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Oregon lawmakers back pension, tax changes

Oregon lawmakers back pension, tax changes
Gov. John Kitzhaber addresses the press on the third day of the special session at the Oregon State Capitol in Salem on Wednesday, Oct. 2, 2013. The Oregon Legislature on Wednesday approved a series of bills on pensions, taxes and genetically modified crops, then adjourned a special session after three days of work. (AP Photo/Statesman-Journal, Danielle Peterson)
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SALEM, Ore. (AP) — The Oregon Legislature on Wednesday approved a series of bills on pensions, taxes and genetically modified crops, then adjourned a special session after three days of work.

The decision delivered a hard-fought victory to Democratic Gov. John Kitzhaber, who has been working for a year to convince lawmakers to stem the growing costs of public-employee pensions. To gather support in the Legislature, the pension cuts were packaged with changes to the tax code and a bill prohibiting local governments from banning genetically modified crops.

After days of tense negotiations, five bills cleared the House and Senate, most of them by the narrowest of margins.

"We were able to do what I think a lot of people thought was impossible," Kitzhaber told reporters afterward. He — and many in the Legislature — compared Oregon favorably with the partisan battle in Congress that's led to a partial shutdown of the federal government.

>>>Watch Kitzhaber's full news conference

Kitzhaber, business leaders, education advocates and other supporters say the rising cost of pensions is contributing to large class sizes and shortened school years and making it difficult for local governments to reinvest in services that were cut during the Great Recession.

Critics took issue with all parts of the package. Some said it's unfair and potentially illegal to take retirement benefits promised to public employees. Others objected to tax breaks for businesses or to the inclusion of an agriculture measure in a package that initially was targeted at budget matters.

"Trading away environmental protections in unrelated legislative negotiations is an all too common practice that's bad for not just democracy but also the people of Oregon," six environmental groups wrote in a statement following the votes.

Kitzhaber first proposed pension cuts in his budget released in December. Several attempts to marry them with a tax increase fell apart during the regular legislative session, which wrapped up in July.

The agreement just approved was negotiated last month by Kitzhaber and the top Republicans and Democrats in the House and Senate. Democrats agreed to throw in the genetically modified foods bill when they were unable to meet Republican demands for steeper pension cuts or more generous tax cuts for small businesses.

Fearing a growing effort by environmental groups to seek local regulations on genetically modified foods, the agriculture industry has pushed for a statewide pre-emption. Farmers say it would be difficult and expensive to comply with a patchwork of local rules, but environmentalists and organic-food proponents say the state and federal governments have failed to adopt meaningful regulations.

Retired government workers will see their pensions grow at a slower rate. For decades, pension checks have increased at a rate of 2 percent annually. Now, the first $60,000 will increase by 1.25 percent per year and the rest will grow by 0.15 percent. The lowest-income retirees will temporarily get supplemental payments to help mitigate the loss.

Beneficiaries in the Public Employee Retirement System and unions that represent government workers have vowed to challenge the cuts in court. Many of the lawmakers who voted for the PERS cuts said they didn't want to take benefits from workers, but the system's massive unfunded liabilities require action.

Together with cuts adopted earlier this year, the changes approved Wednesday would erase about a quarter of the system's unfunded liabilities, which were created when investment losses erased 27 percent of the PERS fund in 2008.

Kitzhaber sought to reassure retirees that he was done pushing for cuts to their pension checks, saying PERS "is off the table for this governor."

"We are done," he said. "We're going to move on to other things that are important to Oregonians, put this behind us."

Some higher-income individuals and businesses will see a higher tax bill. Individuals earning at least $100,000 — couples more than $200,000 — won't be able to claim the $183 personal tax exemption. Use of a tax deduction for seniors' medical expenses has been restricted based on age and income, but more people will qualify because taxpayers who don't itemize their deductions will be able to claim it.

Taxes on tobacco products would go up as well.

Businesses — known as pass-through entities because their profits are taxed on the owners' individual tax return — would pay a lower rate under certain circumstances. The Earned Income Tax Credit, which benefits low-income workers, would be expanded.

Some Democrats criticized the business tax breaks, which they fear will balloon into an expensive giveaway to rich people.

"This is a tax cut that is hanging an albatross around Oregon that we may not be able to get rid of," said Rep Jules Bailey, D-Portland.

Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Watch Kitzhaber's full news conference, following the special session, below:

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