Looking for a Different Direction

This is a tale of two states – one a bastion of liberal political domination, the other a citadel of conservative governance. On one hand, it is the story of liberal Oregon, dominated by the uber left politicians of Portland. And on the other hand it is the story of Arizona, the state those uber left politicians love to hate and disdain.

From the start of the Bush-Obama recession to its nadir, both states suffered dramatic losses in employment and revenues. Oregon lost 152,000 private sector jobs from December of 2007 to December of 2009 – a 10.5 percent decrease. During the same period of time Arizona lost 285,000 private sector jobs – a 12.7 percent decrease. (The collapse of the housing boom made Arizona one of the hardest hit states in the nation.)

Since that time, Oregon and Arizona have taken divergent paths. Oregon, in the middle of the recession adopted Measures 66 and 67 which increased income tax rates for the job creators with the expectation that it would generate an additional $750 Million dollars. That tax increase was approved by Oregon voters – the vast majority of them exempt from the tax increases for which they were voting.

Three things happened as a result of that tax increase. First, virtually all of it was used to provide raises and increased benefits (PERS and healthcare) for Oregon’s public employee unions. Second, the actual tax collections, according to the Oregon Education Association (OEA) actually fell short by almost $180 Million – a result that any economist familiar with regression analysis could have anticipated. And third, Oregon private sector employment basically flatlined – growth failed to keep pace with any population increases.

In contrast, Arizona approved income tax reductions, including those for the job creators. Personal and corporate tax rates were reduced. At the same time, Arizona referred a temporary increase in its sales tax to the voters. The temporary sales tax was approved by a substantial majority – all of them subject to the tax increase for which they voted. As a result three things happened. First, collections from sales taxes are actually running slightly ahead of projections as consumer spending increases. Second, Arizona’s private sector employment continued to decline for its December 2009 level for another twelve months but has since been on a steady increase (nearly half again the rate of Oregon), adding over 39,000 in the first ten months of 2011. (Arizona’s earned hourly wage rate increased from $22.05 per hour to $22.85 per hour and exceeded Oregon average earned hourly wage which only increased from $21.49 to $21.71.) And third, while the housing market remains stagnant or in decline, a number of major corporations have announced and begun sizeable investment projects – including Intel which announced a $5 Billion plant in Chandler, Arizona (on top of its $3 Billion investment in renovations announced a couple of years previously).

But here’s the kicker. While Oregon’s liberal ruling class consistently chants that all of their efforts are for the chil-l-l-d-d-r-r-e-e-n-n (to get it just right you have to clasp your chest and moan the word) the facts prove otherwise. Based on the National Center for Education Statistics (NCES), Oregon educational achievements are on the decline while Arizona’s achievements are on the increase. From 2009 to 2011, Oregon Fourth and Eighth grade achievements in Math and Reading declined one to two points. During the same period of time, Arizona’s Fourth and Eighth grade achievements increased between two and five points. Oregon’s results represent a continuing decline from about 2000, while Arizona’s represents a trend reversal beginning in about 2005. All of this occurs despite the fact that, according to the National Education Association (NEA), Oregon spent about $10,381 per pupil and Arizona spent $6,170 per pupil in the 2009-10 period.

The recent announcement that Oregon’s projected tax revenues will again fall short of the last quarterly projection and that “budget reserves” have been exhausted places Oregon in another “government funding crises.” The question is will Oregon learn from its past mistakes of raising taxes during an economic downturn, or will it again engage in class warfare by raising taxes on the job creators with the approval of those who are immune from the tax increases? Will Oregon continue to enhance the well being of its public employees at the expense of its private sector employees or will it begin to enforce parity between the public and private sectors in terms of wages, healthcare and pensions? Will Oregon continue to allow the decline in its educational system or wrest control of it from the OEA and other public employee unions?

Gov. Kitzhaber who campaigned on the promise to bring the state’s public employee unions to heel has demonstrated that he is no more serious about that promise than his predecessors. Mr. Kitzhaber approved salary increases for the public employee unions $35 million more than budgeted. He declined to pursue requiring union members to pay for any portion of their gold-plated PERS system. And while he required the public employee unions to pay a small portion of their healthcare costs, he made up for it with healthy salary increases and a supplemental payment for some that basically zeroed out the cost. And Oregon’s educational system faired no better. (The fact that the legislature approved a transfer of responsibility from a Superintendent of Public Instruction who was wholly beholden to the public employee unions to a governor who is likewise beholden represents no improvement.

So what do you think are the odds for any change?