No Surprises in Oregon’s Budget Shortfall

Were you surprised when the new revenue forecast came out showing a projected deficit in the current budget of $562 Million? Were you surprised that within days the revenue forecast was revised because of a mathematical error to a projected deficit of $577 million? Were you surprised that the “reset cabinet” report to the governor, according to the Oregonian, says “Oregon’s economy can expect to see a decade of budget deficits “” not surpluses, as was once predicted “” if the state continues many of its services”?

Me neither. Apparently the only ones surprised were Gov. Kulongoski and his Democrat colleagues in the legislature. And that surprise (or in the alternative that lack of forthcoming) is indicative of routine failure in competency and leadership by Kulongoski and the Democrat leaders of the state legislature.

In my March 31, 2010, column I noted:

“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.”

Actually, the revenue forecast has fallen faster since the passage of the massive tax increases in Measures 66 and 67 — what a surprise.

But here is the revelation that apparently neither Kulongoski nor the Democrat legislative leadership were able to discern over the last seven years. The Oregonian reported:

“The analysis found that Oregon could face deficits in the next 10 ten [sic] years, rather than the surpluses projected before the recession, if state government continues to try to sustain the type and scope of services it provides.

“According to the cabinet’s update report, Oregon is emerging from this recession with reduced revenues, higher costs and greater demands for services, which reveal a much different fiscal future for the state than previous projections.”

Let me put it in terms that even someone as economically illiterate at Gov. Kulongoski can understand. YOU CANNOT CONTINUE TO SPEND AT A RATE GREATER THAN THE RATE OF GROWTH OF THE UNDERLYING ECONOMY.

But then, Kulongoski has been a willing participant and cheerleader for increased spending during a serious economic downturn. He has succumbed to the wishes of his principle financial backers — the public employee unions — to increase wages, to increase benefits, and to increase the number of public employees during a period in which nearly 160,000 Oregonians have lost their jobs and another 40,000 Oregonians have entered the “workforce eligible” ranks.

So given this, were you surprised that Oregon fell fourteen places to thirty-eighth in the survey by Chief Executive Magazine as the best places to do business? In the recession following the destruction of the Twin Towers, Oregon was one of the last states to emerge from that economic downturn. It took nearly three years for Oregon to recover the nearly 66,000 jobs lost during that downturn. This time the job loss is closing on three times as great and the climb out is made even more difficult by Kulongoski and the Democrats having removed several billions of dollars of revenue from the private sector in the form of increased taxes and fees that could have been otherwise used for capital investment to increase employment. Oregon now joins the ranks of places like California and New York as among the worst places to do business — and it isn’t just the high taxes and fees or the oppressive regulatory environment, it is also about attitude.

The longevity of a succession of Democrat governors and the super majority of Democrat legislators has converted Oregon government attitude toward business from benign neglect to active hostility. For these Democrats and their financial arm in the public employee unions, business exists solely for the purpose of paying the freight for government growth — and in all other matters business should just shut up and be happy to be in Oregon.

It’s not that solutions haven’t been proffered by business, economists and others. It is simply that these solutions have fallen on deaf ears — ears made deaf by a willingness to sacrifice reality for political favor.

Unfortunately, Oregon government will not pay the price, but Oregonians will — big time and for a long time.

  • Ron Marquez

    The last three paragraphs of Larry’s post say it all and the situation will continue to deteriorate should the Dems retain control of the governor’s office and the legislature.

    I have no great confidence in the Republicans but I’m willing to give them a shot at putting us back on a fiscally responsible track. The alternative is known and Oregon can’t stand eight more years of it.

  • Britt Storkson

    Government has degenerated into a pay off/buy off scheme. That will end when government cannot buy off the greedy who continually want more money taken by force from those who earned it.

  • Rupert in Springfield

    Yep – Not too much of this wasn’t predicted. Measure 67 making Oregon a worse place to do business and worsening the recession locally? Predicted loud and clear right here by just about anyone with sense.

    It seems the entire effort of Oregon government over the last several years has been nothing but green job scams and new and exciting ways to tax the productive. Given the lack of effort on anything substantive it is hardly remarkable that the predictions of those who have long pointed out the obvious have come true.

    At the end of the day the only ones who have gained are state employee unions, both in increased numbers and hefty raises. The government is undeniably run for their benefit, and in that sense it is quite efficient.

  • Bob Clark

    I’ve looked at the underlying economic assumptions of the revenue forecast earlier this year, and found these assumptions to be rather dubious after the next two to three years. The most striking thing to me is the global/national economic forecast shows no more recessions after recovery from the current recession. National economic output had a short bump up to 5% in the latter part of last year, but unlike previous recoveries the economy has already slowed back down to 3% earlier this year. 3% is the baseline underlying national forecast.

    I see where EcoNorthwest and Oregon businesses are pushing for reforms. Unfortunately, they also raise the sales tax issue. This is unfortunate because politicians will most likely disregard the reforms and deregulation, and instead make the grab for more tax dollars through a sales tax proposal.

    • valley p

      “The most striking thing to me is the global/national economic forecast shows no more recessions after recovery from the current recession.”

      The historical record averages 1 recession per decade. So why would they forecast anything other than a continued recovery for the next 7 or 8 years? A sustained 3% growth rate would be darn good by the way. Very near Reagan’s cumulative record factoring in inflation.

      • Rupert in Springfield

        >A sustained 3% growth rate would be darn good by the way.

        I am proud of you Dean, you actually read up on an issue and aren’t making the same mistake twice. Knock me over with a feather!

        A few months ago you were ignorant of what a good sustained growth rate should be. This was obvious when you mocked Bush 2’s average growth rate of 2.5%.

        When I pointed out to you that this was actually good, especially when compared to the rest of the world you did your usual topic shift rather than admit error. Thats fine, it’s silly, but its just how you are. T

        However I am proud you have learned something from our conversations. At least now you know what a good sustained growth rate is and thats something you should be commended for.

        Good job!

        • valley p

          “A few months ago you were ignorant of what a good sustained growth rate should be. This was obvious when you mocked Bush 2’s average growth rate of 2.5%. ”

          Aside from turning 3% being pretty good to 2.5% being, oh I don’t know, something to be proud of. Bush’s “average” conveniently discards 2009, Obama’s first year technically, but one spent plugging the holes in the ship Bush left him. If you factor in at lest the first half of 2009 and attribute that to Bush, his cumulative number drops, maybe even to zero. And even if you don’t factor that in Bush had the most anemic cumulative growth of any president since Hoover.

          Then you add in his negative numbers on the stock market, his negative numbers on median income, and his negative numbers on total wealth, and you get the 2nd coming of Herbert Hoover.

          So spin away Rupert. You will need to perfect this argument that Bush’s economic record was at least OK, not only this election season, but for many years to come. If you ever have to face the facts that US economic growth under democratic presidents has far out performed that under Republican presidents over the past 80 years, your head will burst.

          I’ll add a point. If Obama ends up with an average growth rate of 3%, given his first year being negative thanks to Bush, and given the strident opposition he has to his policies, it will be a small miracle.

          • Rupert in Springfield

            >So spin away Rupert.

            Whose spinning? One hardly has to spin to point out your boobery.

            The point is Bush’s growth rate was 2.5% and you mocked it.

            The point is you didn’t know that was actually a good growth rate, especially when compared to the rest of the world at the time.

            Well, you have learned something, now you brag about a 3% growth rate and hope no one notices your foolishness of mocking Bush’s 2.5%

            And no, sorry we do not count 2009 as a Bush yea. In 2009 Obama was president, not Bush. Obviously this is news to you.

            Again – you really need to stay out of economic discussions, you simply haven’t done your homework.

          • valley p

            “The point is you didn’t know that was actually a good growth rate, ”

            Only it isn’t. It is mediocre. It is lower than any president since Hoover. What don’t you get about that?

            “Well, you have learned something, now you brag about a 3% growth rate…”

            Brag? I was bragging? I don’t think so. Given where we were, 3% is a relief. And by the way, the difference between 2.5% and 3% is a lot of sheckels in an economy the size of ours. Its not chump change.

            “And no, sorry we do not count 2009 as a Bush yea”

            I know you don’t. And that is why you also don’t blame the Reagan recession on what Carter left behind right?

            “Again – you really need to stay out of economic discussions, you simply haven’t done your homework. ”

            Correction Rupert. What I haven’t done is YOUR homework. I lack a copy of the Book of Rupert and his Economic Musings.

  • John Fairplay

    If Ted Kulongoski, Dave Hunt and Peter Courtney were corporate officials, they would all be eligible for an extended stay as an involuntary guest of the state and federal governments.

  • Anonymous

    Oregon Democrats have a spending problem!

    Unsustainable spending and roll up costs, increases in PERS and new unsustainable programs.

    Biennium–Total All Funds
    2009-11—-$53,760,031.018—– 9.38% ***
    projected and spent before they had it in hand

    2005-07—-$43,220,555,200 —-11.56%
    2003-05—-$38,743,009,114 —–9.11%
    2001-03—-$35,508,990,712 —-16.57%
    1999-01—-$30,462,319,439 —-11.55%
    1997-99—-$27,308,692,023 —-17.62%
    1995-97—-$23,218,655,377 —-15.85%
    1993-95—-$20,042,060,862 —-12.18%
    1989-91—-$15,174,994,031 —-20.72%
    1987-89—-$12,570,014,958 —–4.23%
    1985-87—-$12,060,094,718 —-17.97%
    1983-85—-$10,223,173,163 — 14.34%
    1981-83—–$8,940,741,798 –(-10.88%)
    1979-81—-$10,031,862,751 —-35.08%
    1977-79—–$7,426,493,362 —-42.91%
    1975-77—–$5,196,769,722 — 56.72%
    1973-75—–$3,315,908,507 —-22.15%
    1971-73—–$2,714,651,811 —-27.54%
    1969-71—–$2,128,527,639 —-13.49%

    • Steve Plunk

      Bravo! This chart is not posted enough for my satisfaction. Thank you for putting it up as proof of the failed policies of government. Smaller government is the only way to future prosperity.

      • Anonymous

        “This chart is not posted enough for my satisfaction.”

        I spit my coffee on the screen when I read that. Hilarious! Haven’t seen this chart posted since the run up to M66/67, when this guy posted it eight billion times…

        • Anonymous

          And we still have a spending problem, because the democrats have ignored it.

    • Anonymous

      Snore. This chart has been posted time after time. State revenue grows with the economy and state revenue = state expenditures within a few percent, up or down.

      The state will balance its budget, don’t worry about that. You guys have been totally ineffectual at controlling costs. So you will have to do with fewer services.

      • Anonymous

        State spending is unsustainable and is outpacing the income and revenue of the private sector.

        If we keep it up we will be bankrupt.

        • Anonymous

          No, it’s not. The state will balance its budget, one way or another, as it always does. If the new taxes are really that bad, revenue will go down, and the state will spend less. Cut school spending, public safety, welfare. Cut cut cut. The budget will be balanced.

          • Anonymous

            Sure the budget will be balanced. But at what cost to our childrens future and businesses and taxpayers.

            Oregon spending is unsustainable and the democrats and public employee unions do not know how to live within a budget. They do not understand the roll up cost and keep pushing this problem off into the future.

            At this rate, we will go bankrupt!

          • Anonymous

            I know, I know, it’s absurd! If only all the Democrats and public employees would just drop dead or move. Then all would be well and we could march forward into the paradise of wealth and prosperity that surely awaits. To the glorious Republican future! Victory will be ours!

          • Anonymous

            There you go, jumping off a cliff, when all you have to do is live within a budget, without new taxes , fees and regulations on the private sector.

            The Private sector, that has cut real jobs, hours, benefits. If they have not gone bankrupt, because of the economy and governments unsustainable and never ending spending increases.