Representative Dennis Richardson: Common Sense Budgeting

By State Representative Dennis Richardson,

The 2009 Oregon Legislative Session has ended, but the consequences have yet to begin. The House Republicans have summarized key legislation from their perspective (click here), and the House Democrats have done the same ( click here). Newspaper editorialists have opined (click here). And, the pundits have created cartoons (click here) and (click here).

Looking back on Oregon’s 75th Legislative Session, it is clear that some things never change. Mark Twain, 130 years ago, wryly observed: “The mania for giving the Government power to meddle with the private affairs of cities or citizens is likely to cause endless trouble . . . and there is great danger that our people will lose our independence of thought and action . . . and sink into the helplessness of [one] who expects his government to feed him when hungry, clothe him when naked, to prescribe when his child may be born and when he may die, and, in fine, to regulate every act of humanity from the cradle to the tomb, including the manner in which he may seek future admission to paradise.”

“No one’s life, liberty, or property is safe while the legislature is in session.”

“What is the difference between a taxidermist and a tax collector? The taxidermist takes only your skin.”

More recently, in the 1930’s, cowboy humorist, Will Rogers, warned those desiring efficient government:

“Be thankful we’re not getting all the government we’re paying for.”

When considering Oregon’s 12.4% unemployment, decreasing jobs, decreasing income, and the record breaking tax, fee and fine increases just passed by our legislature, I don’t know if I should laugh or cry. The session has ended and what is done is done.

Let us look to the future. Today’s newsletter will focus on what I believe to be the most important law that Oregon should enact–key legislation that was not introduced, not enacted, and will never be enacted unless by a citizen’s Initiative. It could be called something like Oregon’s “Common Sense Budgeting,” and it saves money during good times and draws on it to smooth out the bad times. Since it limits the Legislature’s ability to spend every dollar it gets, such a proposal can only gain approval if required by Oregon voters. At the end of this newsletter, I will ask for your opinions, suggestions and criticisms of this proposal.

Oregon Common Sense — Budgeting Assumptions:

1. Common sense tells us Oregon cannot continue spending more money than it receives, and if Oregon’s state government were to live within its means there will be fewer demands for increased taxation on its citizens.

2. Common sense tells us Oregon should save part of what it receives during good times to offset on-going expenses during recessionary periods. By doing so it would smooth out the swings from drastic spending increases followed by devastating cuts to education, public safety and human services budgets; and

3. Common sense tells us the economy runs in cycles, yet the legislature spends every dollar during boom times, then increases taxes and debt to compensate for revenue losses during recessionary times. This boom-and-bust cycle will continue unless the people bind the legislature with a common sense plan requiring the state to live within its means.

To implement such common sense principles in Oregon’s budgeting processes, an amendment to the Oregon Constitution could be passed that provides the following:

1. Spending increases for each biennial budget shall be limited to the percentage increase in Oregon’s thirty-year personal income tax revenue average. Since economies rise and fall for many reasons, one way to determine how much growth would be appropriate and affordable for Oregon state government is to average out Oregon’s General Fund tax revenue stream over three decades. The personal income tax is the largest source of state revenue and its average growth over time is a good indicator of Oregon’s sustainable growth factor. Oregon’s personal income tax revenue growth has averaged six percent (6%) per year for the past 30 years. As you can see from Oregon’s General Fund Revenue History, click here, [ LINK to: Oregon General Fund History. ] there have been periods of high revenue increases and periods of stagnation. By averaging a 30 year time span, it becomes clear that for Oregon to live within its long-term revenue streams, its expenditures should not exceed 6% per year””which would result in a 12% budgetary growth limitation for each two-year “biennial” budget.

2. Excess revenues go to Oregon’s Rainy Day Fund. During economic boom times, when revenues exceed the 30 year spending limitation, excess revenue will go to the Rainy Day Fund–Oregon state’s savings account. The Rainy Day Fund will hold and earn interest on Oregon’s excess revenues until there are clear economic triggers demonstrating the economy is in a period of substantial recession.

3. Rainy Day Fund reserves will off-set inadequate state revenues during economic recessions. In my four legislative sessions I have watched the boom-and-bust pendulum dramatically swing back and forth. There was the recession of 2003, when revenue shortfalls were finally solved with a $750 million tax increase, after a brutal eight month session. The 2003 tax increase became Measure 30, which was nullified by the voters. Those dark budget days brightened substantially during the housing and construction boom that followed. By the 2007 session, the economy was booming and the Legislature spent every penny of anticipated biennial revenues. In fact, spending was increased by a jaw-dropping 22% in a single biennial budget. Unfortunately, those happy days were short-lived and, once again, the pendulum swung back from boom to bust. As a result, nearly $1 billion of revenue failed to materialize. The shortfall finally was balanced with spending cuts and by draining cash reserves during the final months of the 2007-09 biennium.

In sum, the Oregon Common Sense proposal would limit spending to the 30-year revenue average, and end the legislature’s drastic boom-and-bust budgeting swings. The proposal would smooth out the highs and lows with savings during the good times and by back-filling revenue short-falls with Rainy Day Fund reserves during recessionary times.

Is the idea worth pursuing? I would appreciate your input in a brief survey letting me know what you think about the concept and what can be done to either improve it or replace it with a better idea. Please make your opinion known by clicking here for survey.

Thank you for taking the time to read and consider my newsletters. Your input is extremely valuable. In the recent session, there was a greater involvement by Oregon voters than ever before. On certain issues, hundreds of Oregonians emailed and called legislators to make voters’ opinions known. It had an impact and, in several instances, legislation was passed, amended or killed as a result of voter input and pressure. I commend all who took the time to make their voices heard. Your legislators represent you, the citizens, and neither you nor your legislators should ever be allowed to forget it.

Sincerely,

Dennis Richardson
State Representative

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Posted by at 05:59 | Posted in Measure 37 | 8 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Bob Clark

    Rep Richardson-

    I like the concept. Your formula brings up the question of how the state can maximize its personal income receipts. If it raises tax rates, conservatives contend income tax receipts will actually decline longterm. Conversely if the state lowers tax rates, conservatives contend income tax receipts will actually increase longterm. There is some logic to this supposition in that lower state tax rates combined with other attributes of Oregon attract more migration to the state from other states. So, it would be interesting if this formula would actually change “Salem’s” proclivity to raise income tax rates. Another question is if California has increased spending beyond 12% per year in the lead up to its financial crisis. California has lost a million or more high paid residents in the past decade reportedly because of its high state taxation.

    Beyond the state, it would be nice to see a cap of no more than 50% of one’s income being taxed away by all domestic government in the form of all taxes and fees. This would prevent the government from becoming the predominant economic force, and protect entrepreneurship. This should be added to a citizens’ bill of rights (No more than 50% taxation). If this cap is being exceeded, ones income taxes would be reduced proportionately among local, state and federal jurisdictions.

  • Vernon

    I have never met anyone who was taxed more than 50% on income.

    • Sybella

      I have, during the 70’s my friend paid out between federal and state and fees 85%. That said, she wasn’t a poor person, but neither was she rich.

  • Fred Thompson

    Rep Richardson-

    I’d like to register my support your proposal, but there is no link to the survey on your post.

  • eagle eye

    Just one thing missing: no mention of the kicker.

    Get rid of the kicker, and it might have a serious chance.

  • Just a guy

    During the Carter years, inflation was running double digits, which means the cost of government was going up by at least that much. The problem with your formula is that it lets government grow too fast when inflation is really low, as it has been for a while now, but keeps it from keeping up with inflation when times are tough.

    The better formula is still one that ties the growth of government spending to inflation and population changes, but voters have already nixed that (overwhelmingly), so that is probably not going to fly.

    You need to get two or three other approaches, and there are several others, and poll them carefully and see which would have the best chance of passing. If you said for example that state spending could not exceed ten percent per biennium, that might fly, and possibly add to that a tie to inflation with everything over that going into a rainy day fund and allow tapping of the rainy day fund if revenue is less than inflation growth.

    Just a thought, but why is the amount of revenue that comes in relevant to how much the state should spend? If money is pouring in, why should that mean we should grow government. It might be worth considering dedicating the excess revenue to property tax relief. That concept would probably be more popular than a rainy day fund.

  • Sybella

    1. Spending increases for each biennial budget shall be limited to the percentage increase in Oregon’s thirty-year personal income tax revenue average.

    That makes a lot of sense, but because of the legislatures actions this year, if that were to
    become law, we would have to not take the current year into consideration. Most increases
    for 2009 were way out of line and would distort the average increase.

  • Marvin McConoughey

    I think that your proposal has a good potential to improve long term management of state spending. I agree with “Just a guy” that inflation be considered. If implemented, your proposal would give the legislature a powerful incentive to raise income tax rates, which tendency should be safeguarded against. How would you prevent future legislatures from declaring “emergencies” to evade the legislation? We now have annual legislative sessions, which many see as a clear constitutional violation. It is already evident that annual sessions have not brought better government.

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