The State of Our State

Jeff Alworth

In their biennial review of state governments two years ago, Governing Magazine was phlegmatic in its appraisal of Oregon's performance:

"Whatever one may think of Oregon’s tax system, the state does a good job of managing it. Customer service efforts are good and analysis is top notch....  But all the high-tech bells and whistles in the world won’t really address Oregon’s central problem. It has created a revenue structure that contracts pneumonia when the economy gets a bad cold. And no matter how many vitamins you take, everyone gets a cold every now and then."

Many states were suffering along with Oregon, as the recession cut deeply into local coffers.  But overall, though Oregon's problems were severe, Governing gave the state props: "fairness to taxpayers" and "management of the system" were rewarded with three-star ratings (out of four).   The magazine decided, apparently owing to the state's long history of sober and sane budgeting, to give Oregon the benefit of the doubt.

Not any more.  The new assessment is out, and this year, the magazine doesn't like what it sees: 

"'Mess' is the right word. Underlying the problems that have left the state facing shortfalls year after year — just to continue funding services at current levels — is a dysfunctional tax system."

The report looks at four areas: money, people, infrastructure, and information.  Highlights from the report include the following findings (distilled from larger reports):

Money (Grade: D)
Oregon's forecasting is problematic, given the state’s heavy dependence on income taxes and the influences of citizen referenda. Oregon has not passed its budget on time in the last decade. The state is forced to pass continuation budgets every cycle. The budgets do not distinguish between annual fiscal years and the state passes about 100 appropriation bills. Oregon’s tax structure is terribly imbalanced. A lack of diversification has left the state facing continuous multi-million dollar shortfalls.

People (Grade: B-)
The state’s antiquated and ineffective human resources information technology system inhibits central and agency human resource management processes. Although several pilot programs exist at the agency level, workforce planning is conducted informally throughout Oregon. The good news is that only two percent of Oregon’s classified workforce is eligible to retire in the next five years, the lowest in the nation... Oregon does spend an above average amount in employee benefits, paying for all of an employee’s health insurance and promoting telecommuting and wellness seminars. Despite a below average amount spent on training by the central and transportation agencies, promotions are above average in the state.

Infrastructure (Grade: B)
Funding for maintenance activities has diminished somewhat, but not as much as the state’s fiscal woes might suggest. Deferred maintenance of the state’s assets, including transportation, is between 10 and 25 percent under-funded. Yet the state does an excellent job at coordinating capital projects. In 1997, the legislature created the Capital Projects Advisory Board to review all major construction and acquisition projects and lease projects prior to any agency’s submission of such projects to the budget office.

Information (Grade: B)
The state has a comprehensive strategic plan and reports biennially on progress towards achieving the vision outlined in that strategic plan. Agencies are responsible for collecting data on program outcomes and discussing how these outcomes affect progress towards statewide goals. While performance information was included in the budget in prior years, Governor Ted Kulongoski has taken steps to use the budget as a strategic tool, guiding policy by creating priorities. The state’s performance auditing function could be strengthened to provide greater oversight of agency performance.

This isn't particularly shocking news to anyone vaguely following Oregon's funding battles over the past couple years.  What it does reflect is the steady worsening of the state's problems and--more critically--the concomitant erosion of faith in the state's ability to put its house in order.  Governing Magazine gave us a pass two years ago.  They're unwilling to do so this time around.  The coda to the report is actually Governing's introduction, a warning of what this kind of mismanagment begets:

Cracks_2"There are some remedies worse than the disease," a playwright wrote more than two millennia ago. Publilius Syrus could have been referring to the current state of the 50 states. In order to weather an economic bashing that was not of their own creation, many states have cut back on their analytic capacity; allowed their roads, bridges and buildings to decay at an accelerating clip; resorted to financial tactics that only defer fiscal pain; slowed down or rejected positive initiatives in human resources and — in a few extreme cases — have so undernourished government that they risk malnutrition or worse.

While leaders in a growing number of states appear to believe they’re serving the public good by squeezing government dry, there’s little question that minimizing management carries a host of dangers that directly affect the lives of citizens. Unsafe, poorly maintained roads cause deadly accidents; mismanaged workers’ comp programs harm the health of corporations and workers.

  • Carol Hamilton (unverified)

    Press Release from OCPP relating to Oregon's revenue problem:

    Many of the nation’s largest, most profitable companies are paying little or no state income taxes, according to a study released today by Citizens for Tax Justice (CTJ), the Institute on Taxation and Economic Policy (ITEP) and the Oregon Center for Public Policy (OCPP).

    The study by CTJ and ITEP and released locally by OCPP, a Silverton-based research institute, looks at 252 profitable Fortune 500 companies who report state-level corporate income tax liabilities on their profits. Of those, nearly one-third (71 of the 252) managed to pay no net state income taxes in at least one of the years from 2001 to 2003. On average over the three years, the 252 profitable companies’ net state income tax payments were only 2.3 percent of their US profits, or about one-third of the 6.8 percent average statutory state corporate tax rate across the country.

    “For instance, Merrill Lynch, who operate in Oregon, paid no state income taxes from 2001 to 2003, yet they amassed $8.8 billion in pretax US profits those years,” said Charles Sheketoff, executive director of the Oregon Center for Public Policy.

    “Oregon voters and legislators should take note when big, profitable companies operating in Oregon escape their state income tax liability,” said Sheketoff.

    “Voters and legislators ought to be asking why Oregon should give profitable businesses more tax breaks like the research and development tax credit and the kicker,” he said. The latest projection is that profitable corporations will receive a $43 million kicker tax cut next year, with 90 percent of the tax cut going to fewer than four percent of Oregon’s corporations.

    Companies with a presence in Oregon, including Merrill Lynch, Sears, Southwest Airlines, Charles Schwab, IBM, New York Times, Marriott International, and Ryder were among the companies with no net state income tax liability in at least one year out of the three-year period included in the study. The companies have not disclosed whether they paid Oregon income taxes those years.

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    We have a tax system considered one of the most business friendly in this state, yet we have the 49th worst unemployment.

    What most people don't realize is that a state's tax system has nothing to do with economic vitality. Studies have been done over and over to prove this, yet it is so counterintuitive that people just can't accept this.

    If you want a strong economy, you have to support infrastructure: education, transportation, utilities, etc.

    We have a hard time selling tax revenue increases in this state because our current system is regressive. We ask low and middle income earners to anty up a higher percentage to the table than the top 1% highest income earners. We need to stop doing this.

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    Is an alternative minimum income tax a possible solution?

    I've vaguely suspected it's a matter of having enough legal staff to wrangle one's way out of the liability that one has (if one is a megacorp making billions in Oregon). But I can't be sure that that's the deal.

    I find it hard to believe that companies are just skipping out on their taxes, but if that's the case, it's an enforcement problem.

  • iggi (unverified)

    "I find it hard to believe that companies are just skipping out on their taxes"

    now that's funny...

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    Carol, Chuck is quoted in the Governing piece as well, and I'd hoped to include that in the blog--as shameless self-promotion. But it would have been a little too wordy. Glad you posted the release.

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    Same ol', Same ol'. Chuck and his think tank..all talk, no solutions.

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