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Senator Doug Whitsett R- Klamath Falls, District 28, Newsletter 4/10/09


Fuzzy Government Math

The Essential Budget Level (EBL) for state spending is defined as the amount of money required to maintain all state services at the current service level for the next budget cycle adjusted for expected case load for each agency.

            The Co-Chairs of the budget writing Ways & Means Committee are projecting a revenue shortfall of at least $4.4 billion from what is needed to sustain the EBL. In my opinion, the calculation of this huge projected “deficit” requires some fuzzy math.

The budget adopted by the legislature for 2007-09 was approximately $15.1 billion. This was about a 20 percent increase from the previous 2005-07 budget period. Because of the sharp economic downturn, the projected revenue income for 2007-09 did not materialize. For that reason, the legislature has imposed nearly one billion dollars in spending reductions to rebalance the current budget. Therefore, the actual spending for the 2007-09 budget period is now projected to be closer to $14.1 billion which is still about a 14 percent increase from the previous budget.

We are now projecting about $12.7 billion in available revenue for the next budget period. For the purpose of reference, that is a little more than the amount that was spent in the 2005-07 budget.

The difference between the $14.1 billion spent in 2007-09, and the estimated $12.7 billion to be available for 2009-11, is about $1.4 billion. When that $1.4 billion deficit is reduced by about $900 million in federal stimulus dollars, and by an additional $900 million in state money held in reserve in the combined Rainy Day Fund and Education Stability Funds the shortfall is more than filled. In fact, we could have as much as $400 million more to spend if all those available reserves were used.

The striking $4.4 billion difference projected by the Co-Chairs is where the fuzzy math comes in. The first billion dollars is the difference between the $15.1 billion that was projected to be available to spend and the $14.1 that was actually available to spend. Most of the rest of the difference is in what politicians call roll-up costs. They are the combined calculated inflation in government costs, projected increases in case loads, and in the promised increase in public employee salary and benefits. The preponderance of that promised compensation increase for the next budget was provided by Governor Kulongoski without legislative authorization or approval.

Private sector inflation is near zero, private sector wage increases are non-existent, and private sector unemployment is well into double digits in Oregon. If public sector inflation was also held to near zero, and if public sector salaries and benefits were held at 2007-09 levels, it appears that the remaining deficit could be eliminated by less than a five percent reduction in state employee jobs. In fact, I believe even that five percent reduction in state employees could be prevented through other available budget adjustments.

According to the Department of Administrative Services, in 2008 the average Oregon state employee earned $68,139 in salary and benefits. If they were to agree to a compensation freeze at 2007 negotiated levels for salary and benefits, most state employee jobs could be preserved and the vital services that they perform could be continued at near current levels. We could also freeze the non-compensation government inflation rate at 2007 levels. The only significant variable remaining would be case load adjustments that must be serviced. These services would necessarily be prioritized by critical need in order to stay within available resources. For more on state employee compensation, see this USA Today article on the increasing pay gap between public and private sector emplo yees.

Many of the figures used in this analysis are subject to change as the economic situation continues to run its course. The bottom line is that the estimated revenue for the 2009-11 budget plus the $1.8 billion available in federal stimulus and state reserves may actually be several hundred million dollars more than we actually spent in the 2007-09 budget. That difference may be as much as a 3 percent increase in actual spending capacity for the next budget compared to the amount actually to be spent in the current budget period. To keep it in perspective that projected amount available to spend is still greater than 15 percent more than was spent in the 2005-07 budget.

Stimulus Package Progress Report

As you may remember, a state stimulus bill to combat unemployment was one of the first pieces of legislation passed during this 2009 session. That bill required borrowing more than $175 million to spend on deferred maintenance projects that were calculated to create over 3,000 jobs. Those who promoted the bill guaranteed that these projects had been carefully analyzed to be “shovel ready,” and that the projects would put unemployed people to work no later than April 1, 2009. They were so certain of their figures that they did not allow a single amendment to the bill. They refused to include any other available projects suggested by other legislators, cities or counties. The legislation was hammered through both chambers primarily along a party line vote. It was signed into law with great fanfare by Governor Kulongoski.

I voted against the majority party’s stimulus plan even though it provided significant stimulus money to be spent in our senate district. I voted no because I do not believe that it is good economic policy to borrow money long term to perform current maintenance expenses. I was also deeply concerned that the plan would not create the jobs that it promised.

April 1 has come and gone. Only about one out of seven of the promised “shovel ready” projects have been started by the April 1 deadline imposed in the stimulus bill. According to the Salem Statesman Journal, sixteen new jobs have been created to date. At the current rate, the entire $175 million stimulus plan would create a few more than 100 new jobs. The bill is structured so that taxpayers will pay back the borrowed $175 million with interest over the next 15 to 20 years. The total cost is expected to exceed $250 million.

Senate President Courtney (D-Salem/Gervais/Woodburn) is quoted in that newspaper as saying that the delayed response to the stimulus package is due to “oversight, oversight, oversight.” We trust that this “oversight” will explain why the cost appears to be about $1.5 million, plus interest, for each new job created. Speaker of the House Dave Hunt (D-Clackamas County) indicated that he was satisfied with the current progress of the stimulus package expenditures.

I think that we can all agree that a cost exceeding two million dollars for each temporary job created is not acceptable fiscal policy. For the sake of the Oregon taxpayers, and of the unemployed workers, we can only hope that the job creation performance of the economic stimulus package will improve.

Ways & Means Community Hearings

As mentioned in our last newsletter, the Joint Committee on Ways & Means will be holding a series of public hearings in various communities in Oregon to take public input on the agency proposed reduction lists. Below are the dates and locations of each hearing. Please take a moment to consider attending a hearing near you and share with us your questions, concerns, and opinions.

April 20th – Lincoln City
Lincoln City Cultural Center
6:00 – 9:00 p.m.

April 21st – Portland
Portland Community College
Cascade Campus Moriarty Arts and Humanities Building Auditorium
6:00 – 9:00 p.m.

April 23rd – Salem
State Capitol, Hearing Room F
(Video links to communities TBD)
6:00 – 9:00 p.m.

April 29th – Bend
Location TBD
6:00 – 9:00 p.m.

April 30th – Ashland
Southern Oregon University
Stevenson Union, Rogue River Room
6:00 – 9:00 p.m.

May 1st – Eugene
University of Oregon
Prince Lucien Campbell Hall, Room 180
1:00 – 4:00 p.m.

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