In the Budget Crisis Everybody Suffers But the Public Employees Unions

Oregon’s budget deficit grew to $577 Million for the current biennium. It’s not the end. When the next quarterly revenue estimates are published in August the budget deficit will be even worse. And that gap will increase again when the revenue estimates are published in November. Each month that passes without substantial spending cuts makes the solution more draconian.

Gov. Kulongoski and the Democrat leaders of the state legislature are well aware of both such problems and are using each to make the eventual solution so harsh as to be unpalatable and thus set the stage for another round of tax increases. They have also placed the welfare of their campaign financial arm – the public employees unions – ahead of the poor, the elderly and the school children by refusing to entertain any meaningful reductions in numbers of or wages for the public employee union members.

These criticisms may seem harsh but they are based on statements and actions of Kulongoski, Senate President Peter Courtney (D-Salem) and House Speaker Dave Hunt (D-Gladstone) and the leaders of the state public employees unions.

First, the budget gap will increase with the next revenue forecasts for the simple reason that the revenue forecasts are based on a model that assumes an increase in revenue from any given point. When the actual collections fail to meet the forecast, the forecast is simply reset at a lower base and the same percentage increase (growth) is applied. The model lacks reality and has failed for four quarters in a row to even remotely reflect actual revenue collections.

Reality is found in the economic indices calculated by University of Oregon economists, Tim Duy. A recent Oregonian article noted:

“Oregon’s recovery is faltering, economists say, as unemployment claims jump again with no big source of job growth in sight.
“The state’s economy is just not growing fast enough to produce the jobs it would take to leave the recession behind, said Tim Duy, a University of Oregon economist who produces a monthly index tracking items ranging from trucking activity to manufacturing.”

The fact of the matter is that there is nothing current, or on the horizon, that would suggest that Oregon’s economy will begin growing again and, absent that growth, the revenues to state government will remain static or shrink – in either instance, it will fail to meet the current projections.

This same forecasting failures occurred during the last recession and the revenue forecasts failed to meet expectations for over seven quarters – starting shortly before the ink was dry on that biennial budget.

Which brings us to the second point. Former Gov. John Kitzhaber, with full knowledge of the continuing decline in revenue refused to reduce state spending during the last recession. By veto and threat of veto, Kitzhaber prevented special sessions of the legislature from reducing spending to match diminished revenues. The net effect was to push the twenty-four months worth of reductions out to the last six months making the reductions four times greater than necessary.

(Example: assume a budget of $10 Million dollars per month or $240 Million for the biennium. Then assume that a ten- percent budget reduction is required because there is a $24 Million shortfall in revenue. If you apply the shortfall evenly across all twenty-four months, it will be a $1 Million per monthor or ten percent reduction for the term and spending will continue at $9 Million per month. On the other hand if you continue – as Kitzhaber did – to spend at $10 million per month for the first eighteen months you will have spent $180 Million leaving only $60 Million dollars for the remaining six months to absorb the $24 Million shortfall. That will require a forty- percent reduction to the remaining budget requirements.)

The whole purpose was to make the reductions for the last six months so painful that legislators would accept a tax increase and that they did. However, citizens referred the tax increase to voters who soundly defeated it by a sixty- percent margin. As Kitzhaber’s successor, Kulongoski participated fully in the ruse. Apparently he and his Democrat colleagues intend to use it again in this recession and accompanying budget shortfall.

The state’s major newspapers all have reported that Senate President Courtney and Speaker Hunt led the charge to reject a Republican call for a special session to deal with the budget shortfall. Kulongoski supported delay of any special sessions. Both actions have the effect of delaying a solution and making the eventual budget cuts more difficult to absorb.

Which brings us to the third point. Kulongoski and his Democrat colleagues intend to balance the budget on the backs of the poor, the elderly and the state’s children. Because the legislature has been prevented from meeting by the Democrat leadership, we are left to the actions of the Kulongoski administration to implement any reductions in spending. Kulongoski has requested and received from his administrators proposals to reduce the budget by nine percent.
As the Oregonian’s Harry Esteve reported recently:

“Oregon officials release a long list of potential budget cuts Wednesday, including some bombshells, such as closing three state prisons, freeing nearly 1,000 inmates and ending in-home care for 2,000 elderly residents.
* * *
“School districts, which must find about $250 Million [about half the cuts] in savings, already are ratcheting back.
* * *
“Also on the chopping block is $158 Million from programs that help the elderly, disabled residents and poor families.”

[Bracketed words supplied]
These reductions stand in stark contrast to the reductions in the number of public employees whose numbers have grown by 4,200 since Kulongoski took office. According to the Oregonian’s Esteve:

So, of 750 positions to be eliminated, 300 represent positions not currently filled – thus no reduction in the actual number of public employees. Of the remaining 450 positions, 230 are held by prison guards. (These relate to the proposal to close three prisons and turn loose 1000 criminals on Oregonians and after the uproar caused by this proposal, Kulongoski quickly rejected that proposal.) With Kulongoski’s rejection of this proposal now only 220 positions are at risk. Of 79,300 state public employees, Kulongoski’s administration can only find 220 (less the 0.3 % of the workforce) to eliminate.

In previous columns I have estimated that the cost per employee (based on an average salary of $50,000 per year, plus benefits and federal payroll taxes) is $80,225. That amounts to about $17,600,000 or three percent of the total reductions proposed. (Although the number of position reductions actually proposed represent a very small percentage of the total state public employee workforce, the budget impact is nearly ten times greater. That is no surprise since about eighty-five percent of the state budget represents employee costs and benefits and less than fifteen percent represent actual benefits to the poor, injured or elderly.)

So, while liberal Democrats bleed public for the plight of the poor, the sick, the elderly and the ch-h-hil-l-l-ldren (you have to drag it out like a moan), in actuality, they are more than willing to throw all of them under the bus to protect their financial arm in the public employees unions. A $250 million reduction in schools for our children, a $158 million reduction for our poor and elderly, and the release of 1,000 inmates on an unsuspecting public.

Thank you Gov. Kulongoski. Thank you Sen. Courtney. Thank you Speaker Hunt. And thank you Oregon’s public employee unions – you’re the bomb.

By the way, eliminating the 4,200 positions created by Kulongoski would save the budget – wait for it – $336,945,000 – but that would cost the public employee unions and their Democrat allies over $3 million in funds available for their political activities.

Go figure.