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Oregon’s Unique Problems: We Can Fix Them March 25, 2009

Posted by FairSentencing in : Current News , trackback

The following is an editorial from State Senator Frank Morse :

The words of Sergeant Friday of Dragnet, the long-ago TV serial, come to mind, “Just the facts ma’am, nothing but the facts.”

While Oregon continues in an economic free fall, it is a good time to look at the facts. We all love our state dearly, and its uniqueness. However, there are some unique characteristics that are not so special right now and deserve an honest evaluation.

Uniqueness No. 1 — Initiatives and spending. While Oregonians treasure the right of initiative petition, the facts present a picture that many do not readily observe, namely the fiscal impacts of populist law making. Measures 5, 47, 50, 11, 66, and 99, all measures approved by voters and funded by the go-go economy of the 1990s, transferred to the Oregon Legislature the mandate to spend money. For example, where once the state funded 25 to 30 percent of K-12 education, it now funds 70 percent. In fact, nearly 50 percent of state discretionary spending at the end of the 2007 biennium was directly attributed to initiatives.

We now worry about funding Measure 57 of the last election, a legislative referral in response to the huge cost of the tough-on-property-crime Measure 61. How do we pay for it? Initiative petitioners incorrectly assume the state will have unlimited means to fund their initiatives.

And now the time is ripe for partisan finger pointing. Republicans look back to the “out-of-control” 20 percent increase in spending by Democrats for the biennium ending June 30, 2009. May I suggest we look back even further? Spending, beginning with the 1989-91 biennium, increased 21.2 percent. And then in successive bienniums, spending increased 17.3 percent, 20.5 percent, 15.9 percent, 18.3 percent and then 14.9 percent for the 1999-01 period.

The economy crashed in 2002 and spending decreased 4.2 percent in 2001-03. 2003-05 spending increased 5.7 percent, and 2005-07 increased 13.9 percent.

Are increases in spending the domain of only Democrats? No. Republicans, who controlled the legislature for most of the ’90s, have joined in the fray as well.

Initiatives have been the biggest spender and they have foreclosed spending on other critical services such as higher education, which ranks 44th in the nation in state support. Simply put, initiative petitioners want a free-wheeling initiative process but are loath to recognize their own hand in increasing spending.

Uniqueness No. 2 — Income tax. Oregon’s dependence on one single source of revenue is exceeded only by Alaska’s dependence on energy. What we have come to realize, all too painfully, is that the income tax has the greatest volatility of any method of taxation. In fiscal 2002, Oregon’s actual revenue declined 20 percent from estimated revenues, the largest decline of any state, save only for Alaska which depends on oil. What we know is that the income tax over-produces when times are good and under produces when times are bad.

Uniqueness No. 3 — Kicker. No other state has what Oregon has enshrined in the constitution, namely that when actual revenue exceeds by 2 percent or more the forecast revenue, all the excess is returned to personal taxpayers by check and to corporate taxpayers by credit on future taxes. The kicker does dampen the growth in spending that would arise from the extreme volatility of income taxes, but it has also preempted the ability to save for a rainy day.

In 2001 we sent back $254 million to taxpayers and then borrowed $450 million to rebalance the budget in 2003. Same song, second verse. In 2007 we sent back $1.1 billion and now have cut $855 million to rebalance the budget in 2009, an equivalent cut of 30 percent for the last four months of this biennium.

Then add a $3.0 billion and growing deficit for 2009-11, and is anyone asking, “Does this really make any sense?”

Throw the initiative, spending, income taxes, and the kicker into the pot, stir it and you get what we now have, a mess!

The problems are systemic and structural. Initiatives are promoted and passed without regard to how they will be funded, leaving funding gaps for the balance of public needs. Highly volatile tax revenues produce too much and then too little leading to boom-bust cycles. And the kicker, when combined with the pressure to spend on initiatives, precludes setting aside unanticipated good-time revenues for the bad times.

We are not without choices.

We must create a more thoughtful initiative process, not to deny access but to better inform voters. (SJR 11, HJR 17, SB 656 and HB 2845).

We must reform our tax code to lessen volatility, increase take-home pay, encourage investment that increases jobs, and increase revenue for the budget gaps caused by initiative spending. Tax cuts can be achieved by broadening the tax base through a sales tax, (HB 3269).

And finally, we must amend how we forecast revenue to create a mandatory savings rate from both personal and corporate tax revenues, with the savings going into a constitutionally dedicated Rainy Day Fund in an amount equal to 10 percent of the previous General Fund budget. This means changing the kicker, not abandoning it, (SJR 29).

Do we have the will to build a better foundation for Oregon? I certainly hope so.



1. Chris Fowler - May 7, 2009

Thoughtful, well spoken, and true words. Now how do we get it done?