public services, in the event that the people fail to enact their massive new tax.

For that reason, Our Oregon is mounting a “full court press.” We may expect a veritable “blitz” of advertising aimed at misdirecting the public’s attention from their true purpose.

It is my understanding that signature collections on the petition are progressing beyond expectations. Their initiative is virtually certain to appear as a Ballot Measure in the November 2016 general election. Representatives of Our Oregon suggest their political polling demonstrates a broad majority of Oregonians will vote to enact their new taxing scheme.

We can only hope that Oregon voters will take the time to learn the real purpose of Our Oregon’s initiative. If they are successful, Oregon’s already stagnant economy will take another enormous hit from yet another exodus of Oregon employers.

Senator Doug Whitsett is the Republican state senator representing Senate District 28 – Klamath Falls