No Surprises in Oregonâ€™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.

Oregon Catalyst