Oregon’s Economic Plan — Spend More, Tax More, Borrow More
BY State Representative Dennis Richardson,
Individuals, families and businesses, during hard economic times where there is not enough money to pay the bills, have three options: lower expenditures, increase income or combine the two. The State of Oregon has chosen a different strategy. During this, the “Great Recession,” Oregon has had a six word economic plan: Spend More, Tax More, Borrow More.
Spend More. In Oregon’s state budget for 2005-7 the total “All Funds” budget was $41 Billion. In the current 2009-11 budget the All Funds total is $56 Billion. Thus, Oregon’s spending has grown $15 Billion (37%) in only four years. (Click here.) The current budget is the largest in Oregon history.
To enable Oregon’s current $56 Billion budget to balance, $1.45 Billion of “one-time money” was used. (Click here.) Thus, to maintain the current service level, plus the additional programs approved in the 2009 Legislative Session, and still balance the State Budget required $1.45 Billion more money than Oregon’s revenue streams would normally fund. In other words, instead of curtailing expenditures, the Governor and Legislative leaders approved spending $1.45 Billion in “one-time money”””money that will not be available in the next budget. Oregon’s on-going spending habits are heading the state toward a financial cliff; there simply is not enough revenue to sustain the burgeoning appetite of our “super-sized” State government.
The realities of Oregon’s decreasing revenues are sobering. The March 2010 Revenue Forecast has just been released. It states:
“The forecast for General Fund revenues for 2009-11 is $13,210.3 million. This represents a decrease of $182.8 million from the December 2009 forecast. The forecast for the 2009-11 biennium is now $365.4 [million] below the Close of Session forecast. On net, nearly all of the decrease for the March forecast is associated with lower expectations for personal income taxes”¦.” Click here.)
Revenue forecasts not only show data; they also disclose trends. For instance, as quoted above the March 2010 Forecast indicated a $182.8 Million reduction in revenue in less than three months since the December 2009 Forecast. The December 09 Forecast indicated a $43.5 Million reduction in anticipated revenue when contrasted with the September 09 Forecast released three months earlier. Thus, in the 7 Â½ months since the close of the 2009 session, the anticipated revenues for the current biennial budget have decreased $365 million, and the drop in the March Forecast was 400% greater than the previous drop in state personal income tax revenues contained in the December Forecast, less than three months earlier. Since, historically Oregon’s unemployment rate remains high for at least two years following the “official” end of a recession, we should expect Oregon’s high unemployment to continue throughout 2010. Since Oregon workers do not pay much in income taxes while unemployed, Oregon should therefore anticipate reduced revenues and decrease spending accordingly. Instead, Oregon has been following the dream, “if you spend it, more money will come.” Without a dramatic course correction, Oregon will find its finances in the same desperate situation New Jersey currently finds itself. (Click here.)
Tax More. The recent passing of Measure 66 gives Oregon the distinction of having the highest personal income tax rate in the USA. A distinction it shares with Hawaii. Passing Measure 67 created an alternative minimum corporate tax for Oregon corporations. Effective January 1, 2009 (14 months ago), “C” corporations will be required to compare the costs of taxing corporate sales, regardless of the business’ profitability, with the usual corporate income tax, at the new 7.9% rate (on income exceeding $250,000), and pay whichever amount is greater. (Click here.)
Before the vote on Measures 66 and 67, I explained the chilling consequences on jobs of passing these two tax increases. (Click here.) In only days after the tax measures were approved, the anticipated negative consequences for employers and jobs have begun to be realized. For example, Comnet Marketing Group has Oregon call centers providing 150 Oregon jobs averaging $30,000 per year. Comnet’s plans to expand Oregon operations have been stopped, as explained by Comnet CEO, Bruce Hough:
“I love Oregon. It is unfortunate that Oregon doesn’t love me and is now going to penalize me with punitive taxes. These taxes will cost me a quarter of a million dollars over the next four years as I further expand my company to 250 — 300 employees.
“Accordingly, I have already started the process of relocating my company to another state which understands the value of having a thriving, growing business adding to their economic health. It will take several years to complete the transition but I have instituted an immediate hiring freeze in Oregon.”
Comnet’s move from Oregon will have at least three negative ramifications:
(1.) Oregon loses the tax income already paid by the corporation and its 150 workers;
(2.) Oregon loses the 150 jobs currently filled by Oregon workers; and
(3.) Oregon loses the future jobs and income from the additional 100-150 new jobs that would have been created in Oregon, had Comnet not decided to move to another (low tax) state.
Comnet’s decision to flee Oregon’s anti-business, high tax policies is not isolated. Such letters are coming in from businesses statewide. (To read the entire Comnet letter, Click here.) Oregon currently punishes successful businesses and individuals with higher taxation, class envy propaganda, redistribution of wealth strategies and other economic constraints.
In contrast, prudent economic planning would promote economic incentives attractive to new and expanding businesses. It is a basic economic principle that money and wealth flow toward incentives and away from economic constraints. Arizona is one state that is lowering its taxes even though it faces revenue shortfalls. Arizona appears to understand that such basic economic strategies are needed to attract business expansion and create new jobs. (Click here.)
Borrow More. Little known to Oregon citizens and taxpayers is the dramatic increase in long-term debt approved by Oregon’s Governor and Legislature in recent years. According to the State Debt Policy Advisory Commission’s 2010 Legislative Update, released on February 1, 2010 (Click here.), in 2006 Oregon’s “net tax-supported debt” was a little over $6 Billion. By the end of the current 2009-11 biennium, Oregon’s debt-load will exceed $9.6 Billion in Net Tax Supported Debt””a 57% increase in long-term debt in less than four years. Oregon went from a low debt state to one of the highest indebted states in America. (Click here.)
Going into debt is a lot like conceiving a baby””exciting at first, but real challenges come later.
The cost of servicing Oregon’s high amounts of debt is extremely burdensome to the budgeting process. The total debt payments for all Oregon debt over the next two years is $1.3 Billion. (Click here.) Of that amount, $614 Million will come from General Funds (Click here.) and $246 Million from Lottery Funds. (Click here.)
Think about what this really means. In the next two years, $860 Million of state income taxes and lottery revenue will be spent on debt payments–$860 Million that could have been spent on Education, Public Safety and Human Services, or retained by taxpayers for their own purposes. It is like having $860 Million of credit card debt that will not be paid off until 2039 (29 years from now).
The current 2009-11 budget is worst of all. It contains approval for $4 Billion dollars of debt (Click here.) and the debt service cost increase from Lottery Funds on just one form of that additional debt””Certificates of Participation””will increase from $40 Million in the current budget to $163 Million in the 2011-13 budget.
Where will the money come from that is needed to pay this heavy debt load, maintain current service levels and cover the costs of new programs? As mentioned about, the State Economist treads lightly when giving the negative March 2010 forecast. (Click here.)
In addition, to “obtain” Oregon’s two Senator’s votes for TARP in 2008, the Oregon timber counties were given $254 million, in the first year, then less each year until this timber-payment replacement money is completely phased out in 2011. Then what? For decades, counties like Curry, Josephine and others have relied heavily on those federal timber-replacement dollars, and soon they will be gone for good.
Conclusion. Oregon desperately needs a budgeting course correction. Oregon needs to change its economic strategy to one of “prudent economic planning.” Such a course correction would require prioritized spending, conserving one-time resources and sloping expenditures downward to deal with the economic realities that must be confronted to balance the 2011-13 State Budget.
I proposed House Bill 3641, (Click here.) which would limit future growth in State Budgets to increases in population and inflation, except in times of true emergencies. When revenue is high, excess dollars would go to the Rainy Day Fund. Once the RDF is funded with an amount equal to 25% of the General Funds Budget, additional revenues would be used to pay down Oregon’s debt. HB 3641 would have been a starting point for budgetary reform. Unfortunately, HB 3641 has not been given a hearing.
In sum, for those addicted to state spending, you have nothing to fear for the time-being. It is business-as-usual in your Legislature. But, the days of Oregon’s “Spend More, Tax More and Borrow More” are numbered. Such an imprudent economic plan is unsustainable. Oregon’s financial judgment day is coming.