How States Are Raising Revenue Without Raising Taxes
By Representative Dennis Richardson.
Last month’s newsletter, “Oregon’s Revenue, Fees & Debt: Cycles for Boom & Bust,” I graphically explained how the Oregon legislature’s 2007-09 budget will consume $2.9 Billion in additional forecast revenue while incurring an additional $2.6 Billion in long term debt. Such inflated spending is like a hot air balloon waiting for the first pin prick of an economic downturn.
I believe the downturn of the housing market, the collapse of the sub-prime mortgage lending industry and the jittery stock market are multiple pins aimed at Oregon. Even though Oregon’s 2007-09 budget represented a 23% increase in spending, there never seems to be enough money for our government’s appetite. And Oregon is not alone.
I recently attended the annual meeting of the National Conference of State Legislatures (NCSL). More than 9,000 Legislators and staff members from 50 states, American territories and foreign countries met to discuss common concerns and potential solutions regarding state government.
Raising more money for state government was a key topic. Several states are studying innovative ways to generate more state revenue in an era when taxpayers are unwilling to increase taxes. I believe all citizens should pay a fair share of taxes to fund good government, and I also believe Oregon taxpayers should not be asked to pay additional taxes until our government ensures its current revenues are being spent efficiently, effectively and economically. This requires transparency, performance evaluation and a willingness to reform government where appropriate. It appears the majority of Oregon voters agree, since they have repealed by Referendum (Measures 28 and 30) the last two major tax increases passed by the Oregon Legislature.
Since tax increases are unpopular and since Oregon’s leaders have been looking for additional ways to generate revenue, we can be forewarned by what other states are doing to increase their states’ revenues without raising taxes. Four examples follow: Virginia, Pennsylvania, Indiana and Alaska.
Virginia””Regional Tax Collectors & Traffic Fines.
Virginia legislators have felt the severe political consequences to legislators who voted for tax increases. To avoid such voter backlash its legislators have a two-pronged approach to raise more revenue:
First. Virginia proposes creating two “regional taxing authorities,” and let them raise taxes. The goal is to distance elected officials from the tax increases. Virginia hopes voters will not to blame their elected officials for tax increases imposed by non-elected bureaucrats.
Second, Virginia expects to raise more than $63 million extra dollars by substantially increasing traffic fines on problem drivers. Drivers who receive a certain number of driving citations within a set period of time, move into a “problem offender” classification. Each subsequent traffic infraction will thereafter result in very high “enhanced” fines for these problem offenders.
Pennsylvania””Gaming, Toll Roads & Debt.
Pennsylvania Governor Edward G. Rendell promised a $1 Billion property tax reduction by approving Slot Machines at 14 Pennsylvania locations. The Governor intends to use the slot machines to recapture for Pennsylvania the gambling money now being exported to Atlantic City and Las Vegas. Governor Rendell emphasizes the benefit of property tax decreases, yet fails to address the cost to Pennsylvania’s poor who can least afford to spend their family’s milk money on slot machines. Regardless of who is playing the slots, they are paying big jackpots to the state treasury. A Pennsylvania Revenue Department Report states Pennsylvania slot machine gaming brought $156 million in revenues for the month of July. Thus, Pennsylvanians will spend $1.9 Billion this year at 14 gambling venues.
In addition to legalized gaming, the Pennsylvania Governor and legislature are seeking federal permission to make Interstate 80 (New Jersey to Ohio) into a toll road. The state plans to fund $1.1 Billion for road, bridge and on-ramp improvements from tolls collected on the Interstate. (I guess it can no longer be called a “freeway.”)
Finally, Pennsylvania, one of the original American states, for the first time has approved funding government expenses with long-term debt.
Indiana””Leases The Indiana Toll Road To Foreign Consortium.
On June 28, 2006 Indiana deposited $3.8 Billion into its State Treasury as payment from an Australian-Spanish consortium to lease the Indiana Toll Road (ITR) for 75 years. Cintra-Maquarie added the ITR to 40 other toll facilities it owns or manages around the world–including the Chicago Skyway. The ITR’s lease agreement is so detailed it even states how long the Leasee will have to fill a pot-hole after a report is received. Indiana Governor Mitch Daniels and the Indiana Legislature approved the lease after determining Indiana was losing $16 million per year by operating the Indiana Toll Road itself. Although leasing a toll road to a private consortium is controversial, Governor Daniel’s innovative approach for improving Indiana infrastructure appears to have achieved positive results for Indiana’s economy. From an article on Governor Daniels’ “Major Moves Highway Plan“ we read the following:
“Major Moves is praised as the “jobs bill of a generation and is anticipated to employ tens of thousands of Hoosiers directly on highway projects and in industries that expand or locate new operations in the state. In July 2006, Honda Motor Company announced Greensburg would be the location of its newest plant. The $500 million plant will employ nearly 4,000 people. The company cited Indiana’s commitment to infrastructure as one of the deciding factors in their decision.”
Time will tell how Cintra-Maquarie will be able operate the ITR profitably, when the State of Indiana lost millions on it every year. Critics of the ITR lease warn of substantial increases in ITR toll fees. In fact, the provisions of the lease enable toll fees to be increased annually by the greater of 2% or the rate of inflation (C.P.I.). Advocates of the ITR lease counter that those who prefer not to pay the tolls can use alternative routes that will remain toll-free. As mentioned above, Cintra-Maquarie purchased of the Chicago Skyway””which connects to the Indiana Toll Road. For readers who want further information on privatizing toll roads see “The Chicago Skyway Sale, An Analytical Review.”
Alaska– Hoping for Additional Oil-Related Revenues.
Alaska is a unique state. Fifty percent of its population live within 30 minutes of one city, Anchorage. Eighty-five percent of Alaska’s state revenue is generated from oil revenues. Each year $1,500 is paid from Alaska oil revenues to every Alaskan who has lived in the state for at least two years. Unfortunately, Alaska’s oil revenues are decreasing by 7% annually and this decline in oil revenues will continue unless new sources of oil-related revenue are created. One plan is for construction of a large natural gas pipeline, but with the Arctic National Wildlife Refuge (ANWR) debate still ringing in Alaska’s ears, it knows there will be no quick fixes to its declining oil-related revenues.
Fortunately, Alaska has $38 Billion invested in its “Permanent Fund,” which generates interest income for its coffers. In addition, it gains some “gaming” revenue from dog sled and other arctic sport competitions. Alaska learned from Ben Franklin the principle that a million dollars saved is a million dollars earned. So, to cut escalating state retirement fund costs Alaska recently changed its public employee retirement plan from a Defined Benefit (DB) to a Defined Contribution (DC) plan. The DC plan enables its employees to have reasonable and portable benefits, while enabling the state to provide to its employees an affordable and sustainable retirement benefit plan. The DC retirement plan more closely aligns Alaska’s public sector plan with the vast majority of retirement plans available in the private sector.
From the above revenue strategies we see the diverse and innovative ideas other states are using to deal with their financial situations. Suffice it to say that over time the costs of providing government services to citizens continually increases at a rate higher than the increases in tax-based revenues. Every family knows that when costs go up, income either has to increase or spending has to be prioritized and restrained. All states, including Oregon, must eventually come to the same realization.
In conclusion I say again, the citizens of Oregon deserve to know that our state’s current revenues are being spent efficiently, effectively and economically before our elected officials seek additional revenues””whether from taxes or otherwise.