Budget and Revenue Update

      The “Program Change” bills that make the necessary adjustments to rebalance the current budget passed out of the Joint Ways and Means Committee this morning. Senate Bills 581-A and 5552-A reduce state spending for the next four months by $855 million dollars. This huge reduction at the end of the budget period was made necessary by both rapidly falling state revenue and by poor fiscal management of state funds.

       Oregon’s state revenue is largely dependent upon personal and corporate income tax. The rapidly deteriorating economy and sharp increases in unemployment have resulted in very rapid decline of tax receipts. We now expect that revenue shortfall to be as much as one billion dollars for the current budget period.

       The 2007 Legislature authorized spending based on the economic forecast that predicted over one billion dollars in revenue more than has actually materialized. As a result, our state agencies have spent about $855 million more than the state had to spend during the first twenty months of the two year budget period. The failure to recognize and address this structural budget defect earlier has resulted in requiring the $855 million in rebalance reductions in only the last four months of the budget period.

       The Ways and Means Co-Chairs and the subcommittee chairs have done an excellent job of distributing the reductions across the agencies in ways that prioritize critical state services and preserve essential programs. The committee rebalancing process was generally open and collaborative. Given the draconian task, the outcomes were as appropriate as possible with one critical exception. The reductions in funding for the Judicial Branch of government were so severe that they will result in the closure of all state courts every Friday from March 13, 2009 through June 30, 2009.

       According to the state court administrator, about 87 percent of the entire budget of the Judicial Branch is used to pay their employees. About 90 percent of those funds originate in the General Fund that was so severely impacted. I met with Supreme Court Chief Justice Paul De Muniz this morning regarding those budget reallocations. He stated that for the need of only $3 million he will be forced to furlough all Judicial Branch employees for sixteen days between now and June 30, 2009. The chief told me this morning that there are no other available options.

      This rebalance reduction to the Judicial Branch of government is untenable and unsustainable. It will wreak a degree of havoc on the Judicial branch not visited by either the Legislative or Administrative branches of government. For this reason I was not able to support the bills in committee this morning. I will not support the bills on the senate floor unless the bills are not amended to include the necessary funding to keep the Judicial branch of government functional.
 
       The next work for the Ways and Means committee will focus on the $3 billion deficit that we know exists in the 2009-11 budget. Many of us who are watching the economic free fall believe that the shortfall will be significantly greater. I believe that our task must include an attempt to completely redesign how state government serves the people.

       The Republican Caucuses have introduced several concepts that we believe will help close the revenue gap by stimulating job growth. These concepts are all predicated on the proven model that reducing taxes stimulates business growth and results in increased state revenue.

       Reducing Oregon’s income tax by doubling the income level under each bracket would provide about $375 million in immediate tax relief. Our Legislative Revenue Office (LRO) estimates that this action will create as many as 20,000 new jobs. The income taxes generated by those 20,000 jobs would negate the loss in revenue resulting from the tax bracket change.

       Reducing the state income tax withholding by 4.2 percent would put more than $100 million directly into the private sector economy this year. LRO estimates this change in withholding practice would result in the creation of as many as 2,500 new jobs in the private sector. The change would be virtually revenue neutral for the state because any taxes due would be collected the following April 15. Income taxes generated from the 2,500 new jobs would be additional state revenue.

      The “Main Street Incentive Program” consists of Oregon tax credits to encourage home and business owners to engage in immediate capital improvement projects. The program would cost less than $200 million in tax credits while creating nearly 6,000 private sector jobs.
According to LRO, $43.4 million in home improvement tax credits would create more than 1,000 jobs, increase property values by $55 million, and add $900 thousand in annual property tax revenue. Moreover, $154.5 million in business construction tax credits will create nearly 5,000 private sector jobs adding $3.1 million in annual property taxes.

       Providing state matching funds to improve airport facilities will create economic development opportunities for local communities. By providing only $7.7 million in state funding we can leverage more than $128 million in federal funding for airport renovation projects. The funds will create more than 2,200 immediate construction jobs while encouraging economic growth in all areas of Oregon.

       Another concept is to provide state backed loans or loan guarantees to businesses for operating capital during the current credit fiasco. Many solid Oregon small businesses are struggling to maintain cash flow due to no fault of their own. These credit-worthy businesses can access these credit sources through Oregon chartered loaning institutions. The revenue bonds supporting this project will have no cost to taxpayers and are not guaranteed by Oregon taxpayers. The program is designed to maintain Oregon small businesses thereby sustaining Oregon jobs.

       The work required to balance the next budget is daunting. Having said that, we believe that the only way out of this economic crisis is to create jobs and put people back to work.

Please remember, if you don’t stand up for rural Oregon no one will!

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