What Are the Economic Priorities of Oregon State Government?

Given Oregon’s economic freefall, it is not only timely but critical for Oregonians to assess the economic priorities of Oregon state government and the politicians who run it. In times of plenty it is easy to ignore state government — after all most people are thinking more about their jobs, their opportunities and their economic future than they are about government.

But today, Oregon’s economy is simply crashing. The most recent jobs report from Oregon’s Department of Labor shows that from the high point of employment in December of 2007 to the current September report, Oregon has lost 124,300 jobs — 10,000 in the last month. But during that same period of time the number of government and public education jobs has grown by 7000. That means that nearly 132,300 private sector jobs have been lost in Oregon over the past twenty-one months.

Despite “whistling in the dark” optimism by Oregon state forecasters, there is not a scintilla of evidence that suggests that Oregon’s economy has bottomed out or will recover anytime soon. Construction jobs have fallen from 104,800 in August of 2007 to 78,900 in September (and that number includes the effects of state government’s “transportation construction stimulus) — a loss of nearly twenty-five percent. Manufacturing jobs have fallen from 207,100 in January of 2007 to a mere 165,400 in September — a lost of nearly twenty percent. Financial services have fallen from 107,600 to 93,300 — a loss of thirteen percent.

These categories represent the heart and soul of a vibrant economy. They also represent the bulk of Oregon’s job loss.

It is pointless to argue as to who is responsible for America’s economic downturn. Most recessions are caused by an oversupply of goods and services — supply exceeds demand and GDDP drops to absorb the excess. Recessions tend to be cyclical — they are the essence of free market corrections of excess capacity. This recession was either caused by or accelerated by the actions of a Congress who demanded that money be lent to people who could not or would not repay it, a financial community whose greed capitalized on such foolishness, and a president who, though he recognized the problem, failed to act forcefully to halt its growth.

And so given the depths of Oregon’s economic crises, it is fair to ask about Oregon state government’s demonstrable economic priorities. In this instance you have to ignore the verbal hand wringing of Oregon’s political class and look to their actions rather than their words.

You will have to look hard to find any evidence that Oregon state government has done anything with regard to the continuing decline of jobs in Oregon with the exception of extending unemployment benefits. So what has it done? Basically three things:

1. State government has increased state spending by nearly $4.6 Billion. A small portion of that increased spending represents an expanded highway construction program. Despite the proliferation of signs on a variety of highway projects (from maintenance to construction) that government is putting Oregonians back to work, the employment numbers tell a different story. As noted above, Oregon has lost nearly 34,000 construction jobs even after the vaunted highway program.

The vast majority of the $4.6 Billion represents the regular spending increases by government. On average eighty-five percent of government spending is for its personnel and by an increasing majority these personnel are represented by Oregon’s public employee unions. The fact of the matter is that most of Oregon’s increased spending goes to increased salaries and benefits for state public employees. Increases such as the thirty-five percent increase to Kulongoski administration officials followed by the “gift” five percent increase to public employee union employees (that is five percent in addition to the amounts already bargained for) and does not include the increased benefits for healthcare (now between $1200 and $1400 per month per employee) and the additional costs of funding Oregon’s gold-plated PERS system (a surcharge approaching 25% to the payrolls of many state and local government agencies — remember the state government agreed with the public employee unions to pay the employees’ contributions in addition to its own).

2. State government has increased taxes primarily to corporations and small business employers. Even President Barack Obama noted during the presidential campaign that the worse thing you can do during an economic downturn is raise taxes.

Oregon has a constitutional requirement to balance the budget. When Oregon goes on a spending spree as it has done successively for the past twenty years, taxes must be raised to accommodate the amount by which spending increases beyond existing tax revenues. While Oregonians have now successfully referred the majority of those tax increases to the ballot, the outcome of the election is less than certain given the amount of money the public employee unions have pledged to spend to retain the tax increases for which they are the primary beneficiaries.

But the real problem goes unnoticed or unattended by state government. Every dollar of the over $1 Billion in permanent tax increases is a dollar that cannot be spent in the private sector providing for job creation. Worse than that, every dollar of the over $1 Billion in permanent tax increases creates a new “base line” for spending by state government for the future. Not only has Oregon state government removed over $1 Billion from its productive economy, it has ensured that figure will grow in future years at the same rate as other government growth. (For instance, a recent article in the Oregonian noted that seventy five percent of the jobs created by the federal stimulus money were government jobs. Those are jobs that will still exist when the federal funds run out and will subsequently be the responsibility of state and local government to fund. (I say that because history indicates that these jobs never go away, they just become an increased burden on the states.)

3. State government has raised payment of employee benefits to a first priority. Dan Re, in his excellent researched article on PERS, noted:

Changes to PERS Enforcement Provisions. In 1989, the Legislature enacted new laws to make sure public employers paid their PERS contributions promptly. Those new laws provided that if a public employer did not pay its PERS assessment, it must pay interest on the delinquent amount and, after the deficiency is certified to the Oregon Department of Administrative Services by the PERS Board, all funds in the State Treasury that the delinquent public employer is legally entitled to must be withheld until the PERS deficiency is paid. That legislation made PERS funding Oregon’s highest financial priority, more important than public safety, public education, or any other service provided by the State. The Legislative Assembly told the People, in no uncertain terms, that a public employer’s PERS assessment must be fully paid before that public employer can spend any money on anything else.

See: ORS 238.705

The essence of this requirement is that when the PERS board certifies an increase in assessments- as they have just done – the funds of public agencies become encumbered until such time as the agency pays the increased assessment. Thus funds for prisons, for children, for the handicapped and the poor are suspended until payment of the benefits for Oregon’s public employees.

These are the actions of state government that provide evidence of the state’s priorities. In essence the state’s priorities are 1) the preservation of state government and its public employees, and 2) prioritization of benefits for public employees above all else.

So, for Oregonians, before you go to vote on the recent tax increases, answer the following questions:

1. Is every governmental program authorized in the current budget absolutely necessary, particularly in light of the severe economic downturn experienced by Oregon?
2. Has state government done anything to ensure that those programs are run efficiently and that the indented benefits are actually realized?
3. Have Oregon’s schools, the primary beneficiaries of state spending, improved vis-à-vis their counterparts in neighboring states over the past ten years?

Unless you can answer all three questions (even two out of the three) affirmatively, you should vote against the tax increases and demand the Gov. Kulongoski and the state legislature reorder their priorities and start treating Oregonian’s tax revenues as if they belonged to the taxpayers rather than the public employees unions.