Measure 97 post-mortem: What went wrong?

A Better Oregon, a coalition of Our Oregon, unions and advocacy groups, is scheduled to release its plans for the 2017 Oregon Legislature Dec. 13. The group is expected to continue to claim victory in its 19-point defeat.

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" height="0" />Standing 6'7" and overseeing Oregon's most powerful left-leaning coalition, Ben Unger has a pretty good view of the political landscape.

However, he fails to see how he and the union-backed group he heads, Our Oregon, did anything wrong in raising and spending $18 million to push Measure 97, a proposed corporate tax that last month suffered what many observers consider a historic 19-point defeat.

Unger says the main thing his side failed in was to match the opposition's checkbook.

"Any time the largest corporations in the world spend nearly $30 million against any idea, it's hard to win," he said, adding that the public is more aware than ever that businesses don't pay their share.

"We are in a better position than ever to raise the revenue schools and families in Oregon need."

But Erica Hetfeld Hagedorn, executive director of Grow Oregon — a business coalition formed to counter Our Oregon — said Unger's team failed to realize the scope of businesses that would be affected by Measure 97.

Tim Nesbitt, past president of the Oregon AFL-CIO, thinks the pro-tax side spent a lot of money on a flawed measure while missing an opportunity to capitalize on the voters' mood.

"There was an opportunity here to seize a populist moment and make some long-awaited progress on business tax support for services," he said. "But it had to be well-designed and well-calibrated for it to succeed."

Nesbitt says Measure 97 was neither. Still, he and others are hopeful that Oregon's skewed tax system can be fixed following Measure 97's pummeling.

But former Oregon Gov. Ted Kulongoski fears the costly fight has damaged the prospects.

"I think it has taken the air out of tax reform," he said.

A new path

A Better Oregon, a coalition of Our Oregon, unions and advocacy groups, is scheduled to release its plans for the Legislature today. The group is expected to continue to claim victory in its 19-point defeat.

At a news conference at Planned Parenthood last month, the coalition's members made clear they are doubling down and maintaining a hard line.

"We will not stop until we have the schools that our students deserve," said Hanna Vaandering, president of the Oregon Education Association, one of the main backers of the measure.

That defiance is understandable from Measure 97 supporters, who received assurances into October that they would prevail.

But they don't do much to foster the kind of compromise that will be needed as lawmakers contemplate a $1.7 billion budget hole over the next two years as well as one of the lowest-ranked public education systems in the country.

What happens next for Oregon may well depend on understanding the reasons Measure 97 failed so badly.

That's part of why longtime lobbyist Len Bergstein considers the bruising tax fight one of the most important in recent Oregon history — as well as one of the most perplexing.

"There are so many unresolved issues that came out of the campaign," he said.

Among the questions: Does Measure 97's shellacking reflect a flawed measure, a poorly run campaign, the dominance of money, or — more significantly — a new political reality and balance of power in Oregon?

Money cited

Fueled mainly by public employee unions, the nonprofit Our Oregon has dominated the state's political scene ever since its founding in 2005, running campaigns for and against ballot measures and pushing its agenda in the Legislature as well.

In June 2014, Unger, a University of Oregon graduate, took over as the group's executive director.

In January 2015, the former state lawmaker, who grew up on a farm outside of Hillsboro, filed with two co-petitioners the first of seven tax initiatives with the Secretary of State's office in the span of three weeks.

Eventually, Our Oregon settled on Initiative Petition 28, which would tack a 2.5 percent tax on the sales of about 1,000 so-called "C" corporations, about three-quarters of which were located out of state.

By the end of the race, opponents had spent about $26 million, outstripping Unger's side by $8 million.

The Yes on 97 campaign had good messages that got "swallowed by the brute force of money," Unger said. "That's not new to yes campaigns, and unfortunately our messages didn't hold up to that onslaught."

Reading polls

Unger said that while his group did poll the initiative before launching the campaign, that wasn't the sole criteria for selecting the version they did.

"You'd be a fool not to poll your ballot measure if you're trying to win, and so we're not fools," he said. "But we also had to think through what was the best policy and what was the right way to build the strongest, broadest coalition."

Our Oregon pitched the measure as a way to fund education and other popular services by taxing "large and out-of-state" corporations.

The measure's prospects started out looking good, with 60 percent of voters in December 2015 telling DHM Research that they wanted to tax businesses more.

A September 2016 DHM poll found similar numbers, with about 60 percent in favor of Measure 97 and 30 percent against — boosting the confidence of the measure's proponents.

But opponents, who did not launch their television ads until late September, had been hammering the measure as being driven by polls, not policy. And skeptics had already started to discern the seeds of the measure's downfall.

For one thing, a third of the yes voters were just "leaners," leaving just 40 percent in strong support, said Nesbitt, who served as chief of staff to Kulongoski.

"If you know it's going to be a high-spending contentious campaign, you probably don't push the button and go without 50-plus strong support — and they did," Nesbitt said.

Failed to vet measure?

Starting in 2015, concerns over the measure grew within the business community as Unger and his team began explaining its details, according to Hetfeld Hagedorn, of Grow Oregon.

In part, this was because the Our Oregon team appeared to be taken by surprise by some aspects of the measure, such as its effects on software companies and on companies with out-of-state sales, Hetfeld Hagedorn said.

"In the fall of 2015 when they were talking to employers around Portland, especially tech folks, it became clear that they didn't understand the ramifications (of the measure)," Hetfeld Hagedorn said. "They started telling people that they would fix the (measure's) problems in the Legislature, which was a clear indication that their measure was (flawed)."

Several pro-union Democrats who support increased business taxes developed concerns about the measure.

Nesbitt, for instance, met with union leaders and business representatives in 2015 to urge them to compromise rather than go to the ballot.

"There were people like me waving their arms saying, 'Wait a second,'" he recalled.

It didn't work, in part because Our Oregon had polls indicating that their ballot title summarizing the measure would be popular.

Nesbitt says he doesn't question the yes side's intentions. "They're good people who tried to solve a problem that needed to be solved."

But he thinks they were victims of wishful thinking.

"They had a winner, they were going to run it," Nesbitt said. "They were seduced by their own ballot title ... They didn't understand the flaws of their measure that could be exploited by their opposition."

Among the impacts the group members appeared to learn only after they launched their campaign were that the 2.5 percent tax on businesses' gross receipts could pile on from company to company along the supply chain — a phenomenon called "pyramiding" — and some of that cost would be passed on to consumers, making its effect similar to a retail sales tax.

Not only that, but the measure's effects would be regressive, falling hardest on the poor. All these aspects were confirmed by the state Legislative Revenue Office.

The yes campaign, however, denied that any of those critiques were true — even after a $45,000 study paid for by the campaign largely echoed the state's analysis.

The study, by economists at Portland State University's Northwest Economic Research Center, was led by former State Economist Tom Potiowsky, who during the campaign described a gross receipts tax as being "like a sales tax on steroids."

Unger rejects the idea that the measure was flawed in any way. He said he probably wouldn't shape it any differently if he could do it over again.

The opposition side would have called the measure flawed no matter how it was written, Unger said. "They say it every time."

The campaign suffered another blow when, in a July interview with the Business Tribune, Emily Powell of Powell's Books warned the bookseller might have to shut down because of the new tax.

Adding to the measure's problems, the campaign appeared to have not anticipated the potency of the opposition's attacks. People who interacted with the campaign were frequently told that pollsters had tested all the opposition messages, and none could vanquish the tax measure.

"I talked to one or two people on the 'yes' side just before Labor Day who were still super confident, (saying) they had tested and tested and there was no money or no message that could possibly beat them," said Peter Bragdon, an executive vice president at Columbia Sportswear who runs in Democratic political circles. "I don't know if they believed that or if they were (trying) to project an air of invincibility."

Nesbitt heard a similar refrain — both directly from the campaign as well as people who'd interacted with it. "They had tested all the opposition arguments and none of them could beat them down to below 51 percent," he recalled. "Obviously they didn't test all the right arguments or they didn't test them with all the right verbiage."

Adam Davis, a founding partner of the polling firm DHM Research, said based on his experience in Oregon political polling, any of the several lines of attack unveiled by the no campaign were potent enough to sink the tax measure on their own — let alone all of them combined.

This is the one critique that Unger doesn't outright reject. But he said any lessons learned from analyzing the polling would be held privately.

"Just because this one ballot measure didn't succeed doesn't mean that everything we learned isn't going to help us eventually," he said.

Too big to succeed?

The other main critique of the measure from political insiders is that Our Oregon was asking for too much, at $6 billion per biennium.

"I think they just overestimated how much tolerance the public has for an increase that large in one (budget)," said Kulongoski, who added that's why he'd felt the measure was unlikely to succeed: "$6 billion was too much."

Bragdon, the Columbia executive — who formerly served in the Kulongoski administration — agreed, saying, "I thought it would lose ... It was just so much money."

The consequence of the measure's size and structure was to unite the business community like never before.

The group hired a top-flight California consulting firm, Winner, Mandabach, and put it in charge of a disciplined, big-money campaign.

That, in turn, dimmed the chance for compromise, as the consultant early on advised the business coalition members to not talk to the other side or speculate publicly about compromise unless it had the full agreement of the campaign's funders.

Now the business community is feeling its new power.

"The employer community now has proven that it can win," said Hetfeld Hagedorn, who served as treasurer for the no campaign. "And I hope that would translate into greater success for employers in the Capitol in 2017."

Future prospects

In the wake of the measure's defeat, Gov. Kate Brown has proposed a variety of cuts and taxes to plug the budget hole.

However, some business leaders, Democrats and others are hopeful that the state can still pursue a package of tax reforms.

Nesbitt, for his part, is optimistic that both sides can compromise, a change from his earlier fears that reform might be set back years.

"I think there is a continuing interest in dealing with the deficit, including with new revenue from business with the right mix of spending reforms," he said.

Sen. Mark Hass, who had pushed both sides to compromise rather than duke it out at the ballot, also continues to hold out hope for a budgetary middle ground.

Tax reform "is full of land mines," he says, "but it also happens to be probably the biggest thing that's holding this state back from growth, prosperity and fairness — all of the things we say we want."

With Unger's coalition about to disclose a more detailed plan for next steps, other political observers are less optimistic.

Kulongoski is concerned about what he sees as the ripple effect of the measure's failure. He is particularly concerned that the business community, perhaps emboldened by the election, is taking a hard stand in demanding reforms to state retirement benefits — a tricky demand given the likelihood of court challenge.

"I think the business community should pay more," he said. "There is an equity issue to this, and I think the business community knows that, too."

Bergstein, the lobbyist, said the aggressive tone he's hearing from top Democrats makes him pessimistic about compromise in Salem. "I don't see it as very fertile ground for those kinds of bargains being struck."