Rep. Richardson: Oregon’s Revenues, Fees & Debt

Oregon State government has record breaking revenues. The recently passed 2007-09 biennial budget is the largest in Oregon history. The final Legislatively Adopted Budget (LAB) for ’07-09 totaled $15.1 billion, which is an increase of more than $2.9 Billion over the 2005-07 LAB of $12.2 billion.

While the 2007-09 budget was being crafted, like a voice in the wilderness, I reminded my fellow legislators across the aisle that a 23 percent increase in government spending in a single budget is unsustainable and will have dire consequences when the next recession occurs.
The budget makers would not listen. Revenue forecasts will not always be so rosy and with the next economic downturn the state again will be forced to slash education, health services and other budgets. The spending spree inherent in the 2007-09 budget confirms the Oregon Legislature learned nothing from the 2001-03 economic recession and is destined to repeat the hardships it caused.

In the Legislature’s defense, we did pass HB 2707, which created the rainy day fund. The initial funding will come from $334.2 million of Corporate Kicker money, plus a promise of 1 percent of the state’s revenues. Unfortunately, that 1 percent will not be paid until the end of the 07-09 biennium. The 1 percent is scheduled to come from left over funds in the budget’s “ending balance” — assuming there is an ending balance from which to fund it.
Part of Oregon’s rosy revenue picture will come from 44 new or increased fees affecting all facets of Oregon economic life. The attached 3 ½ pages of fee increases are expected to generate an additional $33 million of Oregon State revenue.

In sum, from a variety of sources Oregon has billions of dollars of additional revenues forecasted. Oregon also has more than $8 Billion in State debt. With such a positive revenue forecast, it would have been a good time to pay down some of that debt. Unfortunately, lessening Oregon’s debt load was not even considered.

In fact, the Legislature not only spent the additional $2.9 Billion of forecasted revenue for the 2007-09 budget, it also increased Oregon’s debt load by $923 Million of additional debt–General Fund ($437 Million) and Lottery Fund ($485.7 Million). And there’s more. In addition to the $923 Million of General and Lottery Fund debt, the Legislature also approved nearly $1.7 Billion in “direct revenue” bonds””which is debt paid out of “other sources” such as ODOT and Housing revenues. Ten Billion here”¦900 Million there”¦1.7 Billion over there”¦”pretty soon, we’re talking about real money.”

As I have stated before, our society seems to have lost its financial anchors regarding debt and interest. We seem to have forgotten that debt affords immediate spending gratification, but only with costly long-term financial consequences. Every dollar of interest paid on debt is a dollar that cannot be spent on our children’s education or other pressing needs from limited state resources. My children are now grown, but when they were young I repeatedly taught them general rules about debt, interest and the use of money. I wish our government budget makers would remember three of those rules.

1. Interest is what poor people pay and wealthy people earn.

2. Unnecessary debt is a shackle that enslaves people. Debt burdens the debtor with interest payments and interest is a master that never sleeps. The burden of Interest is constant. It never takes a day off and it always comes to claim its due regardless of how well-off or how poor the debtor might be.

3. Wise people avoid unnecessary debt like a plague. Whether it is a young adult or a state or national government, once in debt options become limited. A person in debt, voluntarily becomes an indentured servant. Debtors are enslaved and debt is their master. Those in debt must always consider how they will make their payments before they can consider making life decisions such as going back to school for a better education, making a job change, or exercising their personal freedom in any other way that might impede their ability to make payments on their debt.

The State of Oregon currently has $10 billion of gross debt. After other adjustments have been made, Oregon taxpayers are ultimately responsible for approximately $5.4 billion in tax-supported, long-term debt at the end of 2006. Assuming an interest rate of approximately 3.8 percent, the biennial cost for debt service on Oregon’s tax-supported debt is more than $400 million. (Click here).

The State Debt Policy Advisory Commission states in its report, that Oregon has a “maximum target ratio of 5 percent of General Fund revenues” for long term debt. Therefore, the Commission sets out that Oregon’s policy makers can continue to borrow hundreds of millions of additional long term debt without jeopardizing its credit rating.

The warning I want to make is that long-term debt is too often seen as a way to satisfy the immediate need for additional revenue — actual or perceived. By doing so, Oregon loses the money spent in debt payments required to satisfy those “immediate needs” for two or three decades. Thus, long-term debt results in draining funds away from crucial services and programs for a full generation.

Although debt, when used judiciously, can enhance a person or organization’s economic position, a trend to ever increasing debt load is a bad indicator for economic stability. Oregon’s trend for substantial increasing long term debt is alarming.

In addition, the graph entitled, “Recent Trends in Oregon’s Net Tax Supported Debt per Capita,” shows that with the PERS bonds authorized by the Legislature and Oregon voters in 2003, Oregon’s debt for every Oregon citizen is more than 40 percent higher than national averages for the other 49 states.

To put this into perspective, consider Oregon’s PERS debt, which is only one component of Oregon’s long term bonding obligations. The 2003 Legislative session and a subsequent vote of the people authorized $2.1 Billion in bonds to pay down the State’s portion of the PERS unfunded actuarial liability. The bonds were purchased at favorable interest rates, but the cost of maintaining such debt is high. During the 2007-09 biennium $258 Million will be spent just to service this PERS debt. Since the PERS debt is allocated against payroll expenses of government employees in the PERS system, the PERS debt payments represent an additional 6.2 cents for every dollar of payroll paid to Oregon’s teachers, state employees and others who are PERS members.

In sum, Oregon has important lessons to learn about its budgeting and spending patterns. It must learn (1.) to resist spending every dollar on new and expanded programs during periods of economic growth and high tax/fee revenues; (2.) to use such boom-times to pay down debt and set aside substantial reserves; and (3.) to resist the temptation to increase the State’s long term debt load. Only by disciplined budgeting and financial planning will our great State of Oregon be able to avoid the boom and bust cycles that have plagued us in the past.
Sincerely,

Dennis Richardson
State Representative

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Posted by at 05:15 | Posted in Measure 37 | 4 Comments |Email This Post Email This Post |Print This Post Print This Post
  • CRAWDUDE

    Gridlock was not a bad thing!

  • Anonymous

    My comment on the third point:

    3. Wise people avoid unnecessary debt like a plague. Whether it is a young adult or a state or national government, once in debt options become limited. A person in debt, voluntarily becomes an indentured servant. Debtors are enslaved and debt is their master. Those in debt must always consider how they will make their payments before they can consider making life decisions such as going back to school for a better education, making a job change, or exercising their personal freedom in any other way that might impede their ability to make payments on their debt.

    My husband and I own a business in Oregon. It was started in 1998. We had no money, but good credit. We were able to lease a building and start out. We did borrow operating capital which ended up being close to $100,00. We grew and purchased another building for $175,000. Things were going well and had an opportunity to purchase another business property for $80, 000. All this was financed. We remodeled the second property to the tune of $98,000 not financed, paid by the business. This is now 9 years later all is paid off. Paid off because we took minimal wages, We did not spend indiscriminately, we did not go after everything we wanted. Now the profits are ours, not the banks.

    If our politicians would operate on the same principal, Oregon would be very much in the green, not the red. The problem is, it takes common sense , determination and a goal. None of this seems to exist in Salem. They are all members of the NOW generation and haven’t a clue.

  • Jerry

    Sadly, Dennis is the lone voice. These politicos in Salem are only concerned with one thing – growing their power, which they do through more taxes and bigger government. That is all they care about and all they work for.
    Period.
    End of report.

    • CRAWDUDE

      Since they increased the state work force by 1137 employees this year, I have to agree with ya 🙁

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