Trading today’s pain for tomorrow’s?

In my opinion from Senator Frank Morse in today’s Oregonian:

That America is in a financial crisis, unparalleled in our nation’s history, is not in dispute. What is now disputed is the length and depth of the crisis and whether we can borrow our way out of this mess. The federal government largely has no choice but to stabilize the financial markets and try to stimulate the economy, all by means of debt.

The question before the Oregon Legislature is whether to follow in the same path. In a free-falling economy, do we borrow to the $1.5 billion limits set by the Debt Policy Advisory Commission?

The Senate this week passed two bills authorizing the state to sell more bonds to pay for deferred maintenance and capital construction projects throughout Oregon. The legislation moves to the House next week, where Democrats have the votes to approve it and send it to the governor for his signature.

But before we jump off a financial cliff, we should remind ourselves why we have historically been circumspect about increasing debt. We should test any amounts of borrowing against prudent financial principles.

What is the return on capital? To the largest extent possible, we should focus on capitalizing those projects that are either mandated by the federal government or enterprise-related, such as higher education and community colleges. Replacing lighting fixtures at the Central Distribution Center in Salem for $475,000 hardly qualifies as a strategic investment. Nor does parking for fishermen. Or heat pumps for n Department of Fish & Wildlife residences. Or sealing cracks in the walls of a state Forestry Department building.

What is our greatest priority? Is it to create a short-term economic stimulus by throwing money around for low-priority projects? Or is it to create long-term strategic value?

What is the risk that debt service will erode future revenues that are needed for crucial services? Of all the criteria we should consider, this is the most troublesome. We are in uncharted territory, with uncertain outcomes, all of which compound risk. The most recent projection delivered by our state economist is that we will not return to the same level of total non-farm employment experienced in the first quarter of 2008 until the second quarter of 2012. If the risk is high for a deep and prolonged recession, prudence and caution should be our guide lest we take money away from schools, human services and public safety.

What is the total debt to be incurred this session? To be asked to make a decision on borrowing $175 million this early in the session for maintenance projects without an understanding of the total amount to be borrowed at the end of session places legislative members in an untenable position.

As a businessman, I know intuitively that increasing debt in the face of declining revenues is inherently risky. Further, debt is always used for the purpose of advancing the enterprise, and it is almost always used for those projects that either have the highest return or for which there is no other alternative. Job creation is a worthy ancillary of capital projects, but it should never be the primary purpose.

Simply put, hurry-up bonding in this treacherous economy, all for the purpose of increasing employment 9/100ths of 1 percent, borders on reckless. Incurring debt for jobs today may well be offset by the pain tomorrow of continued declines in revenue when we just don’t have the money to keep afloat, let alone pay $33 million in additional debt service and forgo access to $50 million in federal matching funds.

At the close of session when the May revenue forecast is delivered, will we look back and wonder why in the world we did this?

Frank Morse, an Albany Republican, represents District 8 in the Oregon Senate.

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Posted by at 11:31 | Posted in Measure 37 | 6 Comments |Email This Post Email This Post |Print This Post Print This Post
  • davidg

    Politicians generally, and Democrats in particular, are afflicted during crisis with the urge to “do something.” This urge is mistaken for leadership.

    Unfortunately, the actions taken now are likely to compound the problems rather than cure them. Our economic problems have been caused by over borrowing and overspending. The cure proposed is more of the same. When the cure doesn’t work, we will surely be told that not enough of the remedy was applied. So even more spending and more borrowing will be advocated, both at the state and national level. Exacerbating the problem still won’t cure it.

    Look forward, as even Democrats are predicting, to a long period of economic hardship and decline.

  • Bruce Crittenden

    Senator Frank Morse,

    Have you never taken an American History course? You state, “That America is in a financial crisis, unparalleled in our nation’s history, is not in dispute.” I and many others dispute your statement. Look back at 1982 and 1975 stats. There was the Great Depression and the Panic of 1837. Take a look at Sen. Richardson’s Main Street Incentive Plan. This Plan will create jobs with no tax dollars or increased state debt.

    • Rupert in Springfield

      Sort of a ditto to the comment above:

      >That America is in a financial crisis, unparalleled in our nation’s history, is not in dispute.

      Actually it is very much in dispute and frankly that is the crux of the matter. Are the basic indicators such as unemployment, interest rates or inflation nationally as bad as the late seventies early eighties? No, so in that regard it is hardly unparalleled. Are the underpinnings of our financial institutions wracked in an unparalleled manner? Possibly, but it would take a lot to convince many that they are worse than during the depression.

      >We are in uncharted territory, with uncertain outcomes, all of which compound risk.

      No we aren’t. We are in very familier territory, an economic down turn with Keynsian advocates and Supply side advocates arguing over what to do.

      In fact there is a very clear road map for anyone who cared to pick up the atlas. The failure of government make work jobs to do much to help the economy is about the most charted economic territory there ever was. The fact that such plans never seem to work as originally sold, if they work at all, is hardly uncertain. In fact the outcome is as predictable as the excuse given for failure – “not fully funded”.

      Frankly I think the sort of “uncharted territory” hyperbole is non productive. All it does is fuel the fire for some sort of drastic action government magic spending bullet. Sure, there is the need to show empathy for those who have been hit hard by this. I understand that. However fueling the fire of crises mentality is simply irresponsible and results in lunatic proposals such as we have now nationally and locally.

      Obama’s economic stimulus plan is lunacy – No, sorry Mr. President, $333,000 per job, using your own numbers, is simply ludicrous.

      Kulongoski’s plan is equally absurd – No, sorry Mr. Governor raising corporate minimum taxes based on gross receipts is insanity. Taxing peoples health care to create new health care benefits is insanity.

  • dean

    Senator Morse….I’m not up on the details of the projects you critique, but it’s entirely possible that:

    1) Replacing lighting fixtures at the Central Distribution Center in Salem will save energy that will pay for itself over time
    2) parking for fishermen could help the tourist economy or help the fishermen be more productive (more time fishing and less time looking for parking)
    3) heat pumps for Department of Fish & Wildlife (see comment 1)
    4) sealing cracks in the walls of a state Forestry Department building could actually prolong the life of the building, the facilities inside, or improve the health of the works, as well as save energy.

    If the risk is high that the recession will be deep and long, all the more reason to borrow more now faster (while borrowing is very cheap) and get people back to work fixing stuff.

    Yes, increasing debt is risky. But as a businessman you also know that debt is often necessary and prudent, while not borrowing at a crucial time could result in losing business to a competitor who innovates faster than you do. Plus, the government runs way less risk than a private business when it comes to being able to service debts.

    For Davidg…politicians have the urge to do something because that is what they are elected to do….i.e. something. Hopefully something useful. Belt tightening after the binge of the past 8 years seems logical, but just about every economist out there, right and left believes that deflation is presently the greater risk and belt tightening would only increase that risk.

    • Rupert in Springfield

      >Belt tightening after the binge of the past 8 years seems logical, but just about every economist out there, right and left believes that deflation is presently the greater risk and belt tightening would only increase that risk.

      Depends what you mean by belt tightening.

      If you are saying cut government sending in half, you might be right.

      If you are saying belt tightening means not supporting Obama’s stimulus, or Kulongoski’s plan, that’s different. In that case, given the manifestly untrue nature of such a statement, you are simply making things up.

      Again.

      • dean

        I’m saying belt tightening, as in cutting government spending at all. It defies economic logic and experience. Arguing otherwise is ideology, which is fine if that is what floats your boat.

        Not supporting any particular plan is fine. But waiting for the perfect plan in a sausage making factory is a long wait, and we don’t have long if we want to halt the slide.

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