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Bracing for Bad Budget Numbers
State workers from Governor Kulongoski to your local school superintendent are preparing for more bad economic news. Oregon state economist Tom Potiowsky will release the next quarterly revenue forecast on August 26, but he's already sent a letter to the governor letting him know it's not looking good and, in fact, it's probably going to be worse than he thought earlier in the summer.
In June, Kulongoski asked state agencies to make a nine percent cut to their budgets to make up for over a half billion dollar gap in the state's overall budget. Now, it looks like that wasn't enough. Based on some grim economic indicators (job growth, housing, bank lending and consumer spending), Potiowsky says the state's shortfall could be between $200 million and $500 million more.
What will the state's budget shortfall mean for you? Have you already felt the affect of the nine percent cuts to schools and other services? Have you lived through rough times like this before — in Oregon or another state? What have you seen that works?
GUESTS:
- Tom Potiowsky: Oregon state economist
- Dave Hunt: Speaker of the Oregon House of Representatives and a Democratic state representative from Clackamas
- Bruce Hanna: Oregon House Minority Leader and Republican state representative from Roseburg
- Tim Nesbitt: Chief of staff to Oregon Governor Ted Kulongoski
- Brian Sigritz: Director of state fiscal studies for the National Association of State Budget Officers
Tagged as: budget cuts · economy · governor · legislature
Photo credit: bobt54 / Creative Commons
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I'm surprised by the construction on surface streets and freeways in Portland and Oregon this summer. Seems like everywhere I go there is roadway construction or rehabilitation occuring. Lots of detours this year.
I remember Reagan's Recession in the early 1980s in which unemployment jumped over 9%. Inflation was followed by stagflation and then recession after the 1970s oil crisis. Remember the blocks-long gas lines in the 1970s? Good times. Not really.
Returned to 2nd semester of university in 1980 and all students had to re-register because budget cuts had reduced or eliminated many students' academic aid. Apparently changes to financial aid crashed the student-class registration system.
Thousands of students wrapped in a continuous line around the gymnasium cursed the financial aid cuts and Reagan. Many students left school because they had no means to continue or complete their educations.
Money was tight. My parents raised an eyebrow when they learned that I'd sold my meal card so one of my friends could continue school. I lost a lot of weight that semester. I remember with grim pride how the guys in my dorm, normally an obstreperous and contentious group, stopped battling each other in order to keep each other fed.
We cursed Reagan, drank and sang. Good times in the crucible of crunch. Not really.
A lot of talented youngsters, many of whom were the first generation in their family to attend college, weren't able to directly continue their rise from poverty. They encountered yet another detour along the highways of American life. We have the right to pursue happiness but....
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I understand this is a tough economic period and that forecasts are not always accurate, but I think the reason we keep having so many of these excessive budget cut cycles in Oregon is because the root causes of our fiscal instability are never addressed. We need a long-term solution that allows us to provide services and safety nets for people when they hit hard times.
Here's what I think Oregon needs to do to fix its fiscal instability:
1. Implement a sales tax to cut reliance on the income tax. Oregon relies on the income tax more than any other state (74.4% of total collections in 2001 according to this report: http://arec.oregonstate.edu/jaeger/taxation/EM8853.pdf see page 6).
2. Repeal the kicker. No other state has a ban on budget surpluses. We should divert any surpluses to the reserve fund and if we get surpluses when the reserve fund is full, we should spend that money on important issues like tackling homelessness.
3. Implement a balanced budget/PAYGO requirement for any bill in the Oregon Legislative Assembly and any initiative/ballot measure. New spending should be met with new revenue (or less spending in another area) and new tax cuts should be met with reduced spending (or less tax cuts in another area).
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When I'm feeling idealistic I whole-heartedly agree with you... when I'm realistic I remember that:
1) A sales tax isn't the answer... there are a number of states who have both and are deep in the red (Illinois comes to mind). Government (regardless of party) gets used to a certain level of funding (from all sources) and when that dries up, they're stuck. Sidebar: A sales tax will only encourage me to buy online even more than I do now (so much for buying local).
2. I would agree with this if I could be convinced that the government wouldn't dip into or take loans against the reserve.
3. Pay as you go is always a good idea... when times get tough the citizenry needs to see that the burden is shared... otherwise we've created a protected class that will always be a target of public ire.
In tough times no one wants to cut programs added in good times so we inevitably wind up talking about raising taxes and fee's rather than testing new programs (in good times) against severe downturn scenarios... long-term planning by government... idealism again... :-)
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Surprise! When we run a daily fiscal deficit, we will have to CUT BACK ON SERVICES and RAISE TAXES. Democracies are very bad at raising taxes...Voters tend to vote out the incumbents who voted for tax raises.
But I agree with Bluewater, that EVERYONE will have to suffer higher taxes. And SALES TAX must be in our future.
How about a gas tax to make a gallon no less than $5.00 a gallon? That will encourage walking, biking and mass transit like nothing else.
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I have yet to hear any candidate or sitting legislator or even the Governor address an issue that I respectfully submit is the 500-lb gorilla in the room and that is fraud, waste and abuse of taxpayer funds by certain state agencies. Yada yada yada - you have heard me say this before and are probably sick of hearing it again and of COURSE there are state employees who will be "aghasted" at the mere suggestion that there are those in their agencies who are, um, shall we say, a bit less than honest? But the fact remains - I worked in one of the state agencies, in fact it was one of Kulongoski's "pet" agencies. And I witnessed outright theft - theft of time, theft of materials, rampant disregard for offering a full day's work for a full day's pay, manipulation of expense reimbursement accounting and flat out greedy-guts style partying. If even ten percent of the waste in that agency multiplied by even ten percent of waste in ten percent of any other state agencies were corraled, Oregon's budget woes would be considerably - and healthily - addressed. I would love to hear one single candidate discuss how they intend to address the issue of state agency employees wasting taxpayer money. I am not holding my breath.
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Legislatively mandated public employee layoffs that somehow parallel average private sector layoffs would help create incentives for public employees to be more efficient and thus be less likely to lose their jobs in some future round of layoffs. This is how the private sector works.
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and the private sector is doing so well.
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Here's a great Kristian Foden-Vencil piece about state economist Tom Potiowsky from yesterday:
http://www.opbnews.org/article/business-owners-hope-leading-indicators-reveal-good-news/
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Yeah well this article makes just as much sense - maybe a tad more - as the gov't and media talking heads blathering about how there are "discouraged job seekers no longer seeking work." HAH. What that means is that these job seekers have run through all their unemployment benefits and extensions of benefits and are uncaringly and summarily dropped off of the unemployment rolls. Do YOU know of anyone long-term unemployed with no further income who doesn't want a job? I sure don't. I'm sure there are probably some sponges out there but I don't know any of them. So if this Tom "Expert Guy" is trying to justify his salary by claiming that economic prediction is part art and part science, well, have at it Mister Expert. You are no better and no worse than the other experts who seem to think that just because your unemployment benefits have expired and you are dropped off the rolls that you are to be victim-blamed and labeled as "discouraged" and having "given up looking for work." The completely asinine, unrealistic misguided mentality of these self-labeled experts never EVER ceases to amaze and entertain me.
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This will be a hoot!
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I've gotta ask, because maybe my sarcasm detector is on the fritz: tongue in cheek or serious?
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Serious is the easy answer, yet dripping with sarcasm.
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It just goes to show: there's no such thing as an easy answer!
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As the economic malaise continues, here in Washington we see the same thing. I think the biggest indicators of how serious things are getting are the cuts and budget scrambling going on to try and patch basic communty services like fire protection and community police budgets.
In WA, the expectation is that there will be substantial cuts to school budgets for the 2011-2012 school year after the infusion of federal funds dry up. Nobody is predicting any meaningful "recovery".
The indicator that I see in SW Washington and Portland is the very high number of vacant retail space. Lots of "For Rent" signs where businesses used to be.
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Question: Given that the kicker is paid out when revenue projections are too low, there would naturally be an incentive to project future revenues conservatively, in the sense of being too high. Otherwise the state loses money. In uncertain times like these, what safeguards does Oregon have to prevent this incentive from motivating a series of conservative revenue projections that create a series of "surprise" budget deficits like we are seeing? It seems like the perverse incentive created by the kicker is forcing us to deal with deficit after deficit instead of assuming a more pessimistic projection several cycles ago and then dealing with the turbulent cuts less often. Thats how I handle my own personal finances!
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What I want to see is our government makes the bleak hard cuts that have been looming over our heads for years.
I would rather the pain now than one more temporary fix that puts off the hard choices for someone else.
I know the economy is not getting any better because I am barely living off of temp jobs.
I have the education and some experience but that doesn’t matter theses days.
My life have been full of the hard cuts, no cable, home phone, the dog is getting the cheap dog food…. The list just goes on.
I expect the state to make the same hard decision that I have had to make in my personal life.
Oh, and forget the sales tax. I will just buy even less.
NaTasha
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I hope the state economist is prepared for the probability that we aren't even close to halfway through this - there could easily be several more years of recession (dare I say Depression).
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That economists' fast food story is fun but just a made up tale because the fast food outlets have cash registers that punch in the cash tendered and calculate from the price of goods what the change should be, because fast food workers are not very good at math.
Really fun tale though!
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I could get behind a sales tax on luxury goods and services but not on basic needs goods and services.
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I would like to know if a moratorium on limiting state jobs to Oregon residents only is a good idea to put Oregonians back to work and stimulate the State economy. Shouldn't we be putting Oregonians back to work first?
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David.
Thank you for being there you will be a hard one to replace!
You voice have so often been the keel to this show.
Break a Leg!
Desolation
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I remember that early in the Bush first term, Grover Norquist, the Conservative Republican anti-government tactician pronounced that he wanted to reduce the size of the goverment to so small a size that he could drown it in a bathtub.
That is effectively what Conservative Republicans have done by increasing the deficits to be so huge that our governments are drowning in debt!
They started two unpaid for wars and told us to go shopping, gave $800 billion to the Wall Street Bankers with any oversight or instruction or requirements, gave no-bid contracts to Cheneys Halliburton Corporation, created private army "Contractors" that cost far more than US Soldiers, on and on.
Will we learn from this history of Conservatism? Will we allow them to do this to us again? Ever? I hope not.
Grover Norquist and Conservative Republicans what they wanted, but they sure screwed the American People to do it.
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What did the liberals do?
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I've heard a number of people talking about public employees having to pay a portion of their benefits, particularly their health care benefits. I have a friend who is a public school teacher and is faced with having to pay a portion of her premium that is about $240 per month for a single person. I asked her what the total premium is for her health care benefits and she told me it is over $1,000 a month! Having managed a small business and seeking "bids" from health plans and purchasing a benefit plan for my employees, the cost per employee for a plan with a deductible under $1,000 was about $550 a month for a single person in an industry that is known for high utilization of health care and therefore has higher premiums. My plan had comparable benefits and deductibles to her plan. My question is, why are the public employees having to pay such outrageous premiums to the health plans for their benefits??? Who is negotiating these rates? These are not competitive rates and it is no wonder the benefits of these employees look so bloated. The health plans are charging outrageous premiums for these employees. As usual, the health plans are ripping off the public for as much as possible and are contributing greatly to our budget woes.
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For the past few years I used to hear the news about the bad economy which resulted to high unemployment rate because of the massive lay off and collapse of most businesses, but I think one of the major challenge among government was the threat in their budget. It's really looming to think how they could properly allocate the budget knowing that this is not sufficient. Is there any way for us to get out with the mess of budget woes. We must admit that many project will be sacrificed due to lack of proper funding the question is will the people willing to accept for such kind of inconvenience.
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Were getting use to it – bad economic news it been two years that we are suffering from the predicament of unstable economy which resulted to unemployment, budget deficit and price increases, we are eager to achieve economic progress but it doesnt seem to get better, maybe the government should learn the act of prioritizing the government expenses. Maybe there's a need to look for some avenues in which they can earn aditional revenue which could be used to sustain government projects.
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Comments are now closed.
Will state leadership (Kulongoski, Kroger, Bradbury, etc.) feel the pain of budget cuts in their salaries as well, or will it be business as usual, where the Citizens and the Field Employees and Case Workers get cut, but the Bosses at the top continue sitting pretty?