I am Dennis Richardson, a Co-Chair of Oregon’s Joint Senate-House Ways & Means Committee, and I write newsletters during Legislative Sessions on issues of significance for Oregon citizens. Today’s newsletter focuses on Oregon’s ever-increasing burden from using long-term debt as a revenue substitute.
I begin by admitting a mistake I made in a recent newsletter. Only a month ago I stated, “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.” According to the recently released 2011 State Debt Policy Advisory Commission Report , I under-estimated the cost of servicing Oregon debt by more than $300 million.
In the upcoming 2011-13 State Budget, $940 Million will be spent from General and Lottery Fund revenues just to service Oregon’s “tax supported” debt. (Click here.)
Imagine… $940 Million…nearly ONE BILLION DOLLARS, that must be budgeted and paid “off the top.” Think of it…a Billion Dollars we cannot use to educate or provide health care for our children. A Billion Dollars we cannot use to protect our citizens or to provide care and food for our most vulnerable seniors. A Billion Dollars from the 2011-13 budget, siphoned off in payments on long-term debt. How did Oregon accumulate such a high amount of debt? I believe incurring such high and burdensome debt levels stem from Legislators who, in their efforts to do good with other people’s money, deluded themselves into confusing debt with revenue. And those debt payments must be paid for decades. It is sobering to realize that much of this debt will not be paid off until long after our grandchildren are grown, our children are retired, and we are dead and buried.
Revenue is the amount of money an organization receives during a specific period of time. In a business “revenue” is generated by the sale of products or services. In government “revenue” is the money received from taxes, fees, fines, penalties, investments and interest. Debt is not revenue. Debt is borrowing the use of someone else’s money and paying for the use with “interest.” Revenue is income and debt is an expense. Unfortunately, in Oregon the amount of money borrowed is not transparently included when creating a “balanced” budget. So long as the payments on debt are included as an expense, the actual amount of the money borrowed is not factored into the budget equation.
I am not saying all debt is bad. Borrowing judiciously to build or remodel a capital asset can make sense, much like when a family finances the purchase of a home. A family’s decision to incur long-term debt to purchase a home results from multiple considerations: the family must have a place to live; the income tax structure encourages home ownership with deductions for interest; home ownership, over time, generally enhances wealth in the form of home equity; and finally, a home’s purchase price often exceeds five years of a family’s annual income. A governmental entity such as the State is in a different category. Oregon has an annual “all funds” income exceeding $55 Billion. The State is perpetual and does not duplicate the same life cycles experienced by families. The State, therefore, in my opinion, should budget or save for most of its expenses—even capital construction projects. We have borrowed for too many projects, merely because the State has had the capacity to do so.
In short, legislative leaders in previous sessions were not content to merely fund their programs with other people’s (taxpayers’) money, they magnified their spending capacity with debt, and left I.O.U.’s in the till that must be repaid by us, by our children and by our children’s children.
Consider again just how much the Legislature’s borrowing spree will cost during the next two years. Above, I mentioned the figure of $940 million that will be paid–directly or indirectly–from income and tobacco taxes and lottery funds. If paying $940 Million is not shocking enough, when you add to it other debt, serviced from additional tax sources, the cost in the next two years increases by ½ Billion. Thus, the total “Net Tax-Supported Debt” payments due in the next two year biennium is likely to exceed $1.459 Billion. (Click here.)
How has this accumulation of tax-supported debt occurred and what can be done to stop the trend?
Legislative leaders over the years have repeatedly satisfied their need for additional revenue by using the State’s multi-billion dollar bonding capacity. As many of us have learned in our private lives, incurring debt and sustaining a life-style on credit is easy, like sliding into a hole. The hard part is climbing back out again. We must face reality; paying the State’s long-term debt consumes billions in principal and interest payments and results in draining precious funds away from crucial services and programs—sometimes for 20 to 30 years.
Stopping Oregon’s trend toward ever-increasing levels of debt requires a more rational approach to bonding decisions. We could create a Debt Evaluation Committee (DEC), composed of knowledgeable representatives from the public, the Executive and the Legislative Branches of government, along with BAM and LFO budget analysts. This DEC would be given the responsibility to evaluate every project proposed for bonding. This DEC would also be given the mandate to consider the alternatives to bonding, the costs of bonding, the goal of minimizing the amount and duration of all State bonding, and the lost opportunity costs that result from bonding. Such a Debt Evaluation Committee would remove from ill-advised or inexperienced elected legislative leaders the power to encumber future generations with millions of dollars of debt incurred, based solely on their personal or political preferences. Indebting Oregon taxpayers should not be a partisan issue.
Since time-tested principles of thrift have been ignored or forgotten by our political leaders, now is the time to reform such practices.
As the State Debt Policy Advisory Commission states in its Report, the 2011-13 biennium would be a
“…perfect time for Oregon to take a breather and consider the development of a comprehensive long-term economic development strategy around the future use of General Fund-supported debt.”
It saddens me to watch Oregon sink deeper and deeper into debt, while committing billions of taxpayer dollars in debt service payments for the next 15, 20 or even 30 years. Oregon is in a financial and economic hole and we cannot dig our way out by substituting additional debt for actual tax revenue generated by a growing economy.
Debt is not a substitute for revenue. Changing our attitudes and avoiding debt whenever possible, paying off debt as soon as feasible, and incurring additional debt only when approved by a new State Debt Evaluation Committee, are important steps toward restoring Oregon as a fiscally sound, economically vibrant and debt-free state.
If you agree, feel free to inform your elected representatives of your wishes to avoid additional debt and pay off what is already owed.