Representative Dennis Richardson: The in-depth economic review

By Dennis Ricardson,
State Representative

Oregon’s economy is worsening. The good news is Oregon’s share of the federal stimulus plan is $2.4 billion and you may qualify for a part of it. The bad news is Oregon’s revenue shortfall for 2009-11 is now expected to be $4.4 billion less than needed to maintain current service levels for state government. We will discuss what this could mean to Oregon agencies and programs. The ugly news is 236,286 Oregonians were unemployed in February, up 24,000 from the previous record-setting month. In addition, the results of recent surveys are included below.

The Good News. Oregon gets a $2.4 Billion Piece of the Federal Stimulus Pie.
The Federal Stimulus Plan, now called the American Recovery and Reinvestment Act (ARRA), has been signed, sealed and is ready for delivery. Oregon’s $1.62 billion in direct aid, plus $800 million in Medicaid and other health care related payments, will be distributed over the next biennium. ARRA also contains millions of dollars of grants for which individuals, companies, cities, counties and state agencies can apply. We are grateful to Senators Wyden and Merkley for compiling a valuable and informative directory of ARRA grants and subsidies. To see their directory on what grants are available, who can apply for them, and how to submit applications, Click Here.

One example of ARRA’s benefits for individuals is a 65% health insurance premium subsidy for laid off workers. If you have been laid off recently from a job which employed 20 or more workers and provided group insurance, you can keep your health insurance in force for 18 months by paying the health insurance premiums yourself. Unfortunately, such “COBRA plan” premiums are often too high for the laid off worker to pay. Under ARRA, employers now can take a full tax credit if they are willing to pay 65% of the health insurance premiums for their recently laid off employees. Thus, under ARRA, the laid off worker only has to pay 35% of the health insurance premiums to maintain the health insurance coverage. Employers and workers laid off from businesses having less than 20 workers have a similar 65% – 35% tax credit and payment benefit which can keep the group health insurance coverage in force for up to six months. This “six month state continuation program,” can maintain the employee’s group insurance effective February 17, 2009. For more information on these health insurance continuation subsidies, Click Here.

A final note on the federal stimulus plan”¦feeding at the federal trough is not free. Spending trillions of dollars created out of thin air is like riding an ever-accelerating passenger train””the ride may be exhilarating, but the consequences will be catastrophic. As a legislator, I am making you aware of the ARRA money available to Oregonians. As a conservative and as a student of economic history, I deplore the strategy of incurring excessive amounts of federal debt in an attempt to counteract a debt and credit-based economic crisis. My opinion mirrors that of international investment guru, Jim Rodgers, in his February 26, 2009 Business Week interview, “Jim Rogers Doesn’t Mince Words About the Crisis.”

The Bad News. Oregon’s 2009-11 Revenue Shortfall Expected to Exceed $4 Billion.

Revenue. The December 2008 Revenue Forecast estimated a General Fund revenue increase of 6.8%, which, with lottery revenues, totals $16.06 billion in 2009-11. Less than three months later, the March 2009 Forecast (released in mid-February), revised the revenue forecast downward and stated, “General Fund revenues will decrease 0.4%,” which, with lottery revenues, revised the 2009-11 forecast to $14.18 billion. Now, only one month after the release of the March Forecast, the Ways & Means Co-Chairs are again revising the 2009-11 figures, this time with an additional deficit of $1.3 billion. After various adjustments, the current revenue deficit is estimated at $4.4 billion. In short, Oregon’s revenues continue to free-fall, and such precipitous reductions in revenue over the next two years will have a direct and negative effect on the services and programs that can be provided by the State of Oregon.

Costs. Each Legislative Session, the cost of running the State of Oregon is determined in a two-year (biennial) budget. A balanced budget is constitutionally required, so expenditures must be balanced with anticipated revenues. The cost of government increases every biennium as a result of expanded use of government programs and services, increases in salaries and benefits for state workers, etc. For purposes of comparison, the General Fund & Lottery (GF&L) budget for 2005-07 was $12.425 billion; the legislative approved GF&L budget for 2007-09 was $15.131 billion (a 22% spending increase). The Essential Benefit Level (EBL) Budget for 2009-11 (the amount of funding needed to maintain the current service level of state government for the next two years) is $16.749 billion. (If passed, this would represent an 11% spending increase over the current budget, and 35% more than the 2005-07 budget.) The attached Oregon Budget History graphically demonstrates Oregon’s spending habits. They are unsustainable in the best of economic conditions, and have set the stage for a catastrophe in today’s economic meltdown.

Budgeting Options to Close a $4.4 Billion Deficit.

The above detailed information is intended to put the following into perspective: To maintain Oregon’s current level of government size, services and programs for the next two years (2009-11), $16.749 billion would be needed. To make matters worse, I just learned an additional $277 million must be added to provide $30 million for “salary adjustment,” $75 million for Measure 57 expenses and $160 million for a 1% ending balance. Thus, Oregon’s total “nut” for 2009-11 is $17.026 billion. Since the anticipated deficit for the next two years has grown to approximately $4.4 billion, we must deal with that deficit in order to draft a balanced budget. (This reminds me of the college student on a tight monthly budget who nearly starved the final few days of every month. He said he didn’t have a problem with spending. The months were too long.) Two years is a long time, and $4.4 billion is a lot of money. What are our options?

The Co-Chairs have proposed four scenarios for dealing with this $4.4 billion shortfall. Each results in drastic, across-the-board cuts.

Scenario 1. The first scenario would use $911 million of Federal Stimulus Funding (the ARRA discussed above), which would lower the $4.4 deficit to $3.49 billion. The remaining $3.49 billion deficit would be shared by state agencies and programs in the form of across-the-board cuts totaling 20.9%.

Scenario 2. The second scenario would add $393.3 million from the Education Stability Fund’s 2007-09 balance to the $911 million in federal stimulus money. The remaining $3.10 billion deficit would be shared by state agencies and programs in the form of across-the-board cuts totaling 18.5%.

Scenario 3. The third scenario would add $339.8 million from the Rainy Day Fund to the $911 million and $393.3 million discussed in scenario 2. The remaining $2.76 billion deficit in scenario 3 would be shared by state agencies and programs with across-the-board cuts totaling 16.5%.

Scenario 4. The fourth and final scenario proposed by the Ways & Means Co-Chairs adds $179.3 million from the Education Stability Fund’s 2009-11 deposits to the $911 million, $393.3 million and $339.8 million discussed in scenario 3. The remaining $2.58 billion deficit in scenario 4 would be shared by state agencies and programs with across-the-board cuts totaling 15.7%.

None of the proposed scenarios avoid massive cuts in state agencies, services and programs. In such situations there are only three alternatives””cut costs, raise additional revenues, or a combination of the both. The Co-Chairs’ four scenarios deal solely with cutting costs and using current sources or pools of savings. Before the session ends there we can expect additional scenarios that will include raising additional revenues from Oregon taxpayers.

The Ugly News. Oregon’s official unemployment rate is 10.8%, a full percentage point higher than one month ago. To put this into perspective, last month 214,809 Oregonians were out of work. This was the highest number since the Great Depression Era. The next highest unemployment rate was in January, 1983 when 174,815 Oregonians were unemployed Thus, the January “˜09 rate was a 40,000 unemployed worker increase over the previous record, and the February “˜09 increase in unemployed Oregon workers was 21,000 more than in the previous month.

For what it is worth, the only major industry to add Oregon jobs in February was the government, which added 5,400 new employees””1,800 in state government, and 3,300 in local government.

Survey Results. Before concluding, I want to give an update on two recent newsletter surveys. The February 27, 2009 newsletter entitled, “Budget Cuts, N. G. Redeployments and Statewide Issues Survey“ asked your opinions on a short list of key Oregon issues. The results are in and thanks to the 1665 Oregonians who shared their time to respond to the survey. The on-line responses, along with those obtained from those who received a mailed version, truly give valuable direction to the Governor and all interested State Legislators. The final results essentially mirror those set forth in “Solving Oregon’s Budget Crisis: What Oregonians Have To Say.” Gold nuggets are buried among the 1210 written suggestions and comments submitted by concerned Oregonians. There is enough material here for a political dissertation.

Regarding a separate survey, last week I asked my readers’ opinions on a movement to change the way we elect our president in, “Electing The President: National Popular Vote Or Electoral College?“ After 830 responses the survey outcome was 24% in favor of dedicating Oregon’s seven Electoral College votes to whomever wins the national popular vote, while 76% opined that we should retain the current Electoral College system.

Once again, I thank you for taking the time to read and consider the information contained in my weekly legislative update. I am convinced the future of our state will depend to a great extent on having an informed and engaged citizenry. The truth is, too few citizens get involved in politics, but the legislative decisions made here in the Capitol will affect every man, woman, child, family, and business for decades to come. If you would like to contact your elected officials, Click Here.


Dennis Richardson
State Representative