Budget and Revenue
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
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,
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
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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