The Reality of Oregon’s Budget Crises: Cause and Cure

You can’t make an omellete without breaking eggs

The Oregonian began a self-described “occasional series” regarding Oregon’s state budget deficit. The Oregonian ignored this problem for two decades but now feels compelled to write in support of Gov. Kulongoski who, having contributed significantly to the problem, has now on the eleventh hour of the three hundred sixty-fifth day “discovered” that things just cannot continue this way – what a guy.

However, you don’t need an “occasional series” to discover either the cause of the problem or the solution.

Oregon state government has a spending problem. It has for at least two decades accelerated spending at a rate significantly greater than its citizens’ ability to pay. According to the United States Department of Commerce, Bureau of Economic Activity, Oregon’s total personal income has grown from $66,230.7 Million in 1994 (the year John Kitzhaber became governor, to $136,449.4 Million in 2009 (the most recent figures available).

“Total personal income” is defined by the Bureau of Economic Activity as:

“. . . the income received by all persons from working (participating in production), from government and business transfer payments, and from government interest. Personal Income is the sum of net earnings by place residence, rental incomes of persons, personal dividend payments, personal interest income, and transfer payments. Examples of transfer payments are Social Security payments, Medicare payments, unemployment insurance payments and veterans’ pensions. Personal income is measured before the deduction of personal income taxes and other personal taxes.”

That represents a total growth of one hundred six percent over a period of fifteen years.

During that same period of time, according to the Oregon Legislative Fiscal Office, Oregon’s general fund and lottery budget has grown from $6,411,323,201 to $13,319,414,597 or one hundred eight percent. (While one might suggest that we not get too excited by a two percent differential, that two percent represents $266,388,292 or about one-half of the current general fund deficit.)

But Oregon doesn’t operate on just its general fund and lottery fund budgets. During the same period of time the “all funds budgets” grew from $20,409,884,510 to $59,647,159,162, or a staggering one hundred ninety-two percent. In other words, Oregon state government grew spending at just about double the amount that Oregonians personal income grew.

The Oregonian article noted:

“Consider this sobering fact: State expenses, including payroll, health and retirement benefits, and debt payments are slated to rise by nearly $4 Billion over the next two years – a 26 percent jump. During the same period, however, revenues to pay those expenses are expected to increase by a little less than $2 Billion, or about 14 percent – and that assumes a return to a robust economy.”

The likelihood of a robust recovery is practically nil according to State Economist Tom Potiowsky and other leading state economists.

Potiowsky predicts a decade of red ink for Oregon state government with projected growth in spending exceeding revenue –even under healthy economic conditions – by nearly $10 Billion.

And while Kulongoski’s new found “fiscal reality” comes at a convenient time – the end of his public service, the economic idiocy he so readily embraced for seven and one-half years as governor, is still alive and well amongst other leading Democrats – all of whom are looking for future elections and are, therefore, beholden to Oregon’s public employee unions for financing. Their myopia is evidenced by the comments of Oregon’s Speaker of the House, Dave Hunt D-Portland, who according to the Oregonian stated:

“It’s a one-time deficit. Once we cut that [the budget], it all comes back into balance.”

As important as grasping the reality of a sustained period of economic difficulty is, grasping the reality of what is necessary to reduce the state budget to a level that reflects the ability of Oregonians to pay is what is required. The preferred solution by Kulongoski and Oregon Democrats is to cut services as evidenced by the recent “across the board” cuts implemented by Gov. Kulongoski. The sick and the poor took a hit of about $180 Million. The school children took a hit of about $240 Million. And the original proposal was to close five prisons and turn the criminals loose on an unsuspecting public. That’s it – the Democrat solution – make the citizens suffer, suffer enough so that they can raise taxes yet again.

In the process, Kulongoski and his Democrat colleagues have steadfastly refused to recognize the obvious. The single largest source of expenditures by state government is not welfare or social services – it is salaries, public employee salaries and benefits. And yet, while one might expect that a “nine percent across-the-board cut would result in a nine percent reduction in public employees, what Kulongoski implemented was a reduction of 0.3% reduction – 220 employees – less than the number of state employees who leave through natural attrition.

You simply cannot reduce Oregon’s budget by $2 Billion in the next biennium (more likely that number will be in excess of $3 Billion by the time the legislature meets) without reducing the number of public employees and making significant reductions in their salaries and benefits.

For instance, Gov. Kulongoski has added about 7,000 new state public employees since he took office. It is generally accepted that each state public employee costs about $80,000 per year, including benefits and payroll taxes. That means that Kulongoski has added $560 Million annually, or $1.120 Billion for each biennium through new hires. That does not include the twice-yearly salary increases and increased costs of PERS and healthcare for the other 72,000 state public employees.

So why do Kulongoski and the State Democrats choose to burden the elderly, the sick, the school children and public safety instead of dealing with the principle source of cost? It’s quite simple. The elderly, the sick, the school children and the general public don’t fund the Democrats’ campaigns. The public employee unions do and their demands take precedence in all decisions by the current state government.

If Oregon state government ever wants to get serious about dealing with its fiscal problems, it need only take three simple steps – none of which will impact the delivery of needed service to the poor and the elderly, nor impact school children, nor endanger the public safety.

Those steps are:

1. Reduce the number of public employees by the 7,000 that Kulongoski has added during the last seven and one-half years. Savings: $1.120 Billion per biennium.
2. Stop paying the employees’ share of PERS – six percent of their salaries. Savings $432 Million per biennium. (72,000 public employees X six percent of $50,000 annual salary X 2 years).
3. Require public employees to pay one-half of the costs of healthcare above $1000 per month. Savings: $345.6 Million per biennium. The figure is arrived at using 72,000 state employees and a low estimated cost of healthcare at $1,400 per month for two years.)

There are additional savings to be had by limiting public benefits (welfare, healthcare, and education) to those lawfully in the state. In 2008, the Federation for American Immigration Reform (FAIR), utilizing a Pew Research study of United State Census Bureau statistics, estimated that there are about 125,000 illegal immigrants in Oregon. FAIR estimated that these illegal immigrants imposed a cost of approximately $400 Million annually ($800 million for the biennium). With the crackdown on illegal immigration in Arizona and the virtual “sanctuary state” policies of Kulongoski and the state’s Democrat leadership, those numbers have surely grown.

The bottom line is that John Kitzhaber has already demonstrated in his eight years as governor that he cannot, or will not, deal seriously with these problems. The verdict is still out on Chris Dudley but one would hope that he will be more like Gov. Chris Christy of New Jersey than Sen. Chris Dodd of Connecticut.