Oregon doesn’t need yet another rainy-day fund

by Dan Lucas

State rainy-day fund in the news again

The group “Our Oregon” recently got the necessary number of petition signatures verified for their Ballot Measure 85, which if passed, would amend the Oregon Constitution to eliminate the corporate income and excise tax “kicker” and allocate it to fund K-12 public education. “Our Oregon” is funded by three of the state’s largest public employees unions.

Two state senators who have worked across the aisle for years on tax reform are concerned about Measure 85. Sen. Ginny Burdick (D-Portland) and Sen. Frank Morse (R-Albany) are quoted in Willamette Week as saying “the better plan is to fix both the personal and corporate kickers at the same time—and guarantee the money goes into the state’s rainy-day fund.” Burdick and Morse are concerned because Measure 85 “doesn’t actually guarantee schools come out ahead after the corporate kicker rebate is diverted to K-12 budgets.” Unfortunately, that would be the same problem even if the corporate kicker went into a rainy-day fund, even a rainy-day fund supposedly just for K-12.

Oregon already has two rainy-day funds

Oregon’s current first rainy-day fund was created in 2002, and is called the Education Stability Fund (ESF). It is funded with proceeds from the state lottery, and it was hailed as “the ‘rainy day fund’ that Oregon has needed for a long time.” The state’s Legislative Fiscal Office says the Education Stability Fund “can effectively be used the same as the Rainy Day Fund.”

Rainy-day funds are supposed to put money away in good times, and then only be used in lean times. Here’s the problem with rainy-day funds in Oregon: it rains all the time!

During Jeff Merkley’s tenure as Speaker from 2006-2008, the Oregon House created another state rainy-day fund: the Oregon Rainy Day Fund (ORDF)”.  It was again supposed to be a savings account to protect public schools against an unstable economy. The ORDF was originally funded with $320 million that was taken from the corporate “kicker” in 2007.

Despite supposed safeguards on tapping the fund, only one year after Merkley left the Oregon House, the Democratic supermajority raided the fund three times and almost completely drained it – while actually cutting schools by $150 million and growing other agencies. Clearly it wasn’t protecting public schools.

Rainy-day funds don’t actually guarantee schools come out ahead

Back in May, I wrote “Oregon already has two rainy day funds and they’re just being used to backfill funds that should have gone to K-12 but are being used to grow other agencies instead.”

That’s the problem with rainy-day funds now. Even if they are supposedly allocated to K-12, the Legislature can still cut the K-12 budget, grow other agencies, and then cry that they need to tap the rain-day funds for K-12!

More rainy-day funds aren’t going to help. More tax revenues aren’t necessarily even going to help – state spending doubled in ten years from 2001 to 2011 – Oregon’s “All Funds” budget grew from $30 billion to $60 billion – and we’re still seeing painful K-12 cuts in districts across the state.

The solution to stable K-12 funding is prioritizing. The K-12 budget needs to be made part of a “core fund” that is funded first – at the previous level, along with prisons, state police and a limited set of key human services for the most vulnerable. Then, other agencies that depend on the General/Lottery funds would make their cases to the legislature for the remaining funds. Rainy-day funds would only be needed for agencies not in the “core fund”, and K-12 would no longer be dependent on any rainy-day funds.