State senators consider rainy-day fund.

Byline: David Steves The Register-Guard

SALEM - A Senate panel got to work Thursday on rainy-day fund legislation that could include a statewide vote this May to permanently divert surplus corporate income taxes into a reserve account.

Sen. Ryan Deckert, a Beaverton Democrat and chairman of the chamber's Finance and Revenue Committee, said such an amendment of the "kicker" tax rebate provision in the Oregon Constitution was the "star attraction." But along with it is a supporting cast of provisions to back up Oregon's economically vulnerable tax-and-spend system with a reserve fund.

Lawmakers also are wrestling with questions such as: where else to get the needed money for a rainy-day fund? What sort of restrictions should be placed on the use of such dollars? What's the right amount to have in reserve for the next time the economy tanks and the state general fund bleeds?

Treasurer Randall Edwards told the panel considering the changes that they still have many issues to resolve, but the fact that the Legislature was taking the challenge up so early in the session was too good to be true.

"I'm still pinching myself," he told the committee.

Such a reserve would hedge against the next revenue downturn like the one in 2001-03 that forced cuts to public education and safety-net services and led the state to pay for programs with borrowed money. In addition, Edwards said the plan before the Senate would lead Wall Street firms to upgrade Oregon's credit rating, resulting in at least $10 million a year in savings through better interest rates on the bond markets.

A big reason the panel is moving so quickly is that final legislative approval is necessary 60 days before a referral's election date. That means the Legislature would have to pass a measure by mid-March for it to appear on the May 15 ballot.

Under the Oregon Constitution, corporations and households are eligible for tax refunds under what's called the "kicker" provision.

This is triggered when actual corporate or personal income tax revenues exceed by 2 percent or more the state's official revenue projections from two years earlier.

The projected kicker due to go back to corporations is a record-level $275 million. But on average, this windfall has been about $100 million and kicks in only sporadically, given the ups and downs of corporate profits.

That's not enough to reach the Legislature's short-term savings goal of $900 million - even with the lottery-fed education stability fund at $451 million.

Other potential sources being considered - or at least talked up by different lawmakers and political factions - include using some of the personal kicker, currently projected at about $1.1 billion; additional lottery money; a certain percentage of the budget's ending balance; flagging surplus dollars from the capital gains tax for reserve; and other particularly volatile revenue sources.

Deckert said he and other leaders in the Senate effort have taken pains to include Republicans and business groups. The latter, whose members stand to give up big tax windfalls under the Senate proposal, sent representatives to the Capitol to offer support for such a move.

Harvey Mathews, president of the Software Association of Oregon, said a recent poll of Oregon software executives found that 72 percent of them favored using corporate income tax revenue surpluses for a reserve fund to hedge against an economic downturn.

"This means it acts merely as a windfall that does nothing to incentivize job-creating business behavior," he said.

Mathews said few software executives had planned for the tax credit expected to result from the corporate kicker. They preferred seeing the dollars used to backstop important services, such as education, important in attracting and retaining good workers with families.

Lynn Lundquist, president of the Oregon Business Association and a former Oregon House Speaker, said his group also endorsed the Senate's approach, provided it included additional elements.

The Senate proposals aren't the only ones aimed at creating a reserve or tapping corporate kicker dollars.

Gov. Ted Kulongoski came out last June during his re-election campaign with a recommendation to suspend the upcoming corporate kicker and put those dollars into reserve, rather than make such a move permanent.

Spokeswoman Anna Richter Taylor said Kulongoski was open to the discussion of asking voters to permanently divert corporate kicker dollars into a reserve. But he still favored his own approach, which leaves future actions on the kicker in play for a give-and-take discussion about tax and budget reform.

Richter Taylor said the governor wants to save the conversation about repealing the kicker for the broader tax reform debate later this year.

House Republicans are working on their own plan for a reserve account. Rep. Gene Whisnant, R-Bend, said his caucus was not ready to go public yet with the details, but may roll out a plan as soon as today.

Check out David Steves' Capitol Notebook blog at www.registerguard.com/blogs/index.php/capnote. He can be reached at [phone] or [e-mail].