Deconstructing the State Budget Myths

When Oregon’s state legislature meets in January, one of the biggest issues it will tackle is the current $3.5 Billion shortfall in the state’s general and lottery funds budget. Oregon’s mainstream media keeps demanding that the Republicans identify the programs that they will cut in order to balance the budget. And Governor Kulongoski continues to wax ignorant about how people must change their expectations about what their government provides them.

The problem with this is that it is mostly hot air blown across a pile of bat guano. Once the myths of mainstream media and political demagogues are debunked, one can understand the solution is neither difficult nor draconian.

Myth No. 1. There is a $3.5 Billion budgetary shortfall. No there isn’t.

The peculiar way that the state legislature deals with the budget assumes that every program will continue unabated adjusted for inflation and growth in demand. It assumes that every public employee will continue and (s)he will receive two raises per years plus increased costs for healthcare insurance and the Public Employee Retirement System (PERS). And it assumes that the state will fund every federal unfunded mandate and/or provide matching funds for every federal partially funded mandate.

According to the Legislative Fiscal Office (LFO) the General Fund and Lottery Funds budget adopted by the legislature for 2009-2011 was $15.848 Billion. In order to continue every program unabated and fund every public employee’s two raises annually plus increased benefits cost is projected to cost a little over $17.1 Billion. So the fact of the matter is that of the $3.5 Billion budgetary shortfall, $1.3 Billion represents increased spending.

Of the remaining $2.2 Billion, a large portion of that represents an increased number of state public employees. Since the beginning of Gov. Kulongoski’s last term, while private industry was sustaining a lost of 160,000 jobs, Kulongoski increased the number of state employees by 6,200. The Oregonian uses the figure of $80,000 as the average annual cost of state public employee ($50,000 in salary plus $30,000 in benefits and employer payroll taxes). I think that figure is about four years old and should be updated but let’s stick with that number. The biennial cost of Kulongoski’s hiring binge at the behest of the public employee unions is 6,200 employees X $80,000 cost X 2 years or $992,000,000 – call it $1 Billion.

Now the $3.5 Billion shortfall is only $1.2 Billion – less than seven percent. A figure that is easy to deal with.

Myth No. 2. You have to cut programs to balance the budget. No you don’t.

There are quite a number of “programs” that should be cut simply because they are inappropriate for government to undertake – particularly in a time of fiscal constraints. Start with the state funding for Oregon Public Broadcasting (a decidedly left-leaning media outlet) and move right through to the various advocacy groups (women, minorities and economic strata). The idea that taxpayer funds should be used to promote or support political advocacy is abhorrent. In the scheme of things, the amounts to fund these are mostly chump change but they are used to promote political agendas and that is just wrong.

Only someone devoid of any knowledge of how a business operates (the mainstream media and most liberals), or someone intent on making political points ahead of common sense (most of the Democrat leadership) would suggest that a program needs to be cut in order to reduce spending. The point here is that you reduce the cost of delivering services well ahead of any conversation about reducing services. And in that regard there is a lot of fat to be trimmed.

For instance, let’s assume that after terminating the excess 6,200 public employees that Kulongoski has hired in his second term there are 73,800 state public employees, each costing taxpayers approximately $80,000 per year or $160,000 per biennium. That’s a grand total of about $7,380,000,000 per biennium in salary costs (based on the average salary being $50,000) and $4,428,000,000 in benefits and payroll taxes. About three years ago, Gov. Kulongoski gave state public employees a gratuitous five percent raise – a raise that was not bargained for and was in addition to the two raises that public employees already get each year. (Basically the raise was given to maintain the public employee unions support for the 30-35% raises he gave to several of his administrative heads.) Reducing public employee salaries by five percent would reduce recurring biennial costs by $369,000,000.

The statutes authorizing the Public Employees Retirement System contemplated that each employee would contribute six percent of his or her salary. Public employees have not made the contribution in nearly two decades – the state has paid it for them, including for Governor Kulongoski. Requiring state public officials and employees to make there own six percent contribution to PERS (just as the law contemplated) would further reduce biennial costs by another $442,800,000.

And finally, healthcare coverage for state employees varies between about $1600 and $2000 per month. That means, for the 73,800 public employees, Oregon’s taxpayers pay about (let’s use the low end of $1600 per month) $2,833,920,000 per biennium. In the private sector virtually all employees must pay a portion of their healthcare premiums – premiums that are substantially lower than the gold-plated healthcare coverage provided to public employees. If the public employees were required to pay the cost of healthcare coverage above $1200 per month, that would mean an additional cost reduction of $708,480,000.

There – that is a biennial cost reduction of $1,520,280,000 by simply treating public employees like private sector employees

I told you that this wasn’t that hard.

Myth No. 3. All government programs are equal. The one thing that Gov. Kulongoski’s “reset cabinet” got right is that there must be a change in the expectations of what government provides. In other words, while Oregon government has grown into the “nanny state”, the real purpose of government has largely been lost in the excesses of growing government dependency.

The fundamental purposes of government are relatively few. First is public safety; and, no, that doesn’t mean wringing your hands about whether children should eat Happy Meals at McDonalds. It means that there needs to be an adequate police force, judicial system and prison system to protect citizens against those who would do them or their property harm. A part of that responsibility includes creating and maintaining a dispute resolution system to resolve competing demands of its citizens.

Second, there needs to be a public education system that provides an opportunity for children to achieve success in a global economy. By all accounts Oregon’s education system, having been run by the teachers unions for the last two decades, is failing. It isn’t a lack of money that is the cause. Rather, it is social experimentation and union work rules that have contributed to the decline in both academic achievement and graduation rates.

Third, there needs to be an adequate transportation system focused on providing efficient transportation for people and goods; and, no, that doesn’t include light rails, trolleys and trams constructed and maintained at exorbitant costs for a small percentage of the traveling public.

Beyond those three, there are a variety of “nice to haves.” Most social programs fall into this category. To the degree that citizens can afford to fund these programs they should follow the examples of private charities and strive towards delivering in excess of 85% of their funds to the targeted beneficiaries – unlike state government which usually delivers less than 50% to beneficiaries, the remainder being eaten up in bureaucratic excesses.

To paraphrase the ruthless Rahm Emanuel, never let a crises go to waste. Oregon’s current economic crises is an opportunity to correct some of the abuses fostered by a succession of Democrat governors on behalf of the public employee unions and an opportunity to reprioritize the legitimate purposes of government. But don’t hold your breath – John Kitzhaber is not going to make any waves as to either opportunity.