Saving the State vs. Saving the State Government

Oregon’s economic crises is so severe that over 160,000 Oregonians have lost their jobs and another 40,000 Oregonians entering the workforce eligible ranks are unable to find any form of employment. And yet, Oregon’s opinion leaders, starting with the Oregonian tend to ignore the plight of the unemployed and under employed and characterize this as a crises for government – there isn’t enough money to fund current levels of spending by the government.

In Sunday’s Oregonian, Steve Duin begins a promising column by quoting from a 1995 movie entitled “The American President”:

“’We have serious problems and we need serious people to solve them.’

“Because that sentiment never took hold in Oregon, we elected Ted Kulongoski governor not once but twice and lived with his bloodless, bewildered indifference for eight years.”

And just when I thought that Duin was going to tackle the very real problem of Oregon’s failing economy, he reverted to type (unrepentant liberal type) and described Oregon’s problems in the context of the major party candidates for governor:

“They both seem to understand there are serious issues with a state economy that just tripped over another $577 million budget shortfall.”

And then continued:

“We have serious problems to solve. I’m not asking Dudley or Kitzhaber to tackle tax reform, but they must define the cost of state programs, the value of sustaining them and their ability to deliver them much more efficiently.”

Quite frankly, if you are one of the 200,000 Oregonians seeking work, my guess is that the last thing on your mind is the health of Oregon’s state budget. At this point in time, the only relevant question for Oregon voters should be, “What is the next administration going to do about improving the economic conditions so that every willing worker can find a job?”

Solving the state’s budget crises is not all that difficult. Most of the budget problems are found in too many public employees earning wages in excess of their private sector counterparts and receiving benefits (healthcare and pensions) that are not sustainable by any measure of economic sanity. Three fundamental tenets are required to make the reductions in spending:

1. Direct payments (benefits) to those in need should not be touched.
2. Benefits (welfare, healthcare and education) should be denied those not lawfully in the United States.
3. Law enforcement (including incarceration costs) should not be reduced if it results in fewer law enforcement officers or prisoner releases.

After that, it is a matter of reducing the number of employees to a level commensurate with the beginning of Gov. Kulongoski’s term, reducing wages to levels commensurate with those paid in the private sector, and imposing a portion of the cost of healthcare and pensions on the public employees who benefit from them. Oh, and if the public employee unions refuse, then reduce the number of public employees to compensate. Apparently that’s all right with the union leadership as noted in the Oregonian:

“The unions refusal to accept more cuts will lead to more layoffs in state government, a spokeswoman for Kulongoski said. The response from [Oregon’s AFSCME direction Ken] Allen and other union officials. So be it.”

It is the revitalization of Oregon’s economy to allow private sector job growth that is the more difficult problem and the one that needs “serious people to solve them.” Let’s not kid ourselves. Actions taken by Oregon cannot overcome a national recession; however, actions taken by Oregon can prevent a repeat of the Kitzhaber/Kulongoski debacle from the previous recession.

You can forget about John Kitzhaber being one of those “serious people.” Kitzhaber was governor at the beginning of the last recession and his refusal to directly confront Oregon’s economic downturn led to Oregon being one of the first states to enter the recession and one of the last to recover from it. Gov. Kulongoski followed Kitzhaber’s lead and spent his time trying to raise taxes rather than confront Oregon’s economic problems. It’s not that Oregon is “ungovernable” as asserted by Kitzhaber, it is simply that he, like Kulongoski is clueless about what to do.

By all accounts Chris Dudley is a smart guy with an Ivy League pedigree and degrees in political science and economics. Unlike the three previous Oregon governors, economics is not a foreign language to Dudley. The big question for him will be whether he gets distracted by the health of state government instead of focusing on the health of Oregon’s economy. It is the latter that drives the former – not vice-versa.

Like fixing the budget crisis, there are a few fundamentals that should guide a new governor’s policies:

1. Capital creation is the key to job creation. Policies encouraging investment in Oregon should lead policy initiatives:
? Reduce capital gains taxes on new investments in Oregon by one-half.
? Increase capital recovery by tying depreciation schedules to federal rates.
? Exempt the transfer of family farms and small businesses in Oregon from Oregon’s burdensome inheritance tax.
2. The competitive market place is the most efficient engine for success – the government should stop picking the winners and losers:
? Eliminate the multi-million dollar tax credit for wind generators and the requirements that a percentage of power generated be produced by uneconomic renewable resources.
? Eliminate state participation in projects like the newly announced cellulose biofuel in Boardman. The cost of this plant is $73 million for the first phase. Even assuming a twenty year capital recovery, at 250,000 gallons of biofuel per year, the cost per gallon is $14.60 per gallon and that doesn’t include the costs of the crops or recurring labor and maintenance costs. Pure idiocy.
3. Create policy stability and predictability. Business requires a degree of predictability in order to justify capital investment.
? Make a “no new tax” pledge for the entirety of the governor’s term. Oregon has demonstrated that government’s needs are, in reality, public employee unions’ needs. Those needs should be, at best, secondary to job creation for the 200,000 Oregonians currently out of work.
? Review land use policies and reduce both the burden and time requirements for location and expansion of business initiatives.
? Imbue an attitude in department administrators which ensures that government can find a way to make enterprise initiatives work rather than prevent them – think the LNG proposal now opposed by state government.

Twenty years of Democrat administrations are ample proof that policies that promote the growth of government at the expense of private sector employment have failed. Pushing the crisis out for a few more years with additional borrowing or federal government subsidies will inevitably lead to a larger crisis down the road. Oregon needs “hope and change” – just not the kind delivered by a succession of Democrat governors.