From Senator Whitsett’s Friday, November 19, 2011 Newsletter
Last May the Oregon state economist predicted that a great deal more General Fund and Lottery Fund revenue would be available to spend during this budget period than has materialized. Many of us believed, and publicly stated, that the economist’s estimates were too high. We based our concerns on persistent high unemployment, low business profits and Oregon’s current dismal business environment. Never the less, the inflated tax and lottery predicted-income was considered to be actual-income. Most of that estimated revenue was scheduled to be spent during the current two year budget period.
Thankfully, more conservative legislators were able to prevail in our attempt to set aside a meaningful reserve. We established a contingency ending balance fund of about $460 million in unbudgeted money. Many of us were very publicly maligned for that effort. House Ways and Means Co-Chair Dennis Richardson took the brunt of the abuse offered mainly by representatives of public employee unions.
The November financial forecast released last Thursday reported yet another hundred million dollar reduction in the economist’s inflated projections for state General Fund and Lottery Revenue. The combined September and November quarterly forecasted revenue reductions total $306 million. Two thirds of the $460 million cushion has already disappeared during only the first four and one half months of the twenty four month budget period.
Our state and national economies do not appear to be materially improving. We may expect that the actual revenue collections may decline further. That loss of revenue potential will likely further erode the cushion created by the money held in reserve. Those ongoing reductions in income may very well result in the further need to reduce spending.
But there is much more to the story.
Although government leaders continue to characterize the problem as a serious revenue shortfall, the cause of the problem is overspending. Oregon government continues to suffer an unsustainable spending addiction
The fact of the matter is that over the past twenty years Oregon’s actual combined General Fund and Lottery Fund revenue has increased significantly in all but two budget periods. For the current two year budget cycle, revenue is expected to increase by nearly ten percent, according to our Legislative Revenue Office. That is ten percent over and above the amount of money that was actually collected during the most recent two year budget period. Government spending is budgeted to increase nearly ten percent as well.
For the average Oregon family or business, that ten percent estimated increase in net income would be good news. Sadly, our state government considers this actual ten percent increase in projected revenue, and in government spending, to be a serious shortfall. They predict that only a ten percent increase in revenue will certainly lead to severe reductions in government services.
The point of this report is to highlight the tired budgeting game that continues to be passed off on the Oregon taxpayers. Projected revenue is routinely exaggerated to create the illusion that money is available to expand government services and to pay increased wages and benefits to public employees. The true long term costs of those increased services and employee compensations are routinely underestimated by phasing-in the costs over the current budget period. The exaggerated quantity of available money is then fully appropriated to be spent on budget items. When the exaggerated revenue projection fails to materialize it is characterized as a revenue loss that will result in deep cuts in government services.
Service providers and government leaders then clamor to promote new and expanded sources of revenue to fill the illusionary budget shortfall. They spend large quantities of money advertizing and promoting new and expanded taxes and fees in order to save critical government services. The promotion and passage of measures sixty six and sixty seven are salient examples of how this process is propagated. The proponents continue to use the process because it works.
It is time to break this duplicitous cycle. It is time to tell the taxpayers the truth. The state budget problem is actually caused by increasing the rate of spending faster than the rate of income. It’s not rocket science. It’s no different than a family budget. Governments, like families must live within their means.
Oregonians should insist on adopting a Constitutional spending limit. That spending limit should be based upon the actual amount of revenue collected in the past. It should not be based upon inflated estimates of future potential tax income. Whenever tax collections exceed the spending limits, the excess money should be used to build a reserve fund for use during future economic downturns. In the alternative, the money should be returned to the taxpayers who earned it.