Balancing Oregon's Books
Russell Sadler
“Why can’t the Legislature live within its means?”
It has become a Conservative mantra. It’s a good question that deserves a forthright answer. Self-styled Conservatives hijacked Oregon’s initiative and referendum to force their spending priorities on a reluctant legislature that is constitutionally required to balance its budget.
Consider: Three of the four major budget-busters of the last 15 years are initiatives written and promoted by self-styled Conservatives:
1990’s Ballot Measure 5 shifted billions of dollars in school costs from locally-raised property taxes to state-raised income taxes with no new revenue to pay for the shift.
1994’s Ballot Measure 11, imposing mandatory minimum sentences, quadrupled the number of inmates in prison without providing any new money to build and operate new prisons.
2004’s Ballot Measure 37 is a blank check written to development interests who can claim damages if zoning laws interfere with the most profitable use of their land no matter how incompatible that use is for the neighbors. Measure 37 provides no revenue to pay any “compensation.”
Only the Oregon Health Plan was approved by the legislature after lawmakers made arrangements in the state budget to pay for it.
While “conservative activists” like lobbyist Don McIntire and Kevin Mannix were forcing increases in state spending by initiative, their allies in the legislative leadership were reducing the states “means,” cooking the books by pretending these new costs didn’t exist and declaring fake surpluses so they could continue make “kicker rebates” to taxpayers. Then -- and here’s the “secret plan” revealed -- the legislative leadership borrowed the money to build and operate prisons and finance other government programs they could have paid for with the cash they gave away.
That is why the Legislature struggles to live within its means. And it gets worse.
During the last 15 years, the legislature gave about $1.3 billion “back” to personal and corporate income taxpayers in “kicker rebates.” During the same period the legislature borrowed about $1.3 billion to pay it’s bills and build prisons and other capital construction projects.
The collateral for the Certificates of Participation used to finance Measure 11’s prison construction and other capital projects is a claim on the State of Oregon’s future income tax revenues. The future has arrived.
The first large payments on this borrowing binge come due in next two-year budget period. The Legislature must pay a sobering debt service of nearly $167 million in the 2005-2007 budget period. That is why Gov. Ted Kulongoski budgeted less money for public schools. He has to make room for debt service on borrowed money that was spent over the last decade. And it doesn’t get better.
The debt service on this borrowed money in the 2007-2009 budget period is another $162 million. In the 2009-2011 the debt payments drop to $149 million. All these debt payments compete directly with schools, universities, the Oregon Health Plan and senior services for the state’s available income tax revenues. By the time the Certificates of Participation are paid off in 2029-2031, Oregon taxpayers will have paid $1.2 billion to borrow about $900 million for capital construction.
Now there’s nothing inherently wrong with borrowing to build things that will last for 30 or 40 years. You and I do that with our home mortgages. But the Legislature had the cash to pay for prisons and other capital construction out of its current cash flow. The legislative leadership of the last decade gave the cash away on “kicker rebates” by declaring capital construction costs “off the books,” then borrowing the money to build prisons.
The interest cost on this part of the Legislature’s borrowing binge is about $300 million, making those “kicker rebates” very expensive rebates indeed.
Like the homeowner who suddenly realizes the payments on his Mastercard are eating up a large part of every paycheck, the Legislature is slowly becoming aware of the enormity of its borrowing binge. State Treasurer Randall Edwards warned lawmakers and the governor their credit is tapped out. There can be no further borrowing against the state’s future tax revenues without serious damage to the state’s credit rating.
Gov. Kulongoski is right. Oregon does not need new taxes right now. But the state must keep all the money it takes in. Voters must stop allowing interest groups to raise state spending via initiative without insisting on some plan to raise the money to pay for it and self-styled “taxpayers crusaders” like Don McIntire and Kevin Mannix must be called to account for their personal responsibility in creating this spending binge.
Only then can the Legislature live within its means.
 |
More Recent Posts | |
Albert Kaufman |
|
Guest Column |
|
Kari Chisholm |
|
Kari Chisholm |
Final pre-census estimate: Oregon's getting a sixth congressional seat |
Albert Kaufman |
Polluted by Money - How corporate cash corrupted one of the greenest states in America |
Guest Column |
|
Albert Kaufman |
Our Democrat Representatives in Action - What's on your wish list? |
Kari Chisholm |
|
Guest Column |
|
Kari Chisholm |
|
connect with blueoregon
8:38 a.m.
Feb 20, '05
Russell
This piece captured all of the reasons why Kulongkowsi was forced to make the decisions he has made regarding funding public education in this budget round. You laid the blame at the doorstep of the Rebublican Party in Oregon, right where it belongs. An editorial in the Oregonian with similar comments would be more than welcome.
Pam
4:06 p.m.
Feb 20, '05
Pam... While Russell's work appears online here at BlueOregon, it also appears weekly in print in over a half-dozen newspapers across the state. (Though not the Oregonian.)
Rest assured - his message is getting out there.
4:06 p.m.
Feb 20, '05
p.s. Pam -- there's no W in Kulongoski.
4:23 p.m.
Feb 20, '05
Great post.
I moved to Oregon a month after voters passed Measure 5, and in the years since, voter-passed initiatives have been the central driving feature of our state's budget.
Measures 5, 11, and 37 all come with price tags that would make their passage in Salem politically difficult.
But part of the problem with budget busting ballot measures is that voters usually just don't believe the fiscal impact statements associated with each measure. Measure 7 (2000 'takings' measure thrown out by the courts)- with its multi-billion dollar price tag- fits into this category too.
Since all of these measures to varying degrees use anti-Salem, anti-Legislature messaging for their passage, the fiscal impact figures are quickly dismissed by McIntire & Co as scare tactics from 'those responsible for the problem in the first place.'
During the past cycle, the No on 35 campaign (jury limits for malpractice victims) fought efforts by the sponsors to claim fiscal savings from the proposal, but as time consuming as the fight was, it was to some degree an academic excersize. Again, for the vast majority of voters, the fiscal was just not a vote-determinate factor. Should be, but wasn't.
I don't think there's a lot of easy answers for this on the electoral side- and would love to be proven wrong. I think we have to attack and defeat harmful ballot measures with the arguments which give us the most traction. A measure's price tag- as counter intuitive as it sounds- doesn't seem to be one of them.
Feb 20, '05
Could we agree that Randall Edwards is really a Republican even though clothed in the trappings of a Democrat? Maybe he is just a chameleon, always favoring bonding to appease bond rating and bond peddling folks. Creative borrowing, regardless of the party affiliation of the recipients of those borrowed dollars is itself a problem. It acts like little more than a lever to multiply the effect of a political choice today into the future with a commensurate reduction in the choices available to future policy makers. Some of those choices are made directly and unilaterally by the state treasurer, some within his sole unreviewable discretion. I am all in favor of complying with the Oregon Constitution and doing away with the Certificates of Participation, which would require overruling a supreme court opinion; which incidentally might be clarified by the most hotly anticipated court decision. When does one recognize as an appropriation an expense that is to be paid in the future?
Feb 20, '05
How can one discuss Oregon's budgetary problems and not mention PERS?
10:11 p.m.
Feb 20, '05
We have a revenue problem, not a spending problem. Don't get me wrong, though. I agree the voters were sold a bill of goods on Measure 5 and wrongfully don't believe or don't worry about the fiscal issues (Measures 11 and 37) as Charlie Burr noted. And the Oregon Health Plan was NEVER fully funded - heck, it went into effect in February 1994 and then Kitzhaber and the 1995 Legislature enacted a series of measures that cut thousands from the plan, and its been downhill ever since, with voters twice approving tobacco tax increases to support the plan (and defeating a small tobacco tax as part of Measure 30) - but those measures never were designed to fully maintain the plan - that was just the political campaign rhetoric. In fact, they gave the voters the mis-impression that they (the voters) were fully taking care of the plan's finances. Not so. Today, the plan is dead, its just that folks can't seem to use that word.
Oregon's revenue problem is caused by the erosion of the corporate income tax and the erosion of the personal income tax, at the behest of the Leg and the voters. Russell is correct that the kicker made and makes no sense, especially because it prevents saving for a rainy day AND gives voters the false impression that the state has enough money. Recall that in September 2001 in the "close of session" economic and revenue forecast the state economist put the kicker at $254 million and the shortfall for the 01-03 biennium at $300 million. By December when the kicker checks were being mailed out the shortfall had grown to $700 million, and by the special session hell of 2002 it grew to $1 billion.
We need to put the income back into the corporate and personal income tax.
10:36 p.m.
Feb 20, '05
Two other points:
(1) Russell writes: "Self-styled Conservatives hijacked Oregon’s initiative and referendum to force their spending priorities on a reluctant legislature that is constitutionally required to balance its budget."
True. First, we kill the initiatives. We need to make it harder to get on the ballot, for both statutory and constitutional initiatives, and harder to pass them. Initiatives in Oregon are the single greatest reason we have weak (at best) political leadership in the Legislature and the Governor's office.
(2) Russell writes "Three of the four major budget-busters...Only the Oregon Health Plan was approved by the legislature after lawmakers made arrangements in the state budget to pay for it."
The Legislature didn't make arrangements to pay for it...All they did was pass a piddly temporary 10 cent tobacco tax to kick start the plan after it received Clinton Administration approval. Then voters were mislead to believe that they were fully taking care of it with two other permanent (or non-temporary) tobacco tax increases. And its not the OHP expansion of Medicaid to the working poor that busted the budget...if, and I mean if, you want to point a finger at Medicaid, recognize that long term care and the growth in serving the aged had a big impact on the Medicaid budget.
"Budget buster?" Knowing that the expansion population hit a peak of about 134,000 in August 1995 and then began a steady drop to the current approximate 40,000, I find it hard to put it in the "budget buster" category that Measure 5's shift in education funding or Measure 11's prison construction are in. Add to that the fact that the employer mandate was never implemented (and eventually repealed), the Oregon Health Plan does not deserve to be put in the same "budget buster" group as the shift in education funding and increased demands for prisons.
Feb 20, '05
I am usually in agreement with Chuck, but not on the matter of the initiative. I don't like many of the initiatives that have passed in recent years, but neither do I like many of the people who have been elected president. I do not support ending presidantial elections, or making it harder for candidates to get on the ballot, though.
We are not going to make significant headway democratizing Oregon with out campaign finance reform. We are not going to get significant CFR without the initiative.
Feb 21, '05
Tom -- What is left of the effect of any CFR if the speaker merely chooses not to voluntarily accept restrictions as a condition of the tax break accorded to donations characterized as political? The Secretary of State, or anyone in Oregon, is powerless to interfere with truthful speech about public figures and political issues. That is, there is an outer limit to the effectiveness of CFR's as a tactical weapon against disagreeable speech, unless it is free speech itself that is the target in which case the restrictions must apply to The Oregonian and blogs too. Oregonians, through the initiative process, cannot strip the First Amendment out of the US Constitution.
Measure 37 merely rolls back the clock on the laws to an earlier time -- for some – it does not eliminate all of the then existing laws.
The budget buster, for the poor the young and the lower and middle class, is the rising cost of housing. It effects everyone. If we really want to get serious we would end all the gimmickry associated with propping up home prices. I would, of course, have to assume that by Democratization the intent is to help the poor rather than engage in some misguided effort to use the power of government to extract wealth from one another. Even Chuck should be able to correlate the stable relationship between interest payment outflow from the state to our aggregate wage income, notwithstanding the price variability.
The way I look at Measure 37 is that it is rather ironic that the federal and state programs dedicated to artificially boosting home prices are used to maximize the potential claims that people might make for compensation. Strip away the home price boosters and many of the claimants will simply go away. Radical huh? Imagine what the value of the homes would be if Oregon tried to appraise the value of the potential developments, for purposes of Measure 37 claims. under the assumption that there was no federally sponsored secondary market for mortgages and no mis-named affordable housing programs. It is an analytical exercise that I have wanted to see for a long time. (Of course the tax man would object to a real market driven price in homes because it would disrupt his borrowing agenda, and too many voters like the illusion of real value.) The state regulations governing appraisers are tailored specifically to accommodating the interests of the secondary market; and if the appraisals are not for the purpose of obtaining loans that will go into the secondary market then the appraiser can shot from the hip without the feds sticking their nose in the way of real appraisals.
Feb 21, '05
I just have to remind those here who hate ballot measures 5, 11 and 37 that they exist because the politicians in this state refused to address big problems - escalating property taxes, increasing crime, and broad abuse of private property rights. When problems on that scale are left unaddressed, people will do something about it. I don't know the answer to the resulting budget crisis, but I can guarantee you that just about any Oregonian would rather see a criminal locked up in jail than pay for public art; would rather see home ownership kept afordable through reasonable property taxes than have multiple principles, vice principles, and teachers' aids in schools (I went to a school where there was one principle and no teacher's aids - if the teachers wanted help grading papers, they could hire a student to work for them an hour or two a day at student wages); and would rather see new land use laws suspended than lose their property rights and property value. When legislatures base funding decisions on trees instead of forests (i.e., pet programs or special interests instead of the overal good of the state) people rebel in ways that become costly.
7:34 a.m.
Feb 21, '05
Ron,
Randall Edwards is simply doing a non-partisan job as State Treasurer. Financial markets are financial markets and if you want to borrow money, there are rules you have to play buy.
Oregon's collateralized debt -- General Obligatioon bonds backed by the promise of a proeprty tax levy if no other revenue is available -- is not particularly high because the state has a constitutional debt limitation and any pledge of the state's "full faith and credit" must be approved by the voters.
But Certificates of Participation and Oregon Appropriation bonds have no real collateral. They do not pledge the "full faith and credit" of the state. There is only a moral obligation to pay off these bonds. There are practical problems if the state doesn't, so they are paid with income tax revenues and compete with everything else in the budget.
It is this latter form of credit that Edwards warns lawmakers and the Governor is tapped out. Oregon's revenues are increasingly unpredictable because of the aabuse of the initiative process. The bond markets know this and will not risk anymore reckless uncollateralized borrowing to finance the state's operating expenses.
Oregon's present Treasury Department was designed by the late Bob Straub in the early 1970s. Straub was a fine Democrat and he arguably did more for Oregon as Treasurer than he did as governor. Edwards is a good custodian of that system, but it cannot insulate the state from reckless legislative decisions like borrowing $450 million to finance state government operations after legislative conservatives helped defeat two surtax measures that would have balanced the budget. We are still paying on THAT borrowed money, too. But that's another column.
1:15 p.m.
Feb 21, '05
I agree with Becky.
The conservatives have not done anything with the initiative process that liberals or progressives couldn't do if they wanted to. The conservatives tapped into long simmering issues and problems that Democrats ignored for too long. If you don't come up with an alternative solution to a problem, voters will take whatever bad solution is presented over the status quo.
The underlying arrogance, whining, and comtempt for voters that is weaved throughout Russel's essay is also a primary reason a lot of middle class voters have abandoned the Democratic party.
Republicans have become very good at creating issues that divide Democrats - i.e. pitting working class folks' economic interests against their social conservatism, and getting them to vote on social issues.
Check out this article in this week's edition of The Economist for an example of a property rights issue that divides the Republicans' coalition rather than the Democrats.
Feb 21, '05
The moral obligation to pay, on a Certificate of Participation, quickly turns into a club in the hands of a bond rating entity for other borrowing needs where the full faith and credit might or might not be pledged.
In 2003 the state treasurer argued that he could save a fraction of a percent in interest by using full faith and credit bonds to cover supposed PERS obligations rather than using Certificates of Participation. The money he borrowed, post-measure 30, was a sum that he had sole discretion over the review of the absurdity or non-absurdity of actuarial reports, and this was for full faith and credit bonds. The payment on these is not a moral pledge but could be enforced through a court order to the legislature by a bondholder. Yet, the recognition of the appropriations, the expense, is treated in like manner to that of Certificates of Participations which survived a legal challenge based on the appropriations power precisely because legislative appropriation at time of bond payment was optional, moral only. If I were to confine my present concern to that of transparency I would demand that the irrevocable commitment of several billion dollars of bond proceeds be called a General Obligation revenue source and that the legislature has “appropriated” that sum, consistent with the Oregon Constitution, and then delivered it to PERS. There is no record of that accounting, and yet folks whine about reduced budgets when in reality those budgets have been increased to the tune of many billions of dollars. The per student costs are out of wack because they fail to acknowledge those extra budget dollars.
The pool of borrowed PERS funds, while the commitment to repay them is not optional, the transfer to PERS is optional. Some of the PERB's February 18 call for higher employer rates means that the schools, like in PPS, will dip into their fund that never was been appropriated by anyone other than the state treasurer. The limbo dollars remains up for grabs, by the legislature or a judge.
Your post is the closest thing I have seen “in the news” that closely resembles an on-point discussion of the legal issues at the heart of both PERS and your presentation of the discovery of a secret deal on the kicker refund. They are the same really. My beef is that the lawyers and bond folks that know this stuff like they know the back of their hand make deals with one another, Republican with Democrat, behind closed doors, to deceive the layman legislator and public alike. The state treasurer, on advice of counsel, could refuse to participate in the charades.
Two cases of interest might be, Sprague v. Straub, 252 OR 507 (1969), and Kane v. Goldschmidt, 308 Or 573 (1989). The 2003 PERS modifications were structured to try to skirt around these two precedents, all the while leaving in legal limbo the borrowed dollars that had already been delivered to PERS, sort of delivered but not really, not yet.
I had asked a judge for a remedy that merely demanded the return of full faith and credit bond money back to the legislature so as to comply with the appropriation provision of the Oregon Constitution. If it was the legislature's will to give the money to PERS then they could simply make the appropriation, from the bond proceeds. Is this not your point, as to Certificates of Participation, of the effect on the kicker refund? My hat is off to you for digging deeper into the roots of a rotten system of back room deals.
Feb 21, '05
Oops .. I intended post-measure 29 rather than post-measure 30 above.
Feb 27, '05
Russell.
Great piece.
As for the age of the average log, it ain't 60. It was 50 and dropping in 1996, according to Gary Lettman of ODF. Most stumps I count rings on now in the coast range are 25-35 years old.
Thanks again!!
<h2>Tom</h2>