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.