Almost from the moment the state Legislature voted to create $733 million in additional revenue by raising the corporate minimum tax and personal income taxes of wealthy people, drama ensued — predictable in a state known for its hatred of taxes.
A group calling itself Oregonians Against Job-Killing Taxes quickly created a campaign and raised $1.2 million to collect enough signatures to refer the taxes — now known as Measures 66 and 67 — to a special election scheduled for January in the hopes that Oregonians would vote the taxes down.
But, according to a variety of sources, there is even more money at stake — up to an additional $1 billion — if the taxes are voted down, because of their connection to money Oregon has received from the federal stimulus package and other matching dollars.
The explanatory statement for Measure 66 published by the Secretary of State’s office in October acknowledges that Oregon stands to lose federal funds.
“Because some state money brings in federal matching funds, the state is likely to receive more federal money if the measure passes than if the measure fails,” it states.
If Measures 66 and 67 were voted down, and Oregon lost the tax revenue, federal stimulus money and federal matching money, it could total as much as $1.5 billion.
“Definitely, it’s a possibility,” says Linda Ames, deputy administrator at the state Budget and Management Office.
The corporate minimum tax the Legislature raised in last year’s session is a flat fee paid yearly by corporations and businesses in Oregon. Before the Legislature raised the fee to $150 this year, it had not changed the fee of $10 since 1931. The personal income tax raises taxes for individuals and families making more than $250,000.
In the next two years, the taxes are expected to raise $733 million in revenue. The majority of that money will go to Oregon’s general fund. Nearly all of the general fund is dedicated to public education, health care services and public safety.
“Those are the services at stake,” says Steve Novick, who is doing research on the effects of rejecting the tax measures for Defend Oregon, the political organization advocating for the passage of the taxes. (Novick ran unsuccessfully against U.S. Sen. Jeff Merkley in 2008’s Democratic primary.)
Oregon receives matching funds from the federal government for two programs: Medicaid and public education.
Getting matching funds for Medicaid is nothing new. Providing health care services to people living at low incomes and people with disabilities through the Oregon Health Plan, Medicaid is jointly funded by Oregon and the federal government. For every dollar that is spent on Medicaid in Oregon, the federal government provides 63 cents.
According to the state Department of Human Services, Oregon provides health care services to 486,500 Oregonians, which includes 272,500 children and 116,500 seniors and people with disabilities.
The federal stimulus package passed in February increased the federal match rate to about 70 cents per dollar.
If Measures 66 and 67 are voted down, the general fund will lack the money to fund Medicaid at its current budget. The amount of money the Department of Human Services estimates it will lose in general fund money is $182.5 million. That is the equivalent of providing health care and related services to 50,000 people.
The Department of Human Services also estimates that it could lose a minimum of $225 million in federal matching funds.
“Anytime we cut state funding out of Medicaid, we lose federal money,” Ames says.
Public education funding—including K-12 education, public universities and community colleges — could be affected like Medicaid depending upon whether Measures 66 or 67 pass or fail.
The federal stimulus package passed by the Obama administration included a fund called the State Fiscal Stabilization Fund. That fund provides money for basic human services and education to states facing large budget deficits.
Oregon received $466.5 million from the Stabilization Fund, $341 million of which already has been spent on the 2009-10 and 2010-11 school years.
To qualify for the funding, Oregon made an agreement with the federal government — called a “maintenance of effort” requirement — that Oregon would fund education at the same level it was funded during 2006, which was $5.6 billion. The current budget for public education is $200 million above that, at $5.8 billion. Ames says it also is expected that education will get an additional $200 million from reserve funds this summer.
Saying that the public education budget is fairly well “propped up,” Ames says that, depending on how the Legislature decides to balance the budget if Measures 66 and 67 fail, the education budget could fall below 2006 funding levels.
“If you cut K-12 too much … you would have the risk of losing all the federal money, even though some of that has been spent,” Ames says.
If Oregon lost the federal stimulus money for education, Ames says there is the possibility that Oregon could apply for a waiver allowing the state to keep the money.
“We don’t know if that would be allowed or not,” Ames says. “The waiver is an unknown.”
Whether Oregon will lose federal matching money, and how much, depends on the actions of the Legislature. In February, the Legislature will meet in a previously scheduled special session. If it has to re-balance the budget because Measures 66 and 67 fail, many people predict that it will be making tough choices.
For example, does the Legislature maintain Medicaid’s budget and cut other programs, or cut Medicaid and lose federal money?
“Preserving the federal match (for Medicaid) would result in substantial harm to the budgets of education and public safety,” says Janet Bauer, a policy analyst for the Oregon Center for Public Policy. “It is technically possible that the Legislature could, for instance, make the entire hit to education and preserve public safety or the reverse.”
“They could cut really deeply in some other programs and avoid cutting Medicaid,” Ames says.
Pat McCormick, the media spokesperson for Oregonians Against Job-Killing Taxes, calls the argument that Oregon would lose federal matching funds “ridiculous.”
“(The Legislature) has the full range of choices so they have don’t have to cut,” McCormick says, suggesting the Legislature could look to increase revenues elsewhere, such as a surcharge, or an increase in state income taxes for all incomes.
“He knows perfectly well that there’s not a magic pot of money lying around,” Novick says. “He just doesn’t care.”
Novick says “there’s no easy answer” to how the Legislature will be able to preserve funding for health care and public education if the ballot measures fail. “These are terrible choices,” he says, saying that the state would turn into the “kind of sad state that we were” in 2003, when Oregon experienced a recession, rejected an income tax increase, and had to make cuts in the Oregon Health Plan and public education.
“It is very likely that some of the ($733 million) will have to come out of some of the things we get federal matching funds from,” says Oregon Rep. Phil Barnhart, chairman of the House Revenue Committee. “It will affect every area of the budget.”
Barnhart says that to make up for the money that would be lost if Measures 66 and 67 do not pass, education and Medicaid would be two programs likely to see deep cuts, simply because the budgets are large enough to cut enough to balance the budget.
“There really is nowhere else to get money,” Barnhart says.
By Amanda Waldroupe, Staff Writer