by Oregon Senator Doug Whitsett 1/14/10

In the political arena the old adage “follow the money” is usually sage advice. The tsunami of advertisement urging us to vote for the tax increases is being sponsored primarily by the public employee unions. In fact, the last figure that I saw on January 11^th showed about three fourths of the advertising funding that is being spent to pass the two tax measures is coming from four unions:

Service Employees International Union……………………………...$866,000.00

American Federation of State, County, and Municipal Employees...  $1,000,000.00

Oregon Education Association the National Education Association   $1,657,000.00

American Federation of Teachers…………………………………… $250,000.00

Total public employee union contribution…………………………...$3,774,000.00

Those four public employee unions alone have outspent the entire Oregon business community nearly two to one.

We would hope that these unions are looking out for the Oregonians that the public employee members serve; however, we should be aware that they may be looking out for their own pocket books. The two tax measures are estimated to raise about $727 million in new tax revenue. As much as 80% of the new tax dollars will be needed to pay Oregon public employees. Nearly 40% of that amount is needed to pay the increase in salary and benefits for the current and newly hired State public employee union members. Although the numbers are hard to accumulate from the nearly 200 Oregon school districts and education service districts, it appears that as much as another 40% of the tax revenue is needed to pay the increased salaries and benefits negotiated for classified employees and teachers employed by those districts. The foregoing estimates do not include the cost of employee compensation for the seven universities in the Oregon University System and the employees of the seventeen community colleges.

WHO PAYS

These taxes are retroactive to January 1, 2009. An Oregon Department of Revenue news release this week asked all Oregonians to delay filing their tax returns until after the tax ballot measures have been decided to avoid having to amend their tax forms. Why would the Department make that public request if only about two percent of Oregon taxpayers will be affected? The advertisements try to convince you that only the very rich and only the largest corporations will pay these new taxes. The fact is that two thirds of the Oregonians that will pay these taxes are the main street small and medium sized businesses that employ more than two thirds of all Oregonians, and that create more than 90% of all new private sector jobs. Further, businesses must pass their increased cost on to the customers that they serve in order to remain in business. There are no free taxes!

PERMANENT JOB KILLING TAXES

Both these tax increases are not temporary increases designed to weather the current economic storm.  They are in fact permanent new taxes that a number of respected economists calculate will cost between 70,000 and 100,000 private sector jobs. According to the Department of Employment, Oregon has already lost more than 130,000 private sector jobs just since January 2008. The unemployment rate has more than doubled leaving more than a quarter of a million Oregonians now unemployed. When those who were previously self employed, those who have stopped looking for work, those who have been unemployed too long to continue to receive unemployment benefits, and those who are working part time are included the state rate of underemployment is likely between 25% and 30%.We can ill afford adding another 100,000 to the unemployment roles by voting for these tax measures.

Even President Barrack Obama stated “raising taxes is the last thing you want to do during a deep recession”.

SPENDING HAS NOT BEEN CUT

Contrary to what you are being told, the current budgets have not been cut. The current budgets are in fact a 9.3%, $4.7 billion dollar increase in spending over the previous budgets. Just the $4.7 billion increase amounts to $5,000 more spending for each Oregon family of four. Moreover, Oregon government spending has increased an absurd 37% in just the past four years.

To understand the shell game being played we need to understand what is called the Essential Budget Level (EBL). EBL is calculated by starting with the previous budget as the base. It assumes that all state positions are of equal priority and necessity. It then adds the cost of employee pay increases, cost of living adjustments and increased cost of benefits. It then adds the cost of compensating the additional new employees hired to mange new programs as well as the other costs of those new programs. It then adds the cost of the agencies’ estimate of expanded case levels. It then adds the cost of the ongoing debt service to repay the principle and interest of any new money borrowed during the last budget period. When all these additions have been summed up, the estimate of the cost of maintaining the current service levels is called the EBL. The increased cost of EBL has ranged from about10% to more than 20% for the past three decades. Even under the current difficult economic conditions the EBL is 9.3% higher than the last budget. Any proposed funding that is less than EBL is considered a cut.

REVENUE SOURCES

          The Oregon budgets are derived from four primary revenue sources. The general fund in combination with lottery funds make up about one fourth of the budgets. The general fund is derived almost entirely from personal and corporate income taxes. Lottery funds are derived from the state’s share of the state lottery profits. Other Funds makes up about one half of the budgets and is derived from fees, licenses, registrations, and other charges. Federal funds make up the last

fourth of the budget and are derived from federal grants to the states that are usually limited to use for a specific purpose.

          The Legislature primarily deals with budgeting the proceeds of the general fund and lottery revenue. Contrary to what you are being asked to believe, the current general fund/lottery has $465 million more to spend than was available in the last budget. The $727 million in new taxes on the January ballot amounts to only five percent of the general fund. When we subtract the $465 million in new general fund spending, the actual general fund shortfall is only $262 million. It is less than a two percent shortfall from the last budget. Does anyone out there actually believe that the sky will fall and that state government will cease to exist as we know it if we should have to reduce general fund spending by less than two percent? The fact of the matter is that the entire $727 million to be raised by the two tax measures is barely more than one percent of the entire $56.9 billion budgets.

ALTERNATIVES

Oregon’s Other Funds budgets are more than $27 billion. According to our own state agencies, about $3.3 billion is found in agency Other Fund ending fund balances. The agencies rightfully should maintain enough reserves in their ending fund balances to cover about three months of estimated expenses. However, one large agency has 17 months worth of expenses stored away in its ending fund balances and many others have a great deal more than three months in reserves.

The republican minority has brought forward an alternative budget plan that will fully fund education, human services and public safety without raising taxes. The budgets include targeted savings, non-essential program reductions, use of some reserves, and accessing less than 5% of the identified agency ending fund balances. That alternative plan is being totally ignored by the majority Democrats.

TAX BORROW AND SPEND

Not only is your legislature spending every dime it can get its hands on, it has also borrowed enough money to triple Oregon’s debt during the past five years. The borrowed funds are typically amortized over twenty years essentially passing the cost of repaying the debt on to the next generation. One of the persistent growth factors in the all funds budget that now stand at $56.9 billion is the cost of our ever enlarging debt service. The all funds spending now exceeds $15,000 for every man women and child currently living in Oregon.

If Oregon voters approve the tax measures the spending will continue its out of control spiral. If they vote no they will send a clear message that the unsustainable spending binge in not acceptable. In my opinion, the new taxes are

not necessary, they are ill advised, and they will cause great harm to the Oregon economy.

          Please remember that if we fail to stand up for rural Oregon no one will.

Best regards

Doug