It is unfortunate when dire predictions become reality.
 

In a June 23^rd e-newsletter I wrote “State income from taxes has been steadily declining for more than three years. The state economist has predicted a dramatic reversal of that three-year trend in state revenue. He now assumes that the state’s income will cease its freefall and increase by more than $100 million during the next two years. His predictions for the past three years have been both uniformly over-optimistic and demonstrably incorrect.” The actual revenue collected during the 2009-11 budget period was more than one billion dollars less than the state economist predicted would be available. “Never the less, his predicted revenue increase is being considered hard revenue by legislative leadership. That yet to be realized income is being included in budgeted spending just as if it actually existed.”
 

The new September revenue forecast now predicts total general fund and lottery revenue to be $199.2 million less than the former state economist’s over-optimistic prognostication made last May. The fact of the matter is that state revenue is simply continuing it’s more than three year free fall. In my opinion, that progressive deterioration will continue until your legislature takes positive action to address the causes of our statewide economic malaise. We cannot and will not experience improving state revenue until our private sector employment recovers.
 

Thank goodness that Ways and Means co-chair Representative Dennis Richardson stood by his principles and insisted on maintaining $460 million in reserve ending balances. Dennis was much maligned by representatives of organized labor, the press and even his Democrat Ways and Means co-chairs. Our state budgets would already be underwater and in need of immediate reductions without his principled stand and conservative foresight. As it is, nearly half of that financial cushion has evaporated in the first two months of the twenty four month budget period.
 

Unfortunately, the state economist’s incorrect prediction is not the only unsound assumption adopted in crafting Oregon’s budgets. As I also wrote in that June 23^rd e-newsletter “The Oregon Health Authority budget assumes $239 million in savings during the second year of the two-year budget cycle. The proposed savings is alleged to be the result of some yet to be defined transformations in how medical care is delivered in Oregon. In my opinion, no meaningful savings can be achieved without at least dealing with medical liability reform and creating some form of price negotiation at the point of medical care delivery.” When I asked the Governor what the contingency would be if that savings did not materialize he responded that at that time there was no plan B. Virtually the entire reserve balance is wiped out in the event that this savings fails to materialize.
 

Unconfirmed assumptions were also adopted that additional health care savings in excess of $50 million could be realized. In addition, I would estimate the outcome of the recently completed public employees’ labor negotiations will add more than $50 million to the stress on our “balanced” budgets. Moreover, the current budgets are constructed for state agencies to utilize more than half of the budgeted revenue during the first year of the biennium in anticipation of increased revenue becoming available in the second year of the budget period.
 

Taking all these factors into consideration, the first constitutional annual Legislative session to be held in February may become an interesting exercise in budget reductions.

Gail and I will be participating in the Oregon Conservative Policy Summit located in Medford on August 29^th and 30^th. The conference is focused on identifying the specific reasons for Oregon’s private sector economic malaise and setting Legislative agendas to address those causes. Specifically we hope to identify obstacles to private sector hiring and job creation. We look forward to spending a great deal of time listening to what our Southern Oregon business community has to say about the nature of Oregon government.
 

Please remember, if we do not stand up for rural Oregon no one will.
 

Best regards,
 

Doug