A cautionary tale on austerity budgeting
Carla Axtman
The popular and cool thing to do nowadays is to slash state budgets. Government haters from sea to shining sea are practically dancing in our crumbling streets over it. After all, it will force lower taxes and a streamlined government that won't have the kind of serious budget problems that states like Oregon and California have, right?
Not so much.
there's one state, which is fairly high up on the list of troubled states that nobody is talking about, and there's a reason for it.
The state is Texas.
This month the state's part-time legislature goes back into session, and the state is starting at potentially a $25 billion deficit on a two-year budget of around $95 billion. That's enormous. And there's not much fat to cut. The whole budget is basically education and healthcare spending. Cutting everything else wouldn't do the trick. And though raising this kind of money would be easy on an economy of $1.2 trillion, the new GOP mega-majority in Congress is firmly against raising any revenue.
So the bi-ennial legislature, which convenes this month, faces some hard cuts. Some in the Texas GDP have advocated dropping Medicaid altogether to save money.
So why haven't we heard more about Texas, one of the most important economy's in America? Well, it's because it doesn't fit the script. It's a pro-business, lean-spending, no-union state. You can't fit it into a nice storyline, so it's ignored.
But if you want to make comparisons between US states and ailing European countries, think of Texas as being like America's Ireland. Ireland was once praised as a model for economic growth: conservatives loved it for its pro-business, anti-tax, low-spending strategy, and hailed it as the way forward for all of Europe. Then it blew up.
We can bicker over the similarities and differences of Texas v. Ireland on economic policy, but there's a salient point here not to be missed: low taxes, loosey-goosey regulation and austerity spending might spark economic growth for a short period, but like a drunken sailor forced to face the light of day, there's a long-term price to be paid. Economies get worse under austerity, not better.
I'm thinking our new governor and state legislators might not be considering this. At least, that's not what we've been hearing from them.
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4:22 p.m.
Jan 4, '11
Couple of thoughts:
First, what's wrong with 10-year budget planning? Seems to me a state government with a large budget should look more than just two-years into the future.
Secondly, I read Kitzhabers budget draft today and was pleased with what I saw. Here's what stuck out to me:
I agree with all of the above, and hope the Governor is able to make some movement in these areas. I also agree with him that we can't budget or provide services in the same way we have in the past.
4:42 p.m.
Jan 4, '11
I guess it depends on how (or if) we really want economic recovery..or if we're going to tether ourselves to austerity plans for ideological purposes.
It seems counterproductive that we'd be trying to focus on job creation while at the same time, taking an ax to jobs in the public sector.
Texas is a stellar example of a state that "cuts waste" in government, and they're in a hell of a mess. So, in fact, is Ireland.
I'm very concerned that we're looking at what's been pushed by sound bites and message machines, and not by sound economics.
6:21 p.m.
Jan 4, '11
Oregon cannot deficit spend, and anytime revenue receipts exceed revenue projections by more than 2 percent, the state returns the money to taxpayers via the kicker.
We already have an austerity budget.
What we don't have is a savings account, which is why we need kicker reform to create a more stable revenue stream to guard against these kinds of downturns.
What the Texas example shows is that the state's budget problems have more to do with the current recession than with the legislature's "profligate spending".
Where I differ from Carla is that I tend to agree that we are going to have to downsize state government to a level that is more long-term sustainable given the current budget and economic realities we are facing.
That will mean painful cuts. Those who pretend otherwise are just whistling past the graveyard.
9:28 p.m.
Jan 4, '11
In my view, the more we downsize government in a time of economic uncertainty, the more we will have economic troubles and...uncertainty.
There appears to be a good amount of historical (and current) evidence that bears this out.
9:41 a.m.
Jan 5, '11
If the state has $2.5 billion less in receipts, then the legislature must find $2.5 billion in revenue, make $2.5 billion in cuts, or some combination of the two.
That's just the reality of Oregon's budget.
You don't want to see cuts? Where are you going to get the revenue? Does your proposal have 36 votes in the house, 18 votes in the Senate, and will the governor sign it into law? If yes, will voters support it when the anti-taxers put it up for a referendum?
I'd love to see Oregon re-invest in the state's crumbling transportation infrastructure since I think it's the only way we will rebuild our economy.
But it's not realistic to think that this legislature will pass that kind of proposal on the heels of 2 bitter tax fights and a $1 billion, 10-year investment in our roads.
The question isn't whether budgets are going to be cut, or whether it's a good idea to make the cuts. The question is, where will the cuts occur and will they be made in a way that protects school children, the elderly, and the general public, or will they be made in a way that protects the dominant financial stakeholders in Oregon's political arena and the interests they represent?
6:26 p.m.
Jan 5, '11
Most European countries are able to provide reasonable public safety while incarcerating fewer than 100 people per 100,000.
Here in Oregon, we incarcerate about 375 people per 100,000.
I doubt Oregonians are intrinsically more violent or dishonest than, say, Danes or Swedes or Italians or Germans, and none of those countries have the reputation of being crime-ridden hellholes. If we're locking up several times as many people per capita as they do, we're probably wasting a lot of money.
If we're looking to save money, let's start with penal reform aimed at reducing our prison population by at least 70%.
7:33 p.m.
Jan 7, '11
perfect time to look at the War on Drugs and all the people incarcerated because of it and change those laws. We have been wrecking people's lives and our economy in this faux war. The time to change is now.
9:34 p.m.
Jan 5, '11
Sal is practical and grounded. His argument is pure fact. Carla says, without answering Sal, that we need to raise taxes by $2.5 Billion. She does not answer Sal's question as to whether the votes are there. Instead of saying we can't cut government, Carla should be out campaigning for new taxes. Instead, she is, as Sal put it, "whistling past the graveyard." We need to face facts and spend our time and effort finding solutions to fit the facts.
12:39 p.m.
Jan 6, '11
Whether the votes are there or not isn't the question--the question is, are our leaders articulating an economic strategy which will put Oregon in a viable situation as we go forward?
The fact is, cutting jobs in the public sector puts less money into the hands of consumers and thus, less money into Oregon's economy. How are we planning to solve this? That is the main fact we need to face--and few of our leaders appear willing to do it.
6:39 p.m.
Jan 4, '11
Texas GOP is not going to be so popular when they demolish neighborhood schools and dump nursing home patients out on the streets to keep taxes low for wealthy people. The poll out today says Americans want deficits to be addressed with higher taxes for the wealthy, not by cutting services. http://news.yahoo.com/s/nm/us_usa_taxes_poll
8:37 p.m.
Jan 4, '11
Interesting Carla, lets let Texans worry about Texas and we in Oregon will tackle our own problems. The problem is manifest distrust in Oregon state government and its ability to spend wisely, let alone witin its means. Some examples that the general public cite:
The problem many in spending, it could be in revenue. It could also be the problems noted with the kicker and how Oregon 'projects' revenue. The reality is there will be no meaningful new tax revenue in the coming biennium 9unless there is seriuos consideration of a state sales tax). The kicker will not be reformed until after Oregonians have faith that state revenues are being spent prudently
9:27 p.m.
Jan 4, '11
I think its silly not to learn from the mistakes of others, Kurt.
5:04 a.m.
Jan 5, '11
I agree Carla, so I did some research. According to The Texa Tribune, that state has a huge, and self inflicted, structural revenue problem. In 2005, their state legislature cut property taxes supporting public education by a third and raised corporate taxes to make up the difference.
One problem in reality, the business taxes fail to make of the difference by several billion each year. This led to massive bonding and public debt to fill gaps. Now Texas is faced with a huge annual bonding debt problem and still has a revenue-to-expense shortfall.
9:18 a.m.
Jan 5, '11
The tax shift you cite seems the lesser problem. 60% of state revenue in Texas comes from the sales tax. The 2008-09 recession brought a 14% drop in revenue collection from the sales tax in the state:
http://www.texastribune.org/texas-taxes/2011-budget-shortfall/
I do think that the property tax issue is a HUGE problem--and one that we've created for ourselves here in Oregon. We really need to take a serious look at repealing Measure 5. Or at least making substantive changes to it.
1:42 p.m.
Jan 5, '11
Reforming property tax limitation should be high on the "to do" list of the legislature this year. Even granting that the people want some kind of limits, there's no reason we should bind the state to an up-or-down vote on a dumb idea from Don McIntire. What we need is for the legislature -- through an extended set of public hearings with input from all stakeholders -- to come up with a constitutional revision on property tax limitation that will get 2/3rds support from both houses and has some popular support. Then send the revision to the voters for approval.
A few possible changes: (1) limiting the effect of limitation to owner-occupied residential property (that is, property that does NOT generate revenue for the owner; revenue-generating property can pay for its own tax bills). (2) set any valuation limits to the actual purchase price of the property, rather than an arbitrary "10% below 1996 market value" figure. If someone who bought their home in 1970 could value their home at the 1970s purchase price, plus 3% per year, that might create an automatic constituency for the reform. (3) eliminating the cap for school funding. People keep SAYING education is important, so why do we limit local property taxes to 1/2 of 1% for schools? If schools are important, why not eliminate any limits on education funding, and restrict property taxes to 1% for everything else government does?
Reforming property tax limits won't solve this biennium's budget problems, but it'll go a long way to solving Oregon's future budget issues by helping get school funding back to the local level.
4:04 p.m.
Jan 5, '11
in re: #2
I think you are right on about this driving support for this. My parents paid $15,500 for their house and I suspect they would support this wholeheartedly.
11:41 p.m.
Jan 4, '11
If the kicker is supposed to impose some sort of discipline or prudence on the legislature then how come all of the boondoggles you listed occurred? Doesn't seem to be doing a very good job as an incentive to shape up...
12:01 a.m.
Jan 5, '11
Repeat the following mantra:
Its not a spending problem, its a revenue problem. Its not a spending problem, its a revenue problem. Its not a spending problem, its a revenue problem.
9:51 p.m.
Jan 5, '11
...except with respect to prisons. That's a spending problem.
We're the only state in the union that spends more on prisons than on higher ed. The ONLY state.
Are we the safest state in the union? Didn't think so.
8:50 a.m.
Jan 5, '11
Carla,
I get where you're coming from, but I'll have to respectfully disagree.
I don't want to see anymore job cuts either, but why should government jobs stay in tact just for the sake of it?
If certain programs are found to be inefficient and aren't delivering, why should they continue? Why should employees stay?
Economic Development absolutely includes job creation at the government level. But it's the private-sector that's seen most of the job losses the past three-years in Oregon, not government. Income levels for individual Oregonians have declined for the past 15-years, again mainly in the private-sector.
I'm not suggesting we cut government jobs for the sake of private-sector jobs. But a mill in Prineville doesn't keep employees working just because they don't want to lay them off. If declining revenues and a slow market require layoffs, that's the hard decision that must be made to keep the ship running. Government doesn't always follow that principle.
In my summation, the most effective and efficient way to raise revenue to pay for the services we want is through job creation. The more people we have working in Oregon, the more revenue we have. And if a majority of our citizens have paychecks, then several important things happen:
Fewer Oregonians will use state services, like OHP & unemployment benefits; therefore, reducing constraints on the state budget.
Reduction in foreclosures and short-sales (or at least more people buying said properties), allowing for a quicker recovery of the housing market.
More expendable income generates more retail and other spending at local stores, restaurants, etc.
When people are working and earning paychecks, it becomes more likely they will approve sensible bond and taxing measures to improve or create services (like education and roads) that lead to a better quality of life.
So, in my mind, job creation should be a top priority of the Governor and new legislature.
9:20 a.m.
Jan 5, '11
Why should a "government" job be treated any differently than a private sector job, in an economy where jobs are scarce? You keep a job for the sake of it in order to keep cash flowing into the economy.
The economy won't recover because businesses and government are hoarding cash. It will recover because consumers are driving it, as it always does.
9:56 a.m.
Jan 5, '11
Government isn't hoarding cash, Carla. Suggesting otherwise is flat-out false.
The last legislature invested a billion in our transportation infrastructure; raised taxes on businesses and the wealthy; and made a massive investment in health care for needy children.
The Federal Government is deficit spending to the tune of $1.5 - $2 trillion per year in each of the last three years. The total national debt is roughly 70 percent of GDP.
What we are seeing from government is the exact opposite of "hoarding cash".
1:53 p.m.
Jan 5, '11
Cool your jets, Sal and see what I'm trying to say here.
With the private sector cutting jobs/not hiring, the economy continues to limp along with little or no growth. Those advocating for continual deep cuts in government, including job cuts, are adding to the problem, not fixing it.
3:56 p.m.
Jan 5, '11
Exactly. In essence cutting Gov. spending (i.e. cutting Gov. jobs) is analogous to a business firing its customer base.
Even hardcore capitlists like Henry Ford understood you have to pay your workers enough to buy a Ford. In the end, every single Gov. worker is a private sector customer (directly or indirectly. Furthermore, when demand side in consumer spending is down, we need to fight tooth and nail to not fire those customers.
11:48 a.m.
Jan 6, '11
Targeted investment by government in vital infrastructure -- energy, telecommunications, transportation, etc. -- makes a great deal of sense. But so does taking a scalpel to wasteful spending in massive and potentially unnecessary line items.
And, yes, it's worth analyzing what kind of return we are getting on our investment in the public sector.
Spending money for the sake of spending money is usually a bad idea.
10:59 a.m.
Jan 5, '11
What I'm saying is that the government treats jobs differently than the private sector. They keep jobs just for the sake of it at times, even if it's not warranted.
If businesses did that, they'd either fail or have major cash flow issues. Of course, that's what government agencies do: they keep employees on even when the economy doesn't allow for it, or to politically protect certain services that one party doesn't want to see go away. I truly don't understand the concept of keeping a program or an employee if it's not cost efficient, or doesn't have definable and justifiable impacts/results.
And that's why I agree with Kitzhaber's analysis. Let's take an overview of all the agencies and programs and see what works and what doesn't. Are there other ways to administer programs and services that not only cost less, but provide a better quality product?
I'm truly at a loss understanding how it make sense to keep a program going, and employees working, if it's not effective.
"You keep a job for the sake of it in order to keep cash flowing into the economy."
I honestly don't see how this makes any sense. So you keep employees on, lose revenue and then end up in a situation where mass layoffs are required, or the company shuts down? If that's the case, you run a high risk of losing even more cash flowing into the economy.
2:00 p.m.
Jan 5, '11
Jason: Set your ideology aside for a moment and stop thinking of government as a business. Government's job isn't to make a profit. It shouldn't be put in the business metric, because that makes no sense for government.
Our single biggest need in this state (and nation, frankly) is jobs to inject money into the economy via consumers. We're about to make big cuts in the name of "reconfiguring government" to deal with the resources we have--which is a nice way of saying we're about to make the economy worse by taking more consumer buying power.
Yes--you keep employees on with a short term revenue loss in order to reach the higher goal, economic improvement.
4:21 p.m.
Jan 5, '11
Let me throw out the RW talking point: I wouldn't need so many customers if my taxes weren't so darn high! My taxes wouldn't be so high if you darn liberals would ever shut down a government agency/department that isn't succeeding in its mission.
6:02 p.m.
Jan 5, '11
Obviously, we have different philosophical views. I'm not saying government should operate exactly like a business, but there are certainly "business" principles that can by applied to government in terms of how it operates. (In fact, Prineville's city manager, hired in 2009, is a former wood-products manager and had zero public-sector experience when he started. He came in and applied business accounting principles to the city budget. And guess what? The city's budget, debt service, and reserves are in much better shape than before. So I disagree with the notion that you can't operate government like a business.)
I'm not suggesting, nor even pushing, for job cuts in Salem. Given that government provides a large number of jobs in Crook County, I'm sensitive to that and hate to see any job cut - government or private.
As my original post said, I agree with Kitzhaber's approach (which is business-like) of examining agencies to determine efficiencies. He may come to the conclusion that no more cuts are necessary. But I will stick with my basic principle that keeping state employees working simply to avoid further layoffs "just because" isn't something I will ever agree with
9:29 a.m.
Jan 6, '11
To reiterate your point:
Back in the late '90's I owned a sign business. A friend worked at the county sign shop. He told me what their dept budget was and gave me a breakdown of the signage produced by the dept. Had they outsourced the work, they could have gotten their signs for about 40% less.
11:54 a.m.
Jan 5, '11
Having spent considerable time in both Ireland and Texas, I will take Ireland in a heartbeat. Better bars, better beer, fewer Bushes.
11:39 a.m.
Jan 6, '11
And much better scenery.
1:34 p.m.
Jan 5, '11
Tackling the twin catastrophes of unemployment and the housing meltdown are key, in my view.
No matter what the incoming governor does with regards to job creation, it will not be enough.
The real fight has to happen at the federal level. It's time for all Democrats with guts to step up and have the fight that should have happened two years ago.
Where's the Democratic leadership pushback against the republican lie that the problem is big government?
I wish i were wrong about this but i don't think the Obama administration has political will to wage the necessary fight with regards to reversing the unemployment crisis.
If the will were there, Pres. Obama would stop apologizing for government intervention and propose a new "New Deal", & say 'enough is enough' with our job killing free trade agreements.
Yes, I know, the republicans would fight tooth and nail.
The Obama administration and Democratic leadership would then have to do the unprecedented: go populist and take this fight directly to the American people.
Regardless of party affiliation or political self-identification, a strong majority of people in this country support a massive job creation program, an end to outsourcing of jobs, and holding accountable the Wall St. thieves and corporate crooks that have pillaged our economy.
1:39 p.m.
Jan 6, '11
Texas unemployment: 8.2% Irish unemployment: 13.4% US unemployment: 9.8% Oregon unemployment: 10.6%
Hmmm ... yeah, Texas is Ireland ... what a joke ...
People don't care about the roads when they don't have a job.
2:10 p.m.
Jan 6, '11
"People don't care about the roads when they don't have a job."
Ya think?
Do people build roads out of the goodness of their heart? Not usually. They do it BECAUSE ITS THEIR JOB. That's the point, Geoff.