On Wednesday, February 28, 2007, the Senate Democrat and House Democrat and Republican leadership teams announced the Legislative Rainy Day Fund””Corporate Kicker Agreement. It was an historic occasion. The Agreement not only revealed the creation of a long-awaited Rainy Day Fund, and a negotiated tax and revenue plan that will benefit small businesses, farmers and Oregon families, it also demonstrated that Oregon Legislators can work together for Oregon’s common good. The following provisions are contained in the Legislative Rainy Day Fund””Corporate Kicker Agreement. To view a brief explanation on YouTube, click here.
1. Permanent Rainy Day Fund.
The Legislative Rainy Day Fund””Corporate Kicker Agreement (the Agreement) makes good on the promise to create a permanent Rainy Day Fund. One percent (1%) of each biennial budget will be paid from the ending balance into the Rainy Day Fund beginning with the 2007-09 budget ($126 million based on December 2006 forecasted revenue of $12.602 billion).
2. Rainy Day Fund Size.
The Rainy Day Fund (RDF) will be capped at 7Â½% of the biennial revenue forecast. When the RDF’s 7Â½% is added to Oregon’s other savings account, the Education Stability Fund, which has a 5% cap, Oregon will eventually have 12Â½% of its biennial revenue forecast saved for economic recessions. Excess after 12Â½% will go to Oregon’s General Fund.
3. Rainy Day Fund Interest.
The goal is to increase the Rainy Day Fund without delay. All interest earned on the Rainy Day Fund adds to the Fund’s balance.
4. Rainy Day Fund Restricted Withdrawals.
The Rainy Day Fund cannot be accessed by the Legislature unless two events occur: (1.) the same economic downturns required to tap the Educational Stability Fund–Oregon’s other rainy day fund–apply to the RDF; and (2.) a 3/5 “super majority” vote of both Legislative houses must approve the withdrawals. Even when those two circumstances are present, no Legislature can withdraw more than 2/3 of the RDF’s balance in any biennium.
5. Corporate Kicker Will Be Refunded to Small Oregon Businesses.
The Corporate Kicker is the amount of tax dollars credited back to corporate taxpayers when corporate income tax payments are 2% higher than budgeted. When the economy grows during an economic recovery and corporate tax payments are 2% more than expected, the overpaid taxes becomes a credit for corporate taxpayers, unless the Legislature decides otherwise. Oregon’s corporate tax payments are forecasted to create a Corporate Kicker of $275 million. The defeated House Bill 2707, would have captured all the corporate income tax payments from nearly 12,000 small businesses and other low income earning “C” corporations. The bipartisan Agreement rewrites HB 2707 to protect Oregon’s small business corporations. The Agreement requires the State to refund the over-payment of income taxes to nearly 90% of Oregon’s small “C” corporations, and use the remaining kicker revenues to create Oregon’s new Rainy Day Fund. This one-time suspension of the corporate kicker for large corporations has been endorsed by Oregon Associated Industries (AOI), the Oregon Business Alliance (OBA), and other large business organizations, so long as the corporate kicker money goes into a Rainy Day Fund. These large corporations understand they will be helping Oregon prepare for the next recession. They understand the need to reinforce Oregon’s educational system, and are willing to step forward and invest in establishing a permanent Rainy Day Fund. The RDF will help ensure Oregon does not have to cut school days, lay-off teachers or terminate music, arts or sports from Oregon schools, when the next recession hits. The Corporate Kicker transfer will infuse at least $250 million dollars as Rainy Day Fund start up cash out of the 2007-09 ending balance. If the kicker generates more revenue than anticipated, the additional funds will further benefit the new Rainy Day Fund.
6. Minimum Corporate Tax Rates Realigned.
Oregon charges corporations a minimum annual tax. Since 1931 that minimum corporate tax has been $10. The Agreement will raise the corporate minimum tax for small, inactive or unprofitable “C” corporations with Oregon sales between $0-50,000 to $25. The minimum tax then increases on a graduated scale based on annual Oregon sales up to a top level of $50,000 for large corporations with annual Oregon sales exceeding $25 million. These graduated, “sales-based” annual corporate filing fees will generate $153 million for the 2007-09 biennium.
7. Small Family Farms & Businesses Protected from Forced Death Tax Liquidations.
The Agreement will help protect individuals and families with small businesses and farms by doubling Oregon’s inheritance or “death tax” threshold from $1 million to $2 million. The $2 million inheritance tax threshold will bring Oregon in line with the federal estate tax $2 million exclusion amount. Oregon families will save approximately $43 million in Oregon inheritance taxes over the next biennium as a result of this provision of the Agreement.
In summary, the terms of the Legislative Rainy Day Fund””Corporate Kicker Agreement show what can be accomplished when Oregon Legislators””Democrats and Republicans””sit down together, roll up their sleeves and work out an agreement acceptable to both the House and the Senate. In this agreement there are provisions every legislator can love and hate””which is how it is with effective negotiations. Although neither side got everything it wanted, everyone left the table with the knowledge their concerns were heard, considered and addressed. The citizens of Oregon can be proud of their Legislature. The Legislative Rainy Day Fund””Corporate Kicker Agreement demonstrates Democrats and Republicans can work together for the greater good of Oregon. Hopefully, this spirit of cooperation and mutual respect can continue as the Legislature faces crucial issues involving Measure 37 and health care. Make no mistake, the political differences between Republican and Democrat legislators are significant. Nevertheless, our constituents expect their elected representatives to come to Salem, set aside their differences and work together to solve the issues facing our great state. It may not happen every day, but in Oregon, on Wednesday, February 28, 2007, bipartisan cooperation occurred.