Another Massive Tax Increase Is On Its Way

Oregon’s massive $733 Million tax increase apparently isn’t enough. Not if you are to believe a series of news reports.

First, a recent article in the Oregonian by Harry Esteve noted:

“Oregon, like other states, is facing the end of one-time stimulus spending and snail-paced economic growth. State economists and budget analysts project a $2.5 billion shortfall for the 2011-13 budget and a $1.7 billion hole in 2013-15.

“Without federal help, that would mean more tough choices lie ahead for Oregonians about raising taxes again or cutting state spending.”

And that was before the recent announcement regarding Oregon’s Public Employees Retirement System (PERS). This week, Dennis Thompson, Jr., of The Statesman-Journal reported:

“There’s another budget crisis brewing in Oregon.
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“The crisis will come in the form of huge increases in the amount of money that employers must pay into the Oregon Public Employees Retirement System. PERS has to increase the contributions to make up for investment losses that occurred during the stock market free-fall of 2008.
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“The increase will cost Oregon governments participating in PERS a total of more than $1 billion in additional employer pension contributions, according to information provided by PERS after public-records requests from the Statesman Journal. To cover that expense, cuts to classrooms, parks, libraries and myriad other community services will have to be considered. Some local governments might lay off workers.”

Now you need to add to that equation the notoriously inaccurate revenue forecast system used by the Oregon Legislature. The revenue forecasting methodology utilized by the state assumes revenue growth from any given point in time. When actual revenue collections fail to meet the last projection, the projection doesn’t turn downward, rather the “start point” is reduced and the same growth curve is applied to the lowered base. Given that Oregon’s revenue forecast has failed to meet projections for at least six quarters one would think that a forecast based upon “continued growth” in revenue would be suspect.

At the conclusion of the 2009 legislative session the state budget included a projected $233.8 Million surplus which would serve as a contingency if anticipated funds fell short. By September of 2009 the revenue forecast had fallen to $13.436 Billion and the “surplus” had dissipated to $94.8 Million. In December there was a further erosion as the revenue forecast fell to $13.393 Billion and the “surplus” shrank to $79.2 Million. The most recent forecast reduced revenue projections by another $182 Million and basically wiped out any remaining surplus.

In all probability by the time the legislature meets again in 2011, the revenue forecasts will have eroded further and the increased costs of PERS will result in a projected deficit of closer to $4 Billion than $2.5 Billion.

In another article in The Statesman-Journal, the impact of the additional PERS costs was noted:

“School districts are expected to be among the hardest hit by pension rate increases on the horizon.

“Pension rates are based on payroll, and the majority of district general fund budgets “” as high as 80percent to 88 percent locally “” pay for payroll-related costs.
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“On average, school districts are paying 5.3 percent of payroll costs into the pension system in 2009-11, or about $310 million. The cost is expected to more than double. In 2011-13, school districts are expected to pay an average of 11.6 percent of payroll costs, or $731 million.
That’s an increase of $421 million over a two-year period; for perspective, that’s about the cost of employing 2,500 teachers for two years. The average cost of employing a public school teacher in Oregon, including benefits and federal payroll taxes, was $82,788 in 2008-09.

And to add insult to injury the 2009 legislature, backed by their financial donors — the public employee unions — adopted legislation to ensure that public employees get every last dime they can from the PERS system — including overpayments due to computing errors by the PERS administration. The net effect of that requirement is that PERS will have to hire a minimum of 13 new persons — 13 more public employees, – 13 more members of the public employees unions.

There it is folks. Another massive projected deficit for the state of Oregon. A substantial portion of it caused by the crown jewel of the public employees unions — PERS.

Oregonians now face yet another tax increase and this time all of Oregon’s citizens will face an increase because there simply is not enough revenue that can be generated by taxing business and “the rich.” Private sector jobs will continue to decline. Large businesses will continue their outward migration either by expanding elsewhere or, in some instance actually moving their operations. Small business will continue to fail. But the public employees unions will continue to be rewarded with increased salaries and benefits regardless of the financial health of those who must pay for their largesse. And that includes those who must pay the taxes and those who will see bear the brunt of reduced services.

Welcome to the Californiazation of Oregon.

Oregon Catalyst