Business gears up for the legislative session with bold ideas to rein in PERS and prison costs as well as a response to the governor’s 10-year energy plan.
BY LINDA BAKER // ILLUSTRATIONS BY RYAN LOGHRY
Leaders of Oregon’s business associations are gearing up for what they hope will be another game-changing legislative session on major public policy issues.
During the 2011-12 sessions, Oregon business leaders helped pass ambitious education and health-care reforms designed to improve efficiencies and reduce expenses. In 2013, leaders aim to continue implementing those reforms while also taking on new challenges, such as escalating costs in Oregon’s prison and public employee retirement systems. It’s part of a grand plan to reboot the state’s economy by reining in unsustainable health care, prison and pension costs, then reinvesting the savings in the state’s redesigned but cash-strapped K-20 education institutions.
Business groups have other big issues on their 2013 agenda, including the controversial Columbia River Crossing, which may face its final day of reckoning this winter. The release of Gov. John Kitzhaber’s 10-year energy plan will also spotlight a few clean-energy and efficiency issues. Those issues expose some of the divisions within the business community, with large electrical users and fossil-fuel companies prepared to fight some of the clean energy/fuel bills championed by the renewable energy sector.
The ability of Oregon’s business leaders to pass reform legislation while also finding compromise on energy and natural resource issues will depend on the ability of different interests to work together. Bipartisanship in the Oregon House and Senate will be another key factor. In 2011-12, state legislators were lauded around the country for creating an unprecedented power-sharing agreement between House Democrats and Republicans. But in 2013, the Democrats will have a 34-26 majority in the House and a 16-14 advantage in the Senate.
“The reason the Legislature worked so well is the two speakers set the tone for a collaborative working relationship,” says Dan Jarman, a partner with CFM Strategic Communications in Portland. “The prospect of Tina Kotek [D-Portland] as speaker raises questions about how willing Republicans and Democrats are to have the same level of collegiality.”
Jarman was one of a handful of lobbyists and business associations interviewed about the 2013 business agenda. The state’s business community, of course, is not a monolithic group, and it goes without saying that individual businesses and industries are not always on the same side of a given piece of legislation. But with major initiatives on health, education and pension reform all coming together in the same time frame, most lobbyists agree on one thing: “We are all carrying a pretty heavy load,” says Jay Clemens, president of Associated Oregon Industries (AOI).
Health care and education: Finishing the job
In 2011-12, business leaders helped pass landmark education reforms giving public universities more autonomy from the state and creating a new entity, the Oregon Education Investment Board, to make policy and funding decisions for all education levels, from preschool through college.
According to Betsy Earls, AOI’s education legislative representative, the higher-education discussion will focus on new governance structures and financial tools, including institutional governing boards, bonding authority and shared services between institutions. All eyes will also be on Oregon’s new chief education officer, Rudy Crew, whose proposals for boosting K-12 educational outcomes will help inform future discussions about school funding.
Business groups championing structural reforms will encounter opposition from parents and unions who are far more concerned about hiring more teachers and bringing down class sizes in schools decimated by budget cuts. “We are creating a system that has done a lot in the last few years to talk about accountability but is not providing revenue in service of those goals,” says BethAnne Darby, director of public affairs for the Oregon Education Association. The Educational Investment Board, she says, is “working on initiatives that are out of touch with what parents, students and teachers are worried about.”
In the health-care arena, one big push involves refining the two health-care models created last session: the health insurance exchange, intended to boost small business access to affordable insurance, and Coordinating Care Organizations (CCOs), which aim to deliver more efficient health-care services to state Medicaid recipients. Funding for CCOs is based on the hospital tax and insurance tax, both of which are set to expire next year. Negotiating renewal of the hospital tax is a top legislative priority, says Andy Van Pelt, chief operating officer for the Oregon Association of Hospitals and Health Systems.
In Oregon a supermajority vote of 60% is required to pass revenue increases. As Jarman points out, the CCO funding mechanism is one of several policy issues that will require a good working relationship between Democrats and Republicans.
Revenue: Show us the money
The Oregon Business Plan, an economic and policy strategy guided by a coalition of business leaders, does outline a long-term plan for funding the state’s beleaguered public schools. The idea is to restructure K-20 institutions to make the system more efficient, then rein in escalating costs in other parts of the budget to shore up cash-strapped institutions. With education restructuring and health-care reform under way, the focus is turning to other “unsustainable cost drivers,” says Ryan Deckert, president of the Oregon Business Association.
On the top of the list is reforming the state’s Public Employees Retirement System (PERS), which is expected to cost all public employers, including school districts, an extra $1 billion next biennium. Two items on the agenda are reducing the earnings rate inside PERS accounts and the elimination of an income-tax break for retirees who move out of Oregon.
Kitzhaber has also identified PERS reform as a key issue. But the question is what the Legislature will be able to accomplish — politically and legally. Many elements of PERS are considered a binding promise in the state’s statutory contract with public employees. Lawmakers, business executives, and rank- and-file voters will also have to “convince the unions that having some PERS reform is important for the economy of the state,” says Jarman.
Business leaders are also pursuing corrections reform this session, with a focus on developing a more “rational sentencing and corrections model,” says Deckert. He points to Texas and Kansas, states that have reduced incarceration costs in part by redirecting funds for new prison construction into a more efficient network of residential and community-based treatment and supervision programs.
The business plan doesn’t end there. In the end, restructuring and cost containment simply lay the groundwork for what Deckert calls the “big enchilada” — reforming Oregon’s much-maligned tax code. But actual changes to the system, which could include a sales tax and corresponding reductions in capital gains and income taxes, will probably have to wait for another session, as lawmakers are not expected to come up with concrete options until at least 2014.
Energy: Conserving the future
Business leaders are taking the lead on education, health-care and revenue reform, but the community is less unified when it comes to energy planning, a policy arena likely to be dominated by Kitzhaber’s ambitious 10-year energy plan, which was to be finalized in December. The plan should boost momentum around clean energy and efficiency legislation, says John Audley, deputy director of the Renewable Northwest Project. “It should be a pretty interesting year for renewable-energy policy,” he says.
Mark Nelson, a veteran Salem lobbyist who represents large electrical users, such as food processors and timber companies, doesn’t quite see it that way. The energy plan is “something all businesses should be tremendously concerned about,” says Nelson, who predicts an increase in electrical rates should some of the proposals go through.
Critics and admirers alike say that one of the contentious issues this session involves lifting the 2015 expiration date on the state’s low-carbon fuel standard, which was passed in 2009 and mandates a 10% carbon reduction in Oregon fuels over the next decade. “There will be a big battle,” says Paul Romain, a Portland lobbyist who represents the Oregon Petroleum Association and supports letting the standard expire. Environmental organizations and biofuels companies such as ZeaChem, a Colorado company that operates a cellulose-based biorefinery facility in Boardman, advocate lifting the sunset on the standard.
Putting in place policy mechanisms that encourage use of alternative fuels is one of Kitzhaber’s top priorities. Another is meeting the bulk of the state’s new electrical load through efficiency and conservation measures. The Oregon Business Plan does have an energy strategy, and one of the plan’s action items is accelerating efficiency. Nevertheless, as businesses seek to refine the 10-year plan, a debate will inevitably spring up around costs, including funding mechanisms for new efficiency programs, the impact on electricity rates, and the role of utilities in meeting more aggressive efficiency goals.
Some renewable-power industry advocates also expressed concern that the focus on conservation will leave them out in the cold, especially since the industry is already reeling from cutbacks to the state’s business energy tax credit. “We are looking for some actions that will support the renewable sector, in which the state had become a leader,” says Robert Grott, executive director of the Northwest Environmental Business Council.
If incentives for large projects remain uncertain, the discussion around small renewable systems is “ripening,” according to Audley. To that end, Audley says he expects legislators to consider expanding the state’s feed-in tariff pilot program, in which utilities pay homeowners a fixed rate for the solar power they produce.
As these energy issues unfold, business leaders are also pushing for solutions that address water resources and balance the demands of agriculture, municipalities and sustainable fisheries. On the OBA agenda is a proposal for wintertime withdrawal of Columbia River water for underground storage to irrigate farms during the growing season.
Special interests, CRC, regulatory reform
Plenty of special interests will be knocking on legislators’ doors this session, from the Oregon Winegrowers Association, a group that is pursuing variances to Oregon land use law allowing wineries to host commercial events, to the Oregon Forest Industries Council, an organization seeking to recalibrate public-private sharing of fire protection costs, alleviating the burden on private landowners.
Small issues aside, business leaders will tackle at least one other big project this session: the Columbia River Crossing. If the 2013 Legislature doesn’t agree to fund Oregon’s part of the $3.2 billion bill for the new I-5 bridge this winter, then federal dollars may disappear. Although many business and political leaders — including Tina Kotek — consider the project central to the state’s economic competitiveness, the bridge plan has been heavily criticized for its design flaws, cost overruns and environmental impacts.
Business leaders have also been working with Kitzhaber on a regulatory reform plan intended to make it easier to start and expand a business. The AOI has made regulatory reform a priority and will eventually come forward with targeted ideas linked to the Oregon Business Plan vision for a more streamlined and efficient system, says Clemens.
Along with education, revenue and health-care reform, the regulatory-reform project demonstrates the Oregon business community’s leadership role in shaping public policy. Last session, business groups demonstrated their ability to work constructively together and with the governor and other lawmakers to pass historic legislation. In 2013 the big question is whether that legacy — and détente — will endure.
“I think everybody hopes for a similar political climate,” says Clemens, “and that we continue to do things that have a positive impact on growing jobs in the state.”
Linda Baker is the managing editor of Oregon Business. She can be reached at [email protected].