Representative Dennis Richardson: Dangerous debt

Oregon: Digging With A Shovel Named “Debt”
By State Representative Dennis Richardson

In a recent newsletter, I explained two bills that will increase Oregon’s long-term debt by $177 Million to fund a few months of short-term jobs repairing state buildings. Today, the Oregon House passed two bills (S.B. 338 and S. B. 5562), authorizing $177 Million of long-term debt. It was a lively debate on the floor of the Oregon House of Representative. By today’s House vote and the Senate’s vote last week, it is clear to me the majority of our state leaders have yet to learn, you cannot dig yourself out of a financial hole with a shovel named Debt. Oregon is certainly not alone in its strategy to borrow and spend its way back to prosperity. The financial crisis in which our State and Nation are mired was succinctly described by a recent blogger who stated:

“All of the proposed bail out schemes to date share the same flaw; they are all geared to returning the existing system to health. It is the existing financial/economic system that is the root of the current crisis. It is built on the discredited premise of endless growth and a childish faith that critical finite resources will always be abundant. A primary goal of the bail outs is to revive the debt machine. Why are we not hearing the truth that we have to live within our means? If you can’t afford it, don’t buy it. Save your money. Make do with less. Instead of constantly buying new stuff, make things last. Repair them. Eat less trash. Walk instead of drive. Etc., etc. Let’s build the future on a new model – sustainability!”

In short, Debt is not the solution to our State and Nation’s financial crisis–Debt is the cause. What is Oregon’s current indebtedness? Before today’s $177 Million increase, Oregon already carries a $9.7 Billion debt burden. The biennial cost for debt service on Oregon’s current Net Tax-Supported debt is more than $1.1 Billion. Of that $1.1 Billion, $535 Million will be paid from the General Fund. That is $535 Million that must be paid first”¦off the top. It is $535 Million that cannot be used to educate or provide health care for our children. It is $535 Million that cannot be used to protect our citizens, and it cannot be used to provide care and food for our most needy seniors. It is ½ Billion dollars from the next budget, siphoned off to pay for debts incurred by legislators of the past, and this Oregon’s debt will not be paid off until 2038.

In recent decades, we, as a society, have forgotten sound economic principles of thrift. We have lost our financial anchors regarding debt and interest. These sound economic principles were discussed in the August 2007 newsletter entitled “Oregon’s Revenues, Fees & Debt: Cycles for Boom & Bust.” I reviewed then the ill-advised debt decisions made by the 2007 Legislature, when Oregon’s revenue forecast was bright and rosy. I mentioned lessons learned the hard way on the temptations of easy credit and the enslaving power of incurring unnecessary debt.

Oregon’s legislative leaders see the State’s great borrowing potential and find it difficult to resist the temptation to use it. Oregon’s State Debt Policy Advisory Commission stated in its January 2009 Report, that Oregon has a “maximum [long-term debt] target ratio of 5% of General Fund revenue.” The State’s problem is the same problem causing so much suffering for Oregon and American families: Troubles begin when “availability” of credit is confused with “advisability” of incurring debt.

The warning for Oregon Legislators is that long-term debt too often is seen as a way to satisfy the immediate desire for additional revenue. By incurring additional debt, Oregon loses for decades the money consumed by debt payments. In short, long-term debt results in draining funds away from crucial services and programs for 20 to 30 years.

Time-tested principles of thrift have been ignored or forgotten by our political leaders. They are not alone. Many Oregon households are sinking in a sea of debt. Nationally, Americans have been spending more than they earned””folks have based their lifestyle on the ability to borrow, not on the ability to earn or produce wealth.

In conclusion, the Oregon House passed two bills today–Senate Bill 5562 authorizes $177,000,000 of additional debt, and Senate Bill 338 authorizes spending it on state building maintenance projects. Many of the approved projects have short-term benefits, yet all are financed with long-term debt. I believe incurring this high level of additional debt is well-intended, but ill-advised. We should not be incurring further debt when Oregon’s present decline in tax revenues is so drastic that nearly a $1 Billion revenue short-fall must be addressed within the next four months. The loss of $1 Billion in revenues is a financial catastrophe of historic proportion. Dealing with such an enormous short-fall will require all available financial resources. It saddens me to watch Oregon sink deeper and deeper into debt, while committing tens of millions of taxpayers’ dollars in addition debt service payments for the next 15 to 20 years. Oregon truly is in a financial and economic pit, and it makes little sense to continue digging with a shovel named Debt.
Sincerely,

Dennis Richardson
State Representative