Isaac Laquedem

A 100% business income tax rate in Oregon? Watch your ballot

Professor Bogdanski's post today about the corporate gross revenues tax that's the subject of Initiative Petition 17, which we may see on our November ballot, prodded me to pursue some math that I'd been working on for a week or two.  The basic premise of the corporate gross revenues tax is that corporations that sold more than $25 million/year in Oregon would pay the state a tax of 3% of their gross revenues above $25 million.  The state would distribute that fund equally to all Oregonians who satisfied a modest residency requirement.  The state believes that prices will increase 1.3% if the measure passes.  Willamette Week quotes the chief petitioner's reply: "Giant corporations can deduct the tax increase in IP 17from what they pay to the federal government.  So they are not going to pay that much more, if anything at all.  And No. 2, these corporations price their goods nationally or regionally, right?  An iPhone costs the same in Portland as it does in Texas.  There's no difference.  So we don't think price increases will happen."

Let's unpack that with an unpopular example.  WalMart, the store that all good Oregonians love to hate when they're not inside shopping, will be our case study.  WalMart's sales are about $650 billion/year.  Its consolidated pretax income was $21.8 billion, income taxes were $5.6 billion, and after-tax net income after a deduction for minority interests was $15.5 billion, which is about 2.4% of its annual sales.  About 0.8% of WalMart's United States stores are in Oregon.  Some of WalMart's operations are overseas.  It's a fair guess that WalMart sells about $4.5 billion/year in Oregon (maybe $90 million per store) and nets about $120 million/year from its Oregon operations.

IP 17 would levy a tax of $135 million/year on WalMart for its Oregon sales, which corresponds to an effective state income tax rate of 113%.  WalMart cannot offset the state income tax against its federal tax obligation - the chief petitioner may have skipped the corporate taxation class -- but it can claim the state income tax as a deduction against its federal income.  WalMart allows about 26% of its income for income taxes, so a state tax of $135 million creates a federal tax savings of about $32.5 million, for a net tax increase of $102.5 million on profits of $120 million, an effective tax rate of about 85%.  That's in addition to the actual state income tax, and will push WalMart's effective tax rate in Oregon to the mid-90s. Put another way, Oregon will collect 15 to 20 times as much profit from WalMart as WalMart will.

To bring a mot of Oscar Wilde up to date, "If this is the way Oregon taxes its enterprises, it doesn't deserve to have any."

 

Shemia Fagan's resignation: the lettuce wins again

The recent scandal that ended the political career of Oregon's soon-to-be-former secretary of state Shemia Fagan and her lucrative consulting contract with a financially struggling leader in the cannabis industry, La Mota, is notable for its celerity. On April 27, Willamette Week published Sophie Peel's story that broke the news that Secretary Fagan was receiving $10,000/month - 55% more than her state salary - from La Mota for providing then-undescribed consulting services.  On April 28 the rest of the Democratic establishment moved quickly to distance themselves from Ms. Fagan, exemplified by Governor Kotek's pithy response to a reporter's question on April 29: "I don't have outside employment.  I only have one job."  On May 2, only five days after the story broke, Ms. Fagan announced her resignation.

Five days is unusually fast for a public official's scandal to go from unveiling to unspooling.  Liz Truss served only 44 days as Britain's prime minister, but she did survive in office for six days after the Daily Star set up a webcam on a head of lettuce to see whether the lettuce or the prime minister would wilt first. [The lettuce won.]

The speed with which Shemia Fagan was expelled from the machine reminds Isaac of the famous scene in A Night At The Opera, in which Otis P. Driftwood (played by Groucho Marx) is welcomed into the offices of the New York Opera, promptly fired, and then kicked down four flights of stairs and thrown out the door.

 

Endorsements III: The race for Governor

Christine Drazan and Tina Kotek, the two major-party candidates for Oregon's governorship, conflict over the role that unaffiliated candidate Betsy Johnson, a former Democrat, will play in next week's election.  Ms. Drazan asserts that Ms. Johnson is a spoiler who will siphon republican votes away and give Ms. Kotek the win.  Ms. Kotek's campaign equally vociferously claims that Ms. Johnson will siphon Democratic votes away and give Ms. Drazan the victory. 

They can't both be right.  Some recent polls suggest that Ms. Drazan is more successful at holding on to republicans than Ms. Kotek has been in drawing support from Democrats, which strongly implies that Ms. Johnson's views are closer to the Democratic center than to the republican center, and less strongly implies that Ms. Kotek is farther from the Democratic center than Ms. Drazan is from the republican center. 

All three candidates agree, however, that the administration of Governor Kate Brown has been a failure.  It's not surprising that Mss. Drazan and Johnson would campaign against Governor Brown; what's changed in the last three weeks is that Tina Kotek is also campaigning against Governor Brown.  The Brown administration's failures and missteps may be the only subjects on which the three candidates agree, and polls show her to be the nation's most disliked governor.

The voters that really matter in Oregon's statewide races, however, are the non-affiliated voters.  (They used to be called "independents" before an enterprising would-be politician grabbed the name "Independent" for a minor political party.)  About a third of Oregon's voters are non-affiliated and another third are Democrats.  About a quarter are republicans.    The non-affiliated voters slightly outnumber the Democrats. 

All three candidates are qualified by legislative experience to serve as governor.  Except for their shared dislike of Governor Brown and their professed willingness to allocate state resources to ameliorate the crisis of the homeless camps and their attendant crime and filth, Mss. Drazan and Kotek share no ideological ground.  Ms. Johnson is somewhere in between them.  She does state, however, that she is willing to try to solve Oregon's problems without resorting to party lines, and as an independent governor she would have to try.

Despite Christine Drazan being in the reasonable wing of her party - unlike some of her legislative caucus she is not an election denier - I can't persuade myself to vote for a republican for governor until the party as a whole regains its moral bearings.  Neither can I bring myself to vote for Tina Kotek, who is running against an administration that she spent the last several years supporting.  This year I am voting for Betsy Johnson, whom I believe to be the best of the candidates to lead Oregon through its current mess. 

By voting for Betsy Johnson do I increase the chance that Christine Drazan is elected?  Perhaps.  I'm willing to take that risk both because I believe that the Oregon Democratic party should return to the days when it earned support instead of demanding it, and because I believe that Ms. Kotek would take my vote for her, tiny though it be in the overall total, as an enthusiastic endorsement instead of a reluctant concession.

2022 Endorsements II: NO on Measure 113 (truant legislators), YES on Measure 114 (gun regulation)

Like Measure 111 (unfunded guaranteed health care), Measure 113 sounds like a good idea.  We pay legislators to be in Salem and legislate; shouldn't we eject legislators who play hooky from the Capitol? Measure 113 would amend the constitution to disqualify from reelection any legislator who, in a single legislative session, misses 10 or more days when the legislature is meeting without having received permission or an excuse.  The measure does not identify who grants permission or accepts the excuse.

The quirk behind Measure 113 is that the constitutional requirement for a quorum for the Oregon house and senate is not a simple majority (31 representatives, 16 senators) but two-thirds (40 representatives, 20 senators).  A party in the minority that holds at least 21 house seats or 11 senate seats may bring the chamber to a halt by not showing up.

In recent years the republicans have been the ones who haven't shown up; the Democrats last staged a walkout in 2001 to protect redistricting.  No one filed an argument in opposition.  The measure is nevertheless bad policy, both because it does not say who gets to grant permission - the presiding officer? The house or senate by majority vote? The majority or minority leader? - and because it takes from the voters the right to boot their representatives.  I don't favor walkouts, but I have seen legislators walk out not to avoid representing their constituents, but to carry out the wishes of their constituents.  The voters, not the legislature, should decide whether an absent legislator is ill, lazy, or zealous.

Measure 114 is a common-sense gun regulation measure that requires gun buyers to take a gun safety course before acquiring a weapon, prohibits most off-the-books transfers of firearms, and prohibits magazines that can hold more than 10 rounds of ammunition.  Until I see a plausible argument that (1) gun owners need less training than alcohol servers and boat owners, and (2) there is a genuine self-protection reason for Oregonians to be able to kill more than 10 people at a time, I'm willing to add regulations that may reduce exsanguination.  I vote YES on Measure 114.

The Port of Portland is still bigger than it thinks

Back in 2008, I wrote this post about how The Port of Portland (the "The" is part of its official name) was bigger than it thought.  When the legislature first established the Port nearly 60 years ago to absorb the Portland Dock Commission and run as a state agency, the legislature defined "Portland metropolitan area" in ORS 778.005 to be "the Oregon portion of a standard metropolitan statistical area as designated and published by the United States Bureau of the Budget with an Oregon population of more than 750,000.  The area that qualified consisted of Multnomah, Washington, and Clackamas Counties.  ORS 778.010 then defined the Port district to be the Portland metropolitan area, resulting in the Port district being those three counties.

A funny thing happened in the 1980s.  The federal government did away with the term "standard metropolitan statistical area," replacing it with "metropolitan statistical area."  The federal government also redefined the Portland MSA to include Columbia and Yamhill Counties.

The Port took no notice that the federal government had given it two additional counties, and in 2008 continued to believe that its district included only three counties.  It believes that even today, saying on its website that "at least two commissioners must each live in one of the three counties in the Port district."  Could the federal government add two counties to the Port district by changing the SMSA/MSA definition?  Perhaps not - a Port lawyer might argue that the definition of "Portland metropolitan area" must be read as it was in the 1960s when the legislature created the Port.

However, in 2009 the legislature amended ORS 778.005 to say that "Portland metropolitan area" means "the Oregon portion of a metropolitan statistical area as designated by the United States Office of Management and Budget with an Oregon population of more than 750,000."  In 2009 that sentence described Multnomah, Washington, and Clackamas Counties -- and Columbia and Yamhill Counties also, all of which were in the only metropolitan statistical area with more than 750,000 Oregon residents. 

Whether or not Columbia and Yamhill Counties were in the Port district before the 2009 amendment, the legislature unambiguously brought them into the Port district in 2009.  The legislature may have meant to leave the boundaries unchanged, but when legislation is plain and clear, the intent of the legislators isn't relevant.  As A.P. Herbert famously said about another legislature, "If Parliament does not mean what it says then it should say so."

Is this odd fact significant?  Maybe.  ORS 778.210(1) requires the Governor to appoint two Port commissioners from each county in the district.  Neither the  current governor nor any prior governor has ever appointed the required two commissioners from Columbia County and Yamhill County.  Someone in a battle with the Port might argue that as the Port's commission has not been properly constituted since 2009, perhaps the commission doesn't have the authority to do anything. 

I have no dog in that prospective fight, but if I lived in Yamhill County I might write to the Governor and ask to be appointed to the Port board.

Three stories on transparency in government become clearer if you read them together

Three stories in today's Oregonian deserve to be linked together.  First is this piece by Shane Dixon Kavanaugh, appearing on page A6.  He reports that the Portland City Council has agreed to pay $250,000 to attorney Jeff Merrick and the Dunn Carney law firm for the attorney fees they incurred to challenge the city's refusal to comply with Mr. Merrick's request for public records of telephone and e-mail complaints about homeless camps.  When the district attorney ruled in 2018 that the records Mr. Merrick wanted were indeed public, he asked for $52,000 to cover his attorney fees incurred in pursuing the request.  The city objected, and the trial court denied his request.  Last year the court of appeals reversed the trial court and directed that the city pay his fees, which had by then mounted to $375,000.  They settled on the city paying $250,000. 

Almost as stunning as the news that the city council's commitment to secrecy had dug a $250,000 hole for the city was the reaction of Commissioners Jo Ann Hardesty and Mingus Mapps.  Mr. Kavanaugh reported that Commissioner Hardesty "praised city attorneys for their 'steadfast commitment' [her words] to withholding information that could place 'public servants in harm's way' and said the city should lobby state lawmakers to add new public disclosure exemptions."  Nothing in the story, however, suggests that Mr. Merrick sought the home addresses of any city employees.  Commissioner Mapps's stance was more nuanced than Commissioner Hardesty's pro-secrecy view; the article quoted him as saying "I understand the need for transparency and I value transparency.  But, at the same time, I also feel like this rule that the courts have imposed on us is a violation of the public trust."  

The second story, on page A9, is by Noelle Crombie, who reports that Governor Brown's office "demanded the Oregon Department of Corrections find out if an employee revealed the governor's controversial plan to commute the sentences of hundreds of juveniles serving time for violent crimes."  Governor Brown herself confirmed to the newspaper that her office wanted to know how the Oregonian got a copy of her September 28 letter to the Director of Corrections that laid out the governor's plan.  The Director of Corrections, Colette Peters, then had staff go through the e-mail accounts of "about two dozen employees" to find the leaker.  Nothing turned up.  The irony is that the governor's letter was a public record.  Amber Campbell, speaking for the Department of Corrections, said "this document being referenced is a public record, so even if the search concluded that an employee distributed from a DOC server to the Oregonian, we would not and could not discipline that employee."

I don't know Noelle Crombie.  I suspect that she has an engaging sense of humor, for four paragraphs later she cheekily writes, "Brown campaigned on transparency and criticized her predecessor, Gov. John Kitzhaber, for failing to make it a priority."  Ms. Crombie also mentions that a paralegal at the Oregon Justice Resource Center also wanted information about the letter, because he "suspected it was intended to undermine the governor's 'internal communications' with the agency."

That brings me to the third story, written by Maxine Bernstein and printed on page A12.  You may have read a few weeks back that the Department of Corrections put Mark Wilson, a state prisoner convicted of murder, into 120 days of solitary confinement because a prison librarian (a state employee) as a joke had put a toy telephone on the library desk where Mr. Wilson often worked, which the department considered to be contraband.  (Never mind that a state employee put it in front of him.)  He is suing the state for damages.  The state's defense?  The state asserts that Mr. Wilson was collaborating with the Oregon Justice Resource Center (see previous story!) to give OJRC "access to prison affairs," and Mr. Wilson's lawsuit is a put-up job with OJRC.  Ms. Bernstein also reports that the Director of Corrections, Colette Peters (see previous story again!) "staunchly defended her department's actions [in putting Mr. Wilson into solitary confinement] before a legislative committee earlier this month.  'While bringing in a [toy] phone might seem like child's play, it is something that's very serious, and both the employee and the AIC (adult in custody) must be held responsible."

A cynic (who, me?) might say that the city council should be spending money to make records public, not to hide them; that in her final year in office our governor should be honoring her pledge to keep government open, instead of emulating Richard Nixon's plumbers; and that instead of inventing a silly reason to throw an inmate into solitary confinement for four months to cut off contact with an outside watchdog, the Department of Corrections should be fixing the problems that the watchdog has been barking about.  I am not that cynic; I'm merely a taxpayer who's bemused by how open our elected officials are about their efforts to keep government secret.

The most expensive free advertising the Oregon State Bar ever printed

The Oregon State Bar prints a magazine called the Oregon State Bar Bulletin, intended mainly for its members.  The Bulletin includes articles on legal writing, profiles of individual lawyers, articles about recent legal developments, announcements of upcoming educational classes and events, and some advertising.  The advertising is mostly by law firms announcing new associates and partners and by providers of services to law firms.   As a matter of policy the Bulletin does not accept political advertising.

In April 2018 the Bulletin printed two statements on facing pages, inside a single border, in the manner of an advertisement.  The statement on the left was entitled "Statement on White Nationalism and Normalization of Violence."  It was signed by three members of the Bar's Board of Governors, two Bar employees, and the chair of the Bar's Advisory Committee on Diversity & Inclusion.  The Bar's statement condemned acts of violence such as the Charlottesville riots and the Portland MAX train attack in 2017 that left one person dead, and "the proliferation of speech that incites such violence."  It ended with the following high-flown but otherwise innocuous paragraph:

In today's troubling climate, the Oregon State Bar remains committed to equity and justice for all, and to vigorously promoting the law as the foundation of a just democracy.  The courageous work done by specialty bars throughout the state is vital to our efforts and we continue to be both inspired and strengthened by those partnerships.  We not only refuse to become accustomed to this climate, we are intent on standing in support and solidarity with those historically marginalized, underrepresented and vulnerable communities who feel voiceless within the Oregon legal system.

On the facing page, inside the same border, appeared the "Joint Statement of the Oregon Specialty Bar Associations Supporting the Oregon State Bar's Statement on White Nationalism and Normalization of Violence," signed by the presidents of seven of the state's specialty bar associations.  (Note to the public: in Oregon "specialty bar association" does not mean groups of lawyers who specialize in particular practice areas; it means associations of lawyers of shared ethnic background, the Oregon Women Lawyers, the Oregon Gay and Lesbian Lawyers Association, and the Oregon Minority Lawyers Association.  The group excludes associations based on religious or geographic affiliation.)  The Bar's statement named no names and pointed no fingers.  The statement of the seven specialty bar associations was more direct:

President Donald Trump, as the leader of our nation, has himself catered to this white nationalist movement, allowing it to make up the base of his support and providing it a false sense of legitimacy.  He has allowed this dangerous movement of racism to gain momentum, and we believe this is allowing these extremist ideas to be held up as part of the mainstream, when they are not.  *** He signed an executive order that halted all refugee admissions and barred people from seven Muslim-majority countries, called Puerto Ricans who criticized his administration's response to Hurricane Maria "politically motivated ingrates, " *** and called into question a federal judge, referring to the Indiana-born judge as "Mexican," when the race of his parents had nothing to do with the judge's decision.

You can read the two statements in full here.  They appear on pages 42 and 43.  The Bulletin apparently printed the advertisements without charge; the current rate for two full pages inside the magazine is $4,040.

Several Oregon lawyers complained to the Bar.  The Bar refunded $1.15 to each of them, its estimate of the portion of their bar dues that went to publishing the April 2018 issue.  In December 2018 they sued the Oregon State Bar and its leadership, alleging that the Bar violated their constitutional rights by publishing the advertisements at state expense.  They alleged two distinct violations: a violation of their right to free speech, because the Bar (a state agency) was compelling them to pay to support political speech with which they disagreed, and a violation of their right to free association, because the state compelled them to join an organization that espoused views with which they disagreed.   In May 2019 a United States district judge adopted the recommendation of a magistrate and dismissed their claims.  The trial judge found that by refunding the $1.15, the state was no longer compelling the lawyers to pay to support political speech with which they disagreed (a similar procedure is used with compelled membership in labor unions).  The judge also found that the Oregon State Bar was immune from suit on their free-association claim because the Bar was a state agency and, as an arm of the state, protected from suit by the Eleventh Amendment to the United States Constitution.

The lawyers appealed.  This week the appellate panel unanimously reversed the trial court and sent the case back.  The appellate panel agreed with the trial court on the free speech issue - $1.15 per complainant was enough to buy out their free-speech rights -- but reversed the trial court on the free-association issue.  Quoting an earlier case, Keller v. State Bar of California, the court of appeals phrased the question this way:  could the lawyers "be compelled to associate with an organization that engages in political or ideological activities beyond those for which mandatory financial support is justified?"  The court then restated the question a little differently: does the First Amendment tolerate "mandatory membership itself - independent of compelled financial support - in an integrated bar that engages in nongermane political activities"?  The court of appeals found that the precedents on which the trial court relied on did not apply to the facts of this case, and sent the case back for trial.

The kicker for the Oregon State Bar - and why its free advertising turned out to be expensive -- is that the court of appeals went on to say that the Bar, though a state agency for some purposes, is not protected by the Eleventh Amendment from being sued for damages in federal court.  Unlike the typical state agency, the Bar writes its own budget, pays its own bills, owns its own property, and selects its own leaders.  (Its website is not even a dot-gov site.) In the eyes of the court, even though state law establishes the Oregon State Bar as a mandatory association of lawyers, it is not sufficiently under the control of the state to be considered an "arm of the state."  The Bar' s generous donation to the seven specialty bar associations of a page of free advertising has now cost that Bar and its board of governors their constitutional immunity from being sued for damages.  Yes, the Bar could appeal -- to a Supreme Court that now includes conservative Justices Gorsuch, Kavanaugh, and Barrett.  Good luck with that.

Misjudged: Governor Brown's appointments pitch is low and inside

Two weeks ago Oregonians who read the actual newspaper noticed the Oregonian's placement of two stories on judicial appointments.  On one page was the story of Governor Kate Brown's appointment to fill an upcoming vacancy on the Oregon Court of Appeals.  The story on the facing page reported President Trump's appointment of a county judge to the Ninth Circuit Court of Appeals, a federal court.  Each story described the appointment process for that seat.  (The Oregonian did arrange the stories along the political spectrum, with the Democratic governor's appointment on the left and the Republican president's on the right.) 

One appointer convened a bipartisan committee of lawyers to interview and investigate prospective judges.  The other appointer skipped the public process, skipped public input, and appointed a top aide.  Who was which?  Take a guess.

Wrong.

Oregon's senators (both Democrats) and Congressman Greg Walden (a Republican) have a bipartisan committee of Oregon lawyers who interview prospective federal judges from Oregon, talk with their references, read their opinions or other written work, and report on their reputation in the legal community.  That committee recommended four persons as potential nominees, Senators Wyden and Merkley forwarded their names to the White House, and in due course the President nominated one of the four, Judge Danielle Hunsaker of the Washington County Circuit Court, to fill the vacancy.

Governor Brown skipped public process and appointed her general counsel, Misha Isaak, to fill the opening on the state Court of Appeals from Judge Erika Hadlock's unannounced retirement.  In so doing the governor broke the unwritten agreement between the governor's office and the state judiciary. Her appointment of Mr. Isaak became a greater embarrassment when a few days after his appointment, it surfaced that he had pressured the state's public records advocate, Ginger McCall, who does not report to the Governor, to fall in line with the governor's views on limiting public access to state records.  Governor Brown, not very convincingly (see previous link), has implied that Mr. Isaak wasn't representing her actual views on public records when he leaned on Ms. McCall.  Ms. McCall resigned.  The governor is thus in the difficult position of arguing that Mr. Isaak will be a capable and impartial judge while also asserting that he misrepresented her policy to the public records advocate.  It's a difficult line for her to follow.

Unlike federal trial and appellate judges, who have lifetime appointments, Oregon trial judges are elected for six-year terms.  They must retire in the year they turn 75.  Every election includes judges who are near or past 65 who solemnly promise that if re-elected they will serve out their full term.  Almost never will a lawyer run against an incumbent judge: once in office a state judge is nearly assured of serving until retirement. 

Every year features judges who retire mid-term.  (Judge Hadlock is retiring only 10 months into her current six-year term.)  The unwritten agreement is that the judges will retire mid-term so that the governor can appoint their successors, in exchange for the governor's commitment to choose from among those lawyers who wish to be judges only the most capable and talented, giving any lawyer who wants to apply a chance to demonstrate her or his fitness for the job.  The quiet arrangement guards against unqualified lawyers not vetted by the state and local bar associations ascending to the bench.

Governor Brown broke that bargain.

Her appointment of Mr. Isaak is the latest of Governor Brown's series of judicial missteps.  In 2017 the governor appointed her then-general counsel, Benjamin Souede, to an open seat on the Multnomah County Circuit Court.  (Judge Souede, who did face an election opponent in 2018, has since served with distinction.)  Then on October 19, 2017 the governor appointed Fay Stetz-Waters, an Equity Associate at Oregon State University and former state hearings officer,  to an open seat in Linn County, The governor and her staff had forgotten to check on Ms. Stetz-Waters' status with the bar first, and did not discover that she had placed her law license on inactive status, rendering her ineligible to serve until she reactivated it.  (The state bar rushed her reactivation through, she regained active status in a few weeks, and the governor quietly reappointed her.  She lost her election bid in 2018.)

If the state's judges agree that Governor Brown has broken the decades-old agreement between the executive and the judiciary, they should stop retiring mid-term while the present governor is in office.  Alternatively, the governor's office should be honest and announce that she will solicit lawyers to apply for a judicial seat only if no one in her office wants the job.

The definition of "contributory negligence" is

. . . giving money to state and local candidates who finish second.  I committed a lot of it this year.

Also, we should pay our governor more than the $98,600 we pay now

It's also time to give the governor a raise from the current salary of $98,600, 46th among the states.  Based on the 2014 season just ended and the raise in pay, the University of Oregon is paying its head football coach about $5,000 per point scored.  It's true, as Babe Ruth might observe today, that the Ducks' football coach had a better season than the governor did, but it's also true that in any non-religious organization the size of state government, the chief executive is paid a more competitive salary than what our legislature apparently thinks our governors are worth.  Also if we pay the governor a bit more -- at least enough for the public servant to send a child or two off to become a Duck or a Beaver -- we would reduce the need to make a living on the side.