To Pass An Unpopular Tax Break, Kate Brown Used Political Heft — And The Telephone

Leading up to Monday’s special legislative session, Gov. Kate Brown worked the phones.

On Friday afternoon, she connected with House GOP Leader Mike McLane at his law firm in Bend. She wanted to know if Republicans were willing to suspend legislative rules, a key procedural move to ensure the emergency session wouldn’t drag on. McLane wanted assurances: that the governor wouldn’t sign a bill that raised taxes and the session’s focus would remain narrow.

The state’s top Democrat agreed.

That was the easy phone call.

The political heavy lift was with her own party. Brown needed to convince fellow Democrats that giving a tax cut to an estimated 6,000 businesses known as sole proprietors, the bulk of whom earn more than $200,000 a year, was a good idea.

Brown argued it as a matter of fairness, expanding an existing tax cut to include some smaller businesses. The hit to the state's budget is relatively small, about $11 million in 2018. But in an election year, with Brown facing a potentially tough campaign, the political risk was much larger for the governor.

For years, Democrats have pushed for broader tax reform to fund the state’s basic services. Schools desperately need more money, they argue, and roads and bridges need upgrades. That means more revenue, not less.

The governor, however, had political calculus in her favor: Democrats would be hard pressed to hand their governor a loss in the midst of a re-election battle. And despite denouncing it as political theater, Republicans were unlikely to pass up an opportunity to approve a tax cut.

Yet, calling a special session carried an inherent level of uncertainty.

“These special sessions are tricky animals,” Brown said.

Her office said she had the votes. But as the Oregon’s Democratic Socialists of America and the Poor People’s Campaign rallied outside the Capitol steps on Monday, protesting the governor’s proposal as a giveaway to the rich, Brown — who has been in the state Capitol in one capacity or another since the 1990s — made the rounds.

Related: Oregon Legislature Approves Gov. Kate Brown's Tax Break For Business

“If you haven’t noticed, the governor’s going around office to office,” Sen. Brian Boquist said on Monday before the Senate vote. “I don’t think she’s handing out Christmas cards.”

It was an extension of the work she'd carried out by phone in the days prior. By the time lawmakers hit the chamber floor to vote, Brown or her staff had conversed with the bulk of them.

Sen. Lew Frederick, D-Portland, wanted to see the bill modified to ensure the tax break only benefitted those on the lower end of the income spectrum. The bill wasn’t altered.

The governor called Sen. Elizabeth Steiner Hayward, also a Democrat from Portland, more than once leading up to the May 21 session. Steiner Hayward wouldn’t immediately commit. She said she needed more time to study the bill.

Brown also reached out to Sen. Sara Gelser, D-Corvallis.

“You have a lot of people on both sides of the aisle who for years we’ve talked about how we want tax reform, so any time you have a tax discussion that isn’t the big thing, there is a sense of frustration,” Gelser said.

Frederick and Steiner Hayward eventually voted yes. Gelser did too, but when she saw the bill didn’t need her vote to pass, she changed it to a no.

Here’s how Frederick explained his vote: “Let’s be real clear: This is a political year. I really don’t apologize for politics. Compromise is one of those things that you often need to do.”

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Meanwhile, on the House floor, Democrats barely spoke. Republicans criticized the governor’s bill, but overwhelmingly voted in support — including Rep. Knute Buehler, R-Bend, Brown’s opponent in this year’s governor’s race.

Before 5 p.m., lawmakers were done for the day.

The following afternoon, the governor — who often holds celebratory ceremonial signings of legislation surrounded by lawmakers and constituents — quietly signed the measure into law without any fanfare.

And two days later, it seemed, Democrats were ready to move on. The party’s leadership shifted the conversation to the broader question of raising taxes in 2019.

“While the economy is still booming, it continues to be clear that our state’s schools, health care and critical services deserve more,” House Speaker Tina Kotek said in a statement in response to a revenue report that revealed an uptick in the state’s finances.

Later, in an interview, Kotek said the goal for 2019 will be to examine the state’s business tax structure in its entirety.

“Does it achieve the goals we want it to achieve?” Kotek said, “Is it a sustainable source that supports our schools?”

That’s language likely to rankle Republicans.

While lawmakers were on the House floor Monday, McLane, the Republican leader, raised the possibility that Democrats would repeal the entire pass-through tax break next year. He gave an impassioned speech raising the idea that the work lawmakers were called back into an emergency session to accomplish could be wiped out the following year.

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“The question becomes why are we going to vote on expanding what will surely be repealed by the majority party in a year?” said McLane, R-Powell Butte. “If this majority party votes to repeal the small business tax cut next year, this will be one of the greatest mockeries of the special session in the history of Oregon.”

Brown, meanwhile, said she’s open to a larger conversation about Oregon’s revenue system next year.

“I’m going to keep an open mind as we move forward,” she said. “But for me, it was critically important sole proprietors, which are the smallest of our small businesses — you know they don’t have a megaphone in this building — that they get the same tax treatment that other similarly-situated business in Oregon get.”

Gelser, despite voting no on the bill, praised the governor.

“She put in the work of talking to people,” Gelser said, adding that the smoothness of the special session, “is a credit to her leadership … Sometimes you just have to come in and get your work done.”

OPB's Dirk VanderHart contributed to this story.