Oregon’s $272 million “windfall”: a fortuitous prediction indeed

Sen Doug Whitsett

Sen. Doug Whitsett (R-Klamath Falls)

“It appears that the Governor, and Democrat legislative leadership, are willing to do whatever it takes to continue to protect the bloated costs of the Public Employee Retirement System.”

For the past several months, the legislative Democrat leadership has been steadfast, in telling anyone who would listen, that they needed at least $275 million in new revenue, in order to balance the state budgets. The Republican Senate has been equally steadfast, in telling anyone that would listen, that meaningful restructuring of the Public Employee Retirement System is essential to balance state, school and local budgets.

At least two Republican votes are needed in the Senate to achieve the sixty percent majority vote constitutionally required to enact a tax. The same sixty percent majority votes are required to reduce or eliminate a tax deduction or a tax credit. For that reason, Republican Senators have refused to vote for any revenue increases until and unless meaningful PERS restructuring is achieved.

Last week, the Oregon state economist predicted that state revenue collection would increase by about $272 million over the next two years. This fortuitous prediction allegedly resolves the Democrat “steadfast need” for an additional $275 million in tax revenue. Political coincidences can and do occur, but one of this magnitude would certainly be rare.

Governor Kitzhaber then made a “take it or leave it” proposition; wherein, he would support up to $902 million in specified PERS cost reductions, in exchange for $200 million in unspecified tax increases. His offer was “on the table” for about 24 hours. Republican Senators did not accept this brief offer, because it addressed only about one third of the PERS problem, and because the Governor did not make clear who he proposes to tax.

The Governor, and Democrat legislative leadership, immediately attempted to paint Senate Republicans as intransigent, and unwilling to compromise. They stated their plans to move forward on their own with the state budgets, without additional revenue beyond the new found $272 million, and without the critically needed PERS restructuring.

Their new plan is to spend the projected $272 million increase in revenue in order to balance the budgets. They ignore the fact that this money they plan to spend is only forecasted, predicted to be available. They further ignore the fact that the state economists’ prophesies have been reliably wrong for nearly a decade. Worse, the forecasted revenue has consistently been overstated, often by wide margins.

The cost of funding the Public Employee Retirement System is scheduled to increase about $2.4 billion over six years. That enormous sum of money will be due and payable each two-year budget period into the foreseeable future. To put the huge increase into perspective, that amount of money would pay the average salary and benefits for more than 17,000 state local and school employees.

Senate Republicans are attempting to roll-back the PERS taxpayer costs by about $2 billion per two year budget cycle. Reducing the PERS costs by $2 billion would save state government more than half a billion dollars. The approximate one and one half billion dollars savings that remains would be shared by beleaguered school districts and local governments.

The primary consideration of Senate Republicans, since the beginning of this legislative session, has been focused on how to resolve the essential need for restructuring the Public Employee Retirement System.

Taxpayers have already borne the burden of one billion one hundred million dollars in PERS cost increases during the current two year budget period. That PERS cost is scheduled to increase an additional $128 million starting this July 1st and by yet another $809 million on July 1st 2015.

These enormous expansions in PERS cost are occurring even after the provisions of the partisan, Democrat-sponsored, Senate Bill 822 have been implemented. Moreover, these are not one-time cost increases. The PERS actuaries tell us that these expanded PERS costs will continue each two year budget period into the foreseeable future. These increases may be substantially worse in the event that the PERS Trust Fund continues to fail to earn its projected eight percent annual return on investment.

Senate Republicans simply believe that these unaffordable and unsustainable cost increases must be curtailed.

I strongly believe the latest revenue forecast is, once again, grossly overstated. My analysis is based in part on the fact that many taxpayers moved taxable income and capital gains forward, in order to pay the lower tax rates that were in effect for the year 2012. These financial decisions were exacerbated by the impending fiscal cliff that was looming at the time the tax decisions were made.

Fortunate for taxpayers, their taxes are not due and payable twice. The taxes moved forward for payment in 2013 will not be payable in 2014. This means that the taxes collected next year may be expected to be reduced by about the same amount as is currently being prepaid this year.

Similar tax collection numbers are being experienced at the federal level. Federal tax revenue is up nearly $100 billion this year, largely because people were attempting to avoid the fiscal tax cliff. Federal tax collectors are predicting that tax collections will be down about an equal amount next year. It is not clear why our state economists do not seem to be making similar adjustments.

It appears that the Governor, and Democrat legislative leadership, are willing to do whatever it takes to continue to protect the bloated costs of the Public Employee Retirement System. They seem to have little sympathy for the local governments and school districts that have no control over the enormous PERS cost increases that are decimating their budgets. They appear to have even less empathy for the taxpayer, who continues to pay more, for less service.

This sad and unsustainable budget reality will continue until meaningful changes are made to address the PERS structural budget deficit.