Takeaways from Yesterday’s Oregon Economic and Revenue Forecast Testimony, Including: It’s the Economy, Stupid! and the Need for a Time Machine
It’s not the Watergate hearings, but it’s still interesting stuff for those of us who care about Oregon’s economic and fiscal situation. It’s the quarterly meeting of the Oregon House and Senate revenue committees, where the state economists present the quarterly economic and revenue forecast.
Yesterday’s hearing lacked much of its usual suspense, given that last week the Governor braced us for more bad news on the revenue front. So the $377 million revenue shortfall this biennium announced yesterday did not come as shock.
But as is often the case, the hearing yielded interesting information. We learned, for example, that we are once again on the fiscally irresponsible road of automatically spending unanticipated revenue. According to the latest forecast, right now Oregon is scheduled to give away $42 million to profitable, and mostly-out-of-state, corporations in the next budget period, even as the legislature will face a huge revenue shortfall and will face decisions to slash schools, public safety and health and human services.
We also received confirmation from state economists Tom Potiowsky and Josh Harwood of the following: (1) revenue would be even lower but for Measures 66 and 67; (2) Oregon’s predicament is not unique, as 40 other states face revenue shortfalls, and (3) it’s the national and international economy, stupid!
Below is a transcript of important excerpts from the hearing yesterday on these points, (with the “time” in the audio file noted, available here noted).
On the importance of Measures 66 and 67:
(45:20) Harwood: It’s safe to say that without Measures 66 and 67 we would be in absolutely lower level of revenue than we are now.
On whether people could have moved out of state to avoid paying Measure 66 & 67 taxes this past April 15:
(54:14) Q. So, with regards to that timing, to the extent that there are were location decisions that may or may not have been made, in order for there to be a change for the 2009 tax year, an income tax filer would really need a time machine, and not a U-Haul, in order to change their tax liability, is that correct?
A. Potiowsky: Mr. Chair, Representative Baily, I think that’s yes.
On “it is the global and national economy, stupid!”:
(59:35) Q. “I also heard you say that 40 states have these budget shortfalls. We’re certainly not alone in a drop in personal income tax collections. So certainly Oregon, like the rest of the country, is moving along in pretty uncharted waters that may get pretty difficult to project. And so of that might be to use a really, really overused term, “It’s the global economy, stupid.” Is that, would that be accurate -- we’re being influence by national economic factors?
A. Potiowsky: Mr. Chair, Madam Chair, Representative Gelser: Yes, there is not an Oregon mortgage rate that we can set that’s different than any other state. I mean, it is the financial markets and conditions that influence all those factors. Our exports levels that we have in the state, where manufacturing exports quite a bit. Yes, so it’s global and national, really basically push us around.”
More on “it’s the global and national economy, stupid!”:
(104:48) Q. “I need some clarification of some recent questioning, line of questioning, where I got the sense that we’re justifying Oregon’s situation to global and national effects. But all states — how do I couch this? It isn’t just national and global effects. Obviously global is doing better than nationally. But there are states that are able to balance their budget, there are states whose unemployment figures are going down, there are states whose income is going up. And, so it isn’t just Oregon responding to national and not having any choice on how to respond to it. It isn’t just national economic factors that are affecting Oregon. Or did I hear the line of questioning such that Oregon can justify its economic crisis on national and global factors?
A. Potiowsky: Mr. Chair, Madam Chair, Senator Telfer: It’s sort of a two-part aspect, short-term and long-term. Now, short-term, what does your economy look like? In Oregon, we’re pretty much a state that makes things. And durable goods manufacturing tends to be much more volatile through the business cycle than, say, a North Dakota, which has a little bit of a financial aspect, but a lot of farming. And they have the lowest unemployment rate in the country. Now, I don’t know of any laws or something that North Dakota changed in order to get that unemployment rate down or what they did necessarily to their budget. So a lot of it depends on what type of localized economy do you have that is influenced by national and international conditions. So in the short-term, in my mind, and especially a state like the size of Oregon, it’s hard for us to pass necessarily, I would say, a law or a spending package that’s going to be able to push back on any these global and national influences — in the short-term.
Longer term, is this a desirable place to do business? Is there transportation capabilities? What is the education scale of the work force? Energy availability. Those things over time —a longer period — can, I think, be influenced by state governments.
Q. So, I’m hearing that we as legislators, other than balancing the budget, ought to just sit back and wait for the nation to pick up because there’s nothing we can do to improve our economic situation?
A. Potiowsky: Mr. Chair, Madam Chair, Senator Telfer. No, not at all. There are things that you can do to, for example, there are programs to help the unemployed. For example, to try to get them through this rough time. There are other areas that you possibly can do investments today that will also help the economy into the future. They may not immediately help today. And you have a constitutional duty, right, to balance your budget. And so you have to figure out the hard, hard job of what is the best way to do that, that in turn will not cause a longer term harm on the economy.
On “Oregon is not uniquely in trouble; 40 other states confront revenue shortfalls.”:
(1:11:51) Q. And just one quick follow up, Mr. Chair. So If I heard you correctly, 40 other states have revenue shortfalls. And like us they will need to balance their biennium, their budgets, by the end of their budget cycles, just as Oregon will have a balanced budget.
A. Harwood: Mr. Chair, Madam Chair, Representative Gesler. To the extent that they have similar balanced budget amendments, balanced budget requirements, yes. I mean, there are nuances with every state, depending on what’s the debt load, their capacity of moving stuff around. But certainly, Oregon is not unique in its budget situation.
The testimony by the non-partisan state economists should dispel the confusion or misinformation surrounding the tax measures and Oregon’s fiscal and economic reality.
Chuck Sheketoff is the executive director of the Oregon Center for Public Policy. You can sign up to receive email notification of OCPP materials at www.ocpp.org.
By Chuck Sheketoff
Aug. 27, 2010
Posted in open discussion.
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Aug 27, '10
Should and will are two very different things. Some people insist on remaining ignorant (or stubborn).
One of the arguments that my friend Mr. Allen Alley is making is that since the state economists couldn't determine whether the amounts collected by 66/67 were on target that we the citizens had been lied to in the voters pamphlet.
Your counterpart at the Cascade Policy Institute insists that the drop in revenue for the state since the December? forecast is on line with their pre-election estimate of the negative effects of M66/67. Therefore M66/67 is the reason for the revenue drop regardless of what is happening in the other 40 states.
And these are two of the more intelligent members of the opposition.
Aug 28, '10
"And these are two of the more intelligent members of the opposition." -- not Cascade.
Cascade (Pozdena and Fruits) claim causation...there's just as much causation with the tax measures as there is with the mere publication of the prediction. For instance, one of the impacts they site in their prediction is that people will leave Oregon. As noted Thursday, you'd have to have a time machine, not a U-Haul, for that to have happened and had an impact.
It isn't ignorance..it is stubborn idiology.
Aug 29, '10
Where personal and corporate income is concerned, many taxpayers don’t need a U-haul to escape Oregon taxes, just a good tax accountant. Consequently, I think both proponents and opponents of 66 and 67 probably overestimated the increase in tax revenues they would cause (yesterday’s report was silent as to the amount of the increase, but only an idiot would question Harwood’s judgment that 66 and 67 will increase revenue). By the way, once the corporate kicker is in effect, recognizing corporate income in Oregon (rather than some other state) becomes a lot more attractive proposition.
Aug 28, '10
Chuck - thanks for the "Readers Digest" version of the testimony. (Especially for those of us that cannot or are not allowed to, attend functions such as this, even if it's on our own time...) It's a lot to digest but all relevant info to have access to.
John - I would submit that one of the problems of accurately determining the effects of M66/67 is that corporations do not all file calendar year tax returns, like most of us meer mortals (individuals). Plus, I would hazard to guess individuals may be neglecting their personal returns, as well, since they may be overwhelmed trying to get by. Filing tax returns generally takes low priority for some folks and that is exacerbated when times are tough.
Aug 28, '10
How can Oregon support economic growth in the short term?
Support living wages so that the consumer's balance sheet is on par with the business world's balance sheet. You can't have a strong business community without financially strong consumers.
Bring down the cost of health care so that the consumer can earn more money. Health care costs eat away at wages indirectly and make our products less competitive. Oregon can introduce a single payor system.
Prepare kids better for college. The unemployment rate for someone with a master's degree is far less than for someone that only has a high school diploma or GED.
Taxes show a low correlation with economic activity because tax revenues get pumped right back into the economy. Change government to pump faster. Pay government workers weekly and collect revenues monthly instead of quarterly.
Aug 29, '10
Chuck, I don't agree with your reader's digest version on point 4. The answer to the question clearly indicates that Oregon's economy is more vulnerable to economic cycles because of our mix of industries.
To explain our current condition only on the global and national downturn makes it far too easy to avoid the longer term structural reasons that we are more prone to deeper and longer bouts of unemployment and resulting revenue shortfalls.
Aug 30, '10
I think Potiowsky did a great job helping us dispel the BS that our problem is spending. And he did a good job telling Senator Telfer that the claims by politicians that all they need to be allowed to do is create jobs is also b.s. I wish he would have thrown in "creating a better revenue reserve" to his list of things Oregon lawmakers can (and should!) do. But the question and the point was clear - our predicament is caused by the economy turning sour, not decisions by Democratic governors or legislators.
Aug 30, '10
Mr. Potiowsky said "And durable goods manufacturing tends to be much more volatile through the business cycle than, say, a North Dakota, which has a little bit of a financial aspect, but a lot of farming. And they have the lowest unemployment rate in the country. Now, I don’t know of any laws or something that North Dakota changed in order to get that unemployment rate down or what they did necessarily to their budget.....
What does North Dakota have that Oregon doesn't? A State Bank....The Bank of North Dakota (BND) is 90 years old....and has successfully helped North Dakota and her citizens weather this financial meltdown because while now where else can one get loans/credit..the BND has continued to work with local community banks to fund viable small businesses.
We could have a State Bank of Oregon as well.... We are very similar to North Dakota...(we're about 3xs their size in population). We have farming and small businesses as the primary driver of our economy...as do they. A State Bank is designed to help both. North Dakota has the lowest unemployment in the country and the only state without a deficit.
Aug 30, '10
Good points but the reality that an overwhelmingly agricultural economy will be more stable during business down-turns is really not in dispute. People can't defer eating until a later fiscal quarter/year unlike refreshing an past duty-cycle fleet of laser printers.
Aug 30, '10
In which case, we should be investing seriously in small farming industry. In the Columbia Gorge...we grow .8% of the food we need to eat on a daily basis. If we grew 50% of our daily food, we would see an increase of $110 million circulating within the Gorge. (I don't know what the stats are for the Portland metro area). Thus a State Bank working with our local community banks would produce an enormous economic boost to help fund small farmers, value added food production etc.
Aug 31, '10
Well, North Dakota ranks 3rd in the nation in Federal outlays per/capita, almost 10 times what Oregon gets per capita. Which has a not at all insignificant impact as well.
Aug 30, '10
North Dakota has a new very active oil field development called Bakken Shale with an expected recoverable 3+ billion barrels of crude oil. The field has been being explored over the past 8 or 9 years and production has begun. Billions of dollars in investment in industrial and civil infrastructure are being made.
Comparing Oregon's or Colorado's fiscal state and unemployment to that of North Dakota is not a rational comparison.
Aug 30, '10
It is also worth noting that the entire state has a smaller population than Multnomah County. So smaller amounts of unemployment are greatly amplified (and vice-versa, witness Rhode Island).
Aug 30, '10
Other states have oil (CA, TX etc.) and are not doing well.
As well, ND was experiencing low unemployment and good fiscal balance for a long time...not just since '06 when these oils dollars started flowing.
And I'm not 'comparing' ND to OR...I'm just saying that a State bank provides solutions/options that obviously provide benefits. Why shouldn't we have a broader banking system than the one we have now? Clearly the private system is not sufficient or up to the job. Add a State bank and get greater flexibility to be able to participate with small local banks to fund small businesses, farms and student loans.