Tension behind study of $3 billion corporate tax measure, records show

Backers of a $3 billion corporate tax measure on the November ballot repeatedly pushed for changes in a Portland State University economic review of the proposal, delaying the report for several months.

Emails, draft reports and other public records obtained by The Oregonian/OregonLive on Tuesday reveal the uncomfortable relationship between university economists and Our Oregon, the union-backed group that drafted the measure and paid for the report.

The report was expected to take four months when commissioned by Our Oregon at a cost of $45,000. It was finally released June 29, some seven months after the economists first submitted a proposed final draft. 

The university economists appear to have largely rebuffed requests for substantial changes. They found new tax revenue would add 33,600 government jobs by 2027, but with 13,500 fewer private sector jobs. They also echoed concerns that businesses would raise prices, with the burden falling disproportionately on low and middle income households.

But the tension and back-and-forth testify to the high stakes in a ballot fight that's sharply divided Oregon's political factions and looms as one of the most hard-fought campaigns in state history.

Supporters, including Our Oregon, say billions of dollars in new revenue could transform the state's finances and lift education spending to new heights. But opponents, largely in the state's business community, say the measure will raise costs and drive away jobs by acting as a sales tax.

And reports such as Portland State's have been seen as key in shaping the debate so far.

For example, as the economists prepared a draft report last fall, Our Oregon's research director, Daniel Morris, asked them to add a new factor to their analysis: the additional debt the state could afford to take on if voters approve the new tax.

The assumption that the state might borrow more money, which is typically spent on more construction and infrastructure projects, could create a rosier picture of the tax impacts. That's because the added debt would be tied to additional government spending.

The measure, currently known as Initiative Petition 28 but expected to appear on the ballot as Measure 97, would charge certain C corporations a 2.5 percent tax on their gross annual sales in Oregon above $25 million. This type of tax is known as a gross receipts tax.

Our Oregon's executive director, Ben Unger, also lobbied former state economist Tom Potiowsky and other researchers at the university's Northwest Economic Research Center.

He asked them to include a central political argument for the measure in their findings: that the measure is so different from gross receipts taxes in other states that common downsides would not apply in Oregon.

Unger added his comments to draft versions of the report.

"More needs to be said about how IP 28 is different," Unger wrote on a draft of the report in March. "All the assumptions: regressivity, pyramiding, profit vs. no profit - all of it is different, and it should be highlighted."

Unger, who is not an economist, did not cite research to support his argument, based on the idea that Oregon's tax, unlike broader taxes in other states, would apply only to larger corporations.

Potiowsky pushed back against Unger's claim.

"And IP 28 is not so unique that it would not have any regressivity associated with it," Potiowsky wrote in response to Unger's comment. "Applying [a gross receipts tax] to a narrow group of C corporations does not make regressivity go away."

Potiowsky could not be reached for comment Tuesday, but Mike Paruszkiewicz, a senior economist at the Northwest Economic Research Center, said Our Oregon did not shape the researchers' findings.

"Any influence Our Oregon had was during the contract phase," Paruszkiewicz said. "Any client is allowed to ask us to answer a certain question. ... I can't speak for any influence they wanted to have."

As for the tweaks that did appear in the report, Paruszkiewicz said "any place we changed the language was in response to a valid criticism."

Katherine Driessen, a spokeswoman for Our Oregon and the ballot measure campaign, said the dialog amounted to "a very standard editing process" and "and it was "ultimately up to Tom Potiowsky and his co-workers at NERC to decide Ben has a valid point, Ben doesn't have a valid point."

"We were setting the scope of the work, we were paying for it," Driessen said. "We certainly wanted to make sure the end product was good and accurate."

Unger also tried to shape Potiowsky's public comments on the tax measure, records show.

On March 17, Unger called and emailed Potiowsky after a lobbyist tweeted that Potiowsky, speaking to a group of contractors, had referred to gross receipts taxes in general as "a sales tax on steroids."

"I am pretty sure this is out of context and not accurate, but I think you're going to need to correct [the lobbyist] for the record," Unger wrote to Potiowsky.

Potiowsky wrote back that he did draw the comparison to a sales tax. He said he was answering a question about the corporate tax measure's effects. "As you know better than I, this is nectar for spin doctor bees," Potiowsky wrote.

The next day, Potiowsky confirmed the comment and provided additional context in an email to a reporter. Potiowsky then forwarded that email to Unger. Unger responded that Potiowsky should refrain from speaking to reporters without first checking in with Our Oregon.

"From here on out on this, can you not comment about your statements without checking in?" Unger wrote. "We could've avoided this one with a little more coordination. Sorry this is happening, but I think we can make this a short story if we communicate together."

Potiowsky agreed to check in with Our Oregon before commenting, but wrote in an email that he would not always take the group's advice "and I will speak my mind as my conscious (sic) dictates."

Initially, the university economists declined to work with Our Oregon, citing busy schedules and the likelihood their findings that would resemble a report produced by economists for the Legislature.

Potiowsky later reversed the decision after meeting with Unger, but the reason was unclear in public records.

-- Hillary Borrud

503-294-4034; @hborrud

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