Senator Doug Whitsett R- Klamath Falls, District 28 Phone: 503-986-1728    900 Court St. NE, S-302, Salem Oregon 97301 Email: sen.dougwhitsett@state.or.us     Website: http://www.leg.state.or.us/whitsett

Oregon's "Stimulus Package"  1/26/09

After nearly a year of denial, our Democrat executive and legislative leadership has finally awakened to the fact that our state economy is in near free fall. Unemployment passed 9 percent in December. The predictions are now certain to be in double digits by the January forecast.  Some Oregon counties are already suffering unemployment rates in excess of 12 percent. The state economist was still predicting flat economic growth and stable state revenue as late as last May. This week, he is predicting that state government income may be more than $750 million less than he predicted for this budget cycle ending June 30, and as much as two billion dollars less than predicted for the next two year budget cycle.

Many conservative Republicans warned during the 2007 spending binge, when the cost of state government was grown by 20 percent, that the size of our government, and the rate of our government growth, was not sustainable. We suggested that we would not be able to afford programs being created and grown when the economy slows, as it eventually always does. Our warnings were not heeded and now our state government is in dire straits.  In just the next six months our ongoing expenses exceed our projected income by three quarters of a billion dollars.

In my opinion, the legislature should step back, take a deep breath, and spend at least a few weeks in an attempt to decide the most prudent and effective way to spend our scarce and rapidly diminishing resources. We should be using our very limited borrowing capacity to invest in capital projects that will help create sustainable jobs and grow assets for Oregonians. Instead, we are being advised by the Democrat leadership that even if we are wrong it is better to do something now than to take the time for a more prudent and thoughtful approach. A huge spending proposal is being fast tracked because we are told that people are hurting and that we cannot wait to be thoughtful and reflective in our investment strategy. As a veterinarian, as a businessman, and as a legislator, I am unable to find the wisdom in that advice. Experience has taught me not to panic in the face of adversity.

Last Friday, the majority of the Joint Committee on Ways & Means voted to borrow about $177 million to create an economic stimulus package for Oregonians. The stated purpose is to create jobs as quickly as possible. The mechanism is to spend the money as quickly as possible to stimulate jobs and personal income. As well intended as the idea behind Senate Bill 338 may be, and as good as the bill may sound to some people, I believe it has a number of fatal flaws.

First, they propose to borrow $177 million to be spent primarily on deferred maintenance of state owned buildings and community colleges. That $177 million debt is to be repaid over ten, fifteen, or even twenty years. Some of these projects include painting, carpet replacement, pavement repair, replacement of light bulbs and fixtures, and window repair. This investment policy would not be tolerated in the private sector, and it should not be tolerated in government. The legislature has not yet calculated what the total cost will be to repay this borrowed money over the next two decades. Some quick calculations tell us that total debt service will be in excess of $250 million. Should we saddle our future budgets with between $15 million and $20 million in annual debt service to spend on projects that will produce little if any long term revenue growth? During the last recession, the Oregon Legislature borrowed $451 million to help operate the government for about six months. The total debts service for that ill advised borrowing spree is about $570 million. It continues to cost taxpayers more than $50 million each year in debt service.

Second, the legislature has no data on how many jobs will be created, or for how long the jobs would last. The only data that we have seen suggests that the number of jobs projected to be created will, at best, improve our current state unemployment rate by less than one tenth of one percent. That fractional improvement in unemployment will be temporary. I do not believe that borrowing $177 million dollars to be repaid by Oregon taxpayers with interest over the next two decades to improve our short term unemployment by 0.09 percent is good fiscal policy. About 350 of the projects to be paid for with the borrowed money will last less than 90 days. About 150 of those projects will create employment for 30 days or less, and about 100 of the projects will create jobs for less than one week.

Third, the legislature has not yet computed how the repayment of these borrowed funds may negatively affect our ability to fund critical programs in future budget cycles. The $450 million borrowed during the 2003 recession to pay for government operations will not be paid off until 2013. Our ability to pay for essential programs has been reduced by well more than $50 million in each budget since that 2003 decision. Debt service on this bonding proposal will add another $17 million to the annual debt repayment obligation. Each dollar obligated to debt service reduces funds available to pay for essential services like elder care by an equal dollar amount for the duration of the debt.

Finally, our state capacity to borrow money is inversely proportional to our state revenue. Our state and national economies are currently in free fall. State unemployment is increasing at an unprecedented rate. These factors result in very uncertain predictions of how much money will be available to spend, and how much money we will be able to borrow in the future. We have many critical needs for infrastructure improvements that will help to create future business opportunities and future jobs for Oregonians. The League of Oregon Cities provided the legislature with a thoughtful and comprehensive list of critically needed public work projects located in all 36 counties. Another comprehensive list of critically needed public works capital construction projects was identified in the governor’s Economic Revitalization Team report issued January 2009. We were unable to find any project in either of these lists included in the current stimulus package.

In my view, the current emergency plan to spend most of our diminishing state borrowing capacity on deferred maintenance projects that provide temporary jobs and virtually no revenue growth is simply poor fiscal policy. For these reasons I joined three other Republican colleagues in voting against the “stimulus package” in the Ways & Means Committee on Friday. I expect to be joined in voting no by most Senate Republicans when Senate Bill 338 comes to the Senate floor. I have no doubt that the bill will pass both legislative chambers and be signed into law by Governor Kulongoski. I pray that the unintended consequences of this attempt to borrow and spend our way out of debt are not as severe and long lasting as I believe that they will be.