Rep. Dennis Richardson: Economic Lessons for a Better Oregon

I serve as one of three Co-Chairs of the Joint Senate-House Ways & Means Committee. Our first order of business in this Session is to address a $163 Million shortfall in revenues needed to keep the doors open on key programs through the June 30th end of the current 2009-11State Budget cycle. Backfilling this shortfall will enable prisoners to stay in their cells, seniors to stay in their homes and children to stay in school to the end of the school year.

Obviously, using one-time money to Rebalance the current budget comes at a cost.  The millions spent to back-fill the current budget will prevent that money from helping to fund the next budget.

Today’s $163 million shortfall is in addition to the $1.1 Billion in expected tax revenues lost since we ended the June 2009 legislative session. Oregon’s Revenue Forecasts are released quarterly and each of the past ten revenue forecasts have been progressively lower. We anxiously await the release of the next revenue forecast on February 15th.

There is a reason why Oregon’s tax revenues are so low.  Our tax revenues are primarily based on income taxes and Oregon has one of the highest unemployment rates in the country.  Our State continues to be mired in a multi-year recession, and, as I sit in my Capitol office writing this newsletter, I am reminded of how quickly we forget.

It was only two sessions ago, in 2007, many short-sighted Legislators were dancing to the tune of “Happy Days Are Here Again.” The revenue forecast was rosy and State spending exploded by an additional 23% in a single two-year budget.

Back then I wrote in this newsletter:

While the 2007-09 budget was being crafted, like a voice in the wilderness, I reminded my fellow legislators across the aisle that a 23 percent increase in government spending in a single budget is unsustainable and will have dire consequences when the next recession occurs.

The budget makers would not listen. Revenue forecasts will not always be so rosy and with the next economic downturn the state again will be forced to slash education, health services and other budgets. The spending spree inherent in the 2007-09 budget confirms the Oregon Legislature learned nothing from the 2001-03 economic recessionand is destined to repeat the hardships it caused.


As I have stated before, our society seems to have lost its financial anchors regarding debt and interest. We seem to have forgotten that debt affords immediate spending gratification, but only with costly long-term financial consequences. Every dollar of interest paid on debt is a dollar that cannot be spent on our children’s education or other pressing needs from limited state resources. My children are now grown, but when they were young I repeatedly taught them general rules about debt, interest and the use of money. I wish our government budget makers would remember three of those rules.

1. Interest is what poor people pay and wealthy people earn.

2. Unnecessary debt is a shackle that enslaves people. Debt burdens the debtor with interest payments and interest is a master that never sleeps. The burden of Interest is constant. It never takes a day off and it always comes to claim its due regardless of how well-off or how poor the debtor might be.

3. Wise people avoid unnecessary debt like a plague. Whether it is a young adult or a state or national government, once in debt options become limited. An indebted person voluntarily becomes an indentured servant. Debtors are enslaved and debt is their master. Those in debt must always consider how they will make their payments before they can consider making life decisions such as going back to school for a better education, making a job change, or exercising their personal freedom in any other way that might impede their ability to make payments on their debt.

Since 2007, the Federal government has increased our nation’s debt by more than $3 Trillion, and Oregon has followed the same “borrow and spend” philosophy.

Back in 2007, the State of Oregon had $8 billion of gross debt and the biennial cost for debt service on Oregon’s tax-supported debt back then was approximately $400 million. By the end of the budget cycle, only four years later, Oregon’s approved debt will be $12.8 billion. (Click here)

The debt payments coming off the top of the 2011-13 State Budget on Oregon’s tax-supported debt will have grown by 50% to more than $600 million.

Regarding debt, back in 2007, the newsletter went on to say:

The State Debt Policy Advisory Commission states in its report that Oregon has a “maximum target ratio of 5 percent of General Fund revenues” for long term debt. Therefore, the Commission sets out that Oregon’s policy makers can continue to borrow hundreds of millions of additional long term debt without jeopardizing its credit rating.

The warning I want to make is that long-term debt is too often seen as a way to satisfy the immediate need for additional revenue – actual or perceived. By doing so, Oregon loses the money spent in debt payments required to satisfy those “immediate needs” for two or three decades. Thus, long-term debt results in draining funds away from crucial services and programs for a full generation.

Although debt, when used judiciously, can enhance a person or organization’s economic position, a trend to ever increasing debt load is a bad indicator for economic stability. Oregon’s trend for substantial increasing long term debt is alarming. (Click here.)

So, here we are in February 2011, with approximately 25% less tax revenue than would be needed to maintain the current service level of state government and our debt payments will consume more than $600 million of the meager revenues we will have.

Once again I will restate what has brought Oregon’s State Budget to its current economic plight.

We failed to learn important lessons about budgeting and spending patterns. It is time we learned (1.) to resist spending every dollar on new and expanded programs during periods of economic growth and high tax/fee revenues; (2.) to use economic boom-times to pay down debt and set aside substantial reserves; and (3.) to resist the temptation to increase the State’s long term debt load.

Only by disciplined “revenue-based” budgeting and “strategic” financial planning will our great State of Oregon be able to avoid the boom and bust cycles that have plagued us in the past. Our new Governor has expressed his willingness to rebuild the “house of Oregon.” TheLegislature must join with our Chief Executive and create a budget pattern for the future—one built on a long-term strategy for Oregon’s economic growth, a long-term strategy for outcome and revenue-based budgeting, and a long-term strategy for creating a world-class education system for our children and young adults.

It is time we learn these important economic lessons for a better Oregon.

  • Sickofit

    Another lesson: government is not a baby sitter, a nanny, or a parent. There is no need for 75% of the “services” Oregon’s state government supposedly offers those in “need”.
    Cut them and cut them out now.

  • Britt Storkson

    Rep Richardson: You legislators know where the waste and fraud is in government more than anybody else but I’ve never once heard even any legislator even propose ending waste and fraud. If you claim not to know where any waste and fraud is in government I can point many things. But you won’t do anything to end it and I’ll bet money on that.

    You also claim concern about our children and grandchildren being saddled with the debt. The debt is already have a negative impact in the form of a reduced standard of living for the middle class. Our children and grandchildren won’t have any problem with our debt. They simply won’t pay it.

  • Bob Clark

    I would like to see spending on the Department of Human Services and Oregon Health Authority frozen at last biennium’s level, and education spending lifted to include public school student population growth plus inflation (has been very little lately) since the last biennium. Also would like all renewable energy credits eliminated (BETC) and no funds for Portland Metro streetcars or light rail. This would be a good start towards limited government.

  • Rupert in Springfield

    >It was only two sessions ago, in 2007, many short-sighted Legislators were dancing to the tune of “Happy Days Are Here Again.” The revenue forecast was rosy and State spending exploded by an additional 23% in a single two-year budget.

    And this is exactly the behaviour that blows a hole in any argument that increased government spending during the recession now is sound Keynesian economics.

    I am not arguing that increased government spending during a recession is unsound policy. However I am arguing that in order to do that you need to contract government spending in good times so as to have the funds to do so.

    If you expand government in good times rather than save revenue so as to be able to spend it in bad times, thats not sound Keynesian economics, thats simply spending like there is no tomorrow.

    And no, the lack of constitutional amendment to establish a rainy day fund did not prevent the legislature from saving during the good times. They could have done so at any time. They just wanted to spend.

  • Ron Marquez

    …..”It is time we learned to resist spending every dollar”…..

    “We” already know that, Rep. Richardson. Our question to you is when can you definitively say the legislature has figured that out.

    …..”to use economic boom-times to pay down debt and set aside substantial reserves”…..

    Will believe it when I see it and a cursory look at the governor’s budget indicates we are increasing our debt load. When do the “good times” start ?

  • Jancascade

    The state does provide a lot of services they claim the public demands. I have often wondered if the public is really demanding these services or the SEUI is demanding more and more services that require more and more dues paying state workers?

    We need to get back to basics and get the state out of the charity business. The state is mandated to provide a set number of state services and to be a safety net, not a first provider of charity.

    We need a panel, not to study education, but to study the vast number of job killing regulations, taxes and fees. We need to get back to basic zoning to determine land use, not some planner’s pipe dream for twenty years into the future. Dump traffic impact studies for commercial & industrial zones. Set business free, sit back and watch jobs being created. The state depends on income taxes and there will be no new income taxes until we have new jobs.

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