Fool Me Once
Oregon voters consider an income tax surcharge
By Dave Lister

In January of 2003 Oregon voters overwhelmingly rejected Measure 28, an income tax surcharge. Proponents of the tax increase claimed that its failure would drastically cut the public school year, seriously reduce the number of state troopers patrolling the highways, and eliminate vital health and welfare programs—in short, proponents claimed, a no vote would put Grandma out in the snow.

But with the highest unemployment rate in the nation and employers fleeing the state, voters didn’t buy it. Measure 28 was defeated by a significant margin. Gov. Kulongoski, elected on his promise that state government would “live within our means” and that he didn’t “equate raising taxes with leadership,” was disappointed by the outcome. Despite the loss, state spending continued to grow unabated. The capitol received a half million dollar makeover of the legislative hearing rooms, and lawmakers all got new computers.

But proponents of the defeated statewide measure continued to predict a drastically shortened school year, release of felons from prison, and cuts in vital health and safety services.

Following the defeat of the statewide measure, Portland Mayor Vera Katz and Multnomah County Chair Diane Linn proposed a radical idea—the first county income tax west of the Rockies.

Multnomah County voters had, after all, been in favor of Measure 28 by a margin of better than 10 percent. Clearly this erudite slice of Oregon’s population recognized the value in increasing school funding and expanding social services. “What the State of Oregon will not do for us we will do for ourselves” proudly stated Mayor Katz when the Multnomah County tax increase, measure 26-48, was scheduled for a vote.

What many people don’t know is that Katz and Linn had already hedged their bets. With no real confidence that the voters, even the well-educated Multnomah County crowd, would do the right thing, they had already decided to tap their favorite cash reserve for supplemental school funding. Katz and the city council enacted, without a vote of the people, a supplemental business tax increase on all businesses filing combined Multnomah County and City of Portland tax returns. The supplemental business tax was retroactive to the prior fiscal year. In at least one case a Portland businessman received a whopping tax bill for a business which he had closed and for which he had filed (he thought) his final tax return. Businesses that were not dependent on physical locations flocked to Clackamas, Washington and Clark counties. The Vancouver Chamber of Commerce initiated an advertising campaign, which posed the question “Prosperity or Portland?”.

Business owners received invoices for the tax surcharge in June. The same week that bills were being mailed the Portland City Council voted themselves, along with all other non- represented city employees, cost of living raises. Meanwhile a spirited debate ensued concerning the Multnomah County income tax. Proponents of the tax banged the “save the children” drum, while opponents pointed out examples of fiscal waste. Opponents also challenged the income tax on the basis that the amount to be raised was nearly equivalent to the amount currently being forgiven in property taxes through urban renewal development schemes.

During the debate, the public spotlight fell upon at least one case of fiscal idiocy. (What is the Fiscal Cliff?) Under pressure, the Multnomah County Mental Health Department abandoned their plan to hire a Klingon language interpreter. They explained that their charter required that they provide foreign language services for any language spoken by any of their clients. It seemed there was at least one psychotic personality who would only speak to his caregivers in Klingonese (a fictional language from the TV show “Star Trek”). In the end, voters in Multnomah County were swayed by school administration predictions of fewer class days and larger classes, threats of a strike by Portland’s public school teachers, and Multnomah County Sheriff Bernie Giusto’s dire predictions that he would be forced to release dangerous felons back into the community for lack of jail space.

Measure 26-48 passed 55 percent to 45 percent.

The Multnomah County Elections Division ballot counting machines had hardly cooled when the county spent a quarter million to dump one hundred tons of dirt on the county administration building to create an environmentally friendly, “green” roof, and Giusto’s corrections officers received cost of living increases. Soon thereafter County Chair Diane Linn agreed to hire a new head librarian for $132,000 per year, $12,000 more than any other department head. Controversy erupted, even with the other commissioners, who seemed to sense that it was possible, after all, to kill the golden goose.

Responding to criticism that the head librarian would be making significantly more than the governor, Linn said, “I’ve always thought the governor was underpaid.” Oregon’s recession had left the state with the highest unemployment in the nation, business retention at an all time low, and partisan bickering at an all time high. Balancing the 03-05 biennium budget would require nothing short of bloodletting. The longest legislative session in Oregon’s history was ugly. Liberals examined every possible tax and fee increase. Conservatives examined line item cuts and elimination of wasteful programs. The governor threatened across the board cuts. The Kruse-Doyle plan, which looked at balancing the state budget through measured cuts without impacting essential services, went nowhere.

Talk turned to “tax reform,” including a sales tax. Historically, a sales tax has been an “over my dead body” issue for Oregonians. Rejected time and time again by Oregon voters, everyone thought a sales tax was a dead horse. But Republican House Speaker Karen Minnis allowed hearings on tax reform.

And even though no sales tax legislation came out of the hearings, the camel’s nose was in the tent. The legislative debate shifted from whether to increase taxes during the worst recession in two decades, and instead focused on how to increase taxes. Exhausted legislators, beaten down by weeks of extra innings, came to an eleventh hour budget compromise—House Bill 2152. Eleven Republicans departed their campaign rhetoric of holding the line on higher taxes and joined the majority vote for the largest tax increase in Oregon history. Provisions of the bill would increase personal income taxes, increase corporate minimum taxes, reduce medical deductions, and extend cigarette taxes. In all HB-2152 would generate somewhere between 800 million and 1.1 billion in extra revenue.

The public’s outraged reaction to the bill’s passage was something not seen in Oregon since an overzealous motel operator attempted to rope off a Lincoln City beach during McCall’s governorship. But even as signature gathering to refer the tax increase to voters commenced, state spending continued.

Gov. Kulongoski handed out $8 million in bonuses and increased benefits to non-union state employees. In an attempt to attract business, the state paid advertising gurus Wieden and Kennedy $450,00 to come up with Oregon’s snappy new slogan, “We Love Dreamers.” Meanwhile SAIF, the quasi-public agency in charge of selling workers compensation insurance to Oregon businesses, was paying Neil Goldschmidt $20,000 monthly to help SAIF’s $300,000 per year administrator “think outside of the box.” Multhomah County Chair Diane Linn warned county residents that if signature gathering was successful and the tax increase was repealed, Multhomah County residents would be left alone with their tax increase; but if the statewide tax increase was not repealed, she advised county residents that they could probably look forward to a rebate of a portion of the county tax.

Kulongoski encouraged voters not to sign the petition, and an Oregonian editorial suggested that anti-tax activists were jackasses. On November 18th , 2003 the Secretary of State’s office was handed 147,340 referendum signatures—three times the amount needed for a vote of the people. It was the most popular referendum in the history of the state of Oregon. So, almost exactly one year after Measure 28, after threats and warnings, after more increases in government spending, Oregon voters will have their say on the tax increase in a February 3rd , 2004 special election.

For the residents of all but one county in Oregon the question may well be, “Fool me once?”

For Multnomah County residents the question will undoubtedly be “Fool me twice?”

BrainstormNW - January 2004

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