The Pain Remains


med_Pamelas_Mug_copy55It is no surprise that Oregon’s September revenue forecast dropped another $377.5 million lower than the June forecast. State Economist Tom Potiowsky told legislators that the current economic recovery is one of the “slowest on record,” and said the overall forecast for the 2009-11 biennium is now $1.3 billion below the forecast issued at the close of the last legislative session. “The prolonged plunge in personal income taxes more than accounts for the decrease associated with this forecast,” Potiowsky told legislators.

Last June’s forecast triggered a transfer of money from the state’s Rainy Day Fund, which brings the total available resources to $12.5 billion. Projected lottery earnings will reach $1.1 billion, an increase of $4.6 million from the previous forecast. Lottery revenues have generally stabilized with growth returning after nearly 18 months of decreases.

Many economists and news commentaries have said that the recession is over, but that gives little consolation to Central Oregon’s unemployed and struggling small businesses.

In a report dated August 26, Bill Watkins of CLU Center for Economic Research and Forecasting stated: Virtually all new incoming data have been negative. Their initial estimate of 2.4 percent GDP growth is likely be revised to something closer to 1.5 percent than 2.4 percent.

The data was soft enough that the National Bureau of Economic Research has so far declined to declare the recession over.  Watkins suggested that was “because virtually all of the sources of good news have been government related, either through direct spending or through programs that provide, at best, temporary and often illusionary growth. Programs such as Cash for Clunkers, real estate purchase tax credits, and foreclosure prevention programs provide no real stimulus, but do change the timing of transactions. In the case of Cash for Clunkers, they actually destroyed operating vehicles. This is an unforgivably bad policy, very little different than destroying food to support food prices.”

No Good News
There is no good news coming out of Salem: unemployment rate sits at 10.6 percent for July, essentially unchanged for the past nine months. Manufacturing jobs were flat. The service sector showed job losses in professional and business services, healthcare, financial activities and retail trade. Housing prices continue to drop, especially in the Bend area. Consumer confidence and spending coupled with lack of available credit remains stagnant.

In his quarterly report Watkins didn’t see any good news for Oregon: “As with the United States, jobs have declined again after a temporary, census-driven, pickup. While I believe that the most likely outcome will be very slow private-sector job gains, the possibility of much-feared double-dip recession can’t be discounted.

Oregon’s unemployment rate is likely to remain above that of the United States for the next couple of years, at least. Job gains will be restrained by industrial composition and a generally unattractive regulatory and tax environment.

Perhaps more disconcerting is that Oregon appears to be developing a California-like structural deficit. This is something that should be immediately addressed, to avoid the more serious problems we see in places like California and Illinois.”

Oregon Deficit
Oregon is challenged in getting its revenue forecasts correct. Potiowsky proclaimed that one reason for the string of flawed revenue forecasts is the reliance on overly optimistic assumptions. One such assumption has been that personal income tax withholdings would increase 6 percent this biennium, while they have increased only 2 percent. Oregon has had a year of 10 percent unemployment or higher, and fewer workers employed results in less personal income taxes being withhold; in addition, those who have private sector jobs in Oregon are making less money.

The bottom line is this: 93 percent of Oregon’s General Fund revenues are income tax related, and Oregon’s workers and businesses are not generating the income tax revenue the state economist has estimated for the past nine quarterly forecasts.

What To Do?
The current legislature has contributed to Oregon’s economic drought by creating new taxes and higher license and corporate fees. Legislators should be elected that understand the importance of supporting current Oregon companies while creating a healthy business climate that will attract new businesses. We cannot do that by taxing and spending.

Measures 66 and 67 have hampered Oregon’s business climate by instituting the highest personal income tax in America (11 percent–tied with Hawaii) and establishing a corporate sales tax based on the volume of business sales, regardless of the profitability of the company. Oregon’s high income tax and regulatory environment are contributing factors to Oregon’s higher-than-national-average unemployment rate. These two measures should be eliminated.

The State of Oregon, in order to balance the budget and meet the projected revenue shortfalls, must decrease expenses.  The PERS problem is astronomic and must be addressed.  State employees across the board, including school district staff, should equally contribute to their health care costs.  Governor Kulongoski, just when his term is almost over, has suggested it’s finally time to take a stronger stand in negotiating with state labor unions and limiting the growth in state employee compensation to 6.5 percent. He also now believes that it makes no sense to give back revenue, but we should create a Rainy Day Fund that is 15 percent of the state general fund.

The governor has taken a brand new track on how to fix Oregon’s problems concurring with the resent Reset Cabinet report. We can ask where the governor was during the last seven years, but more importantly we should ask where the current gubernatorial candidates stand. Do they have the fortitude to make drastic decisions and create a more efficient government? Finding essential leadership for Oregon’s future is key to getting us out of the recession.


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