FW: Oregon in Freefall--Revenue Drops $377.5 Million

August 26, 2010

Dear Colleagues,

Rep. Dennis ® is a PI attorney from Central Point

yes he is a “conservative” when it comes to money but who is also a

long time chiropractic patient, as is his wife and eight children! He

helped me tons during the 2005 legislative session with the IME issue and our

workers comp study bill and as Speaker Pro Tem gave an arousing speech on the

lousy track record of medicine in Oregon’s Workers Comp System and

supported fully our HB-2588…he was standing at the Speaker’s Podium

when he addressed the chamber that day. Subsequent to that speech the

House overwhelmingly voted in support of our Work comp study bill I think the

vote was 53 yes, 4-6 no. Dennis is a straight shooter and a friend of the

profession his words about where we are at here in Oregon dollar wise and how

we got there and where we look to be headed are worth the read…..BTW I’m

a registered “Independent” voter.

Cheers,

Vern Saboe

From: Representative

Dennis [mailto:rep.dennisrichardson@...]

Sent: Thursday, August 26, 2010 3:05 PM

vsaboe@...

Subject: Oregon in Freefall--Revenue Drops $377.5 Million

Rep.

's Newsletter

August 26, 2010

Oregon in Freefall--

Revenue Drops $377.5 Million

I am State Representative Dennis

and I write this newsletter for Oregonians interested in what can

be done to make Oregon a better place to live and work.

Today, the

Oregon’s State Economist released the Quarterly Revenue Forecast that

shows a reduction of $377.5 Million in expected revenue for the

remaining ten months of this biennium. (Click Here.) This

news was expected. It is the fifth straight reduction in revenue estimates

for 2009-11, and demonstrates that Oregon continues in economic free-fall.

In fact,

this is Oregon’s ninth negative revenue forecast in the past 27 months.

(Click here.)

The

following graph depicts only the five quarterly forecasts since the June 2009

close-of-session (COS).

History has

a sobering way of repeating itself. In March, 2007 the legislature crafted a

budget based on a woefully optimist revenue forecast. I wrote the following

on March 27, 2007, “…When the euphoria over the increased funding

for nearly every agency and program subsides, we fiscal conservatives are

left with the nagging question, ‘How will such increases be sustained

in the future?’ Even when you allow for the 1% allocated to the new

Rainy Day Fund, a net spending increase of more than 18% above the current

biennial budget is breath-taking. I can only sit here and shake my head.

After all, the voters have spoken; the liberals are in charge; and, who am I

to rain on their parade. It’s like the Roaring Twenties…Happy

Days are here again.” Those days of high spending and heavy borrowing

are over. The sobering days of the dark decade that followed the Roaring

Twenties are now upon us.

Two changes

made since the Great Depression have avoided much of the trauma experienced

during the 1930’s.

1. The

unemployed have income—more than two years of unemployment benefits

averaging more than $300 per week have avoided the long lines at soup

kitchens and have kept millions of American families in their homes; and,

2. The

financial panic and runs on banks by terror-stricken depositors has been

avoided-- the Federal Reserve has a strategy of announcing the insolvency of

banks (103 so far this year) late on Friday afternoons, announcements made

with calm assurances that larger banks always assume the insolvent

banks’ accounts and assets, and the transition will be seamless for

depositors.

It is no

surprise that Oregon is in finacial free-fall. The May 2009 economic and

revenue forecast was the basis for the 2009-11 State Budget. Although the May

2009 forecast anticipated $12.5 Billion in General Fund revenues, it was down

$532.5 million from the forecast released only two months earlier in March

2009. (Click here.)

Notwithstanding the clear indication from such a large revenue

reduction—not to mention the reductions in the previous four Revenue

Forecasts—in June of 2009 the Oregon Legislature ended the session by

balancing the 2009-11 State Budget using the declining revenue figure as well

as $1.6 Billion of federal stimulus money and other “one-time”

revenues. (Click

here.) Draining Oregon’s savings accounts and accepting huge grants

of federal “stimulus” money might have made sense if there was

reason to believe we were in a short-term recession. In that event, such

money would be merely a bridge to the rising side of a “V” shaped

recovery. Instead, we had reason to believe then and we should clearly

recognize now, we are living in a multi-year “L” shaped

recession/depression and the spending of $1.6 Billion of one-time money was a

bridge to nowhere.

In short,

the bridge funding is over and Oregon’s economy is continuing its fall

into dark waters of economic depression. As President Reagan once said,

“A recession is when your neighbor loses his job. A depression is when

you lose yours.”

The

freefall in Oregon revenues raises two questions:

1. What

is causing Oregon revenues to plummet?

The June

Revenue Forecast dropped $526 million from the March Forecast, only three

months earlier. Today the September Revenue Forecast dropped another $377.5

million lower than the June Forecast. How is it possible for 10 consecutive

Revenue Forecasts to be wrong? One reason for the string of flawed revenue

forecasts is the reliance on overly optimistic assumptions. One such

assumption has been that personal income tax withholdings would increase 6%

this biennium, while they have increased only 2%. Oregon has had a year of

10% unemployment or higher, and fewer workers employed results in less

personal income taxes being withhold; in addition, those who have private

sector jobs in Oregon are making less money.

Notwithstanding

the precipitous reduction in personal income tax withholdings, corporate

income tax revenues have actually risen. Corporate tax revenue increases

might be attributed to the tax increases contained in Measure 67--that

remains to be seen. They might be attributed to a recovery in Oregon’s

economy. When considered more closely, the opposite may be true. There are

two primary ways for a business to increase its taxable income: increase

sales or decrease expenses while retaining cash that might have been invested

in depreciable or deductible items.

Consumer

statistics show that inflation and consumption are both quite low. Oregonians

are buying less, using less credit, paying down debt where possible, and

saving more than they have saved in recent years. Thus, with retail sales

flat, businesses are not generating more income from an increase in sales.

The additional corporate taxes showing up in Oregon’s coffers likely

results from increases in taxable revenues resulting from money saved by

reductions in workforce, lowering wages and other costs, and retaining capital

instead of investing it in rolling stock, business expansion and other tax

deductible or depreciable expenditures. In short, businesses may be paying

taxes on retained capital that would normally have been spent in

tax-deductible ways if the businesses were growing and investing in the

future.

The bottom

line is this: 93% of Oregon’s General Fund revenues are income tax

related, and notwithstanding wishful forecasting to the contrary,

Oregon’s workers and businesses are not generating the income tax revenue

the State Economist has estimated for the past nine quarterly forecasts.

2. How

should Oregon’s leaders respond to plummeting revenues?

Basic

economic principles apply to everyone—individuals, families, businesses

and governments. Here is one such basic principle: When you cannot pay your

bills, you must increase income, decrease expenditures or do both.

Increase

Income.

Our elected officials have contributed to Oregon’s economic drought by

increasing taxes in a recessionary economy, and by incurring large amounts of

long-term debt.

The passing

of Measures 66 and 67 have dramatically chilled Oregon’s business

climate by instituting the highest personal income tax in America (11%--tied

with Hawaii), and installing a corporate sales tax based on the volume of

business sales, regardless of the profitability or profit margin of the

company. lin described such actions as “penny wise and

pound foolish.” Businesses and high earning individuals are attracted

by incentives and repelled by constraints. Economic research has demonstrated

that high tax jurisdictions drive away business (and the jobs they create),

while low tax jurisdictions attract such businesses. (Click here.)

Oregon’s high income tax and regulatory environment are contributing

factors to Oregon’s higher-than-national-average unemployment rate.

In addition

to tax increases, Oregon’s legislature has dramatically increased our

State’s long-term debt. Government debt for the State is much like

household debt for individuals—after spending the immediate influx of

cash, the temporary benefit is replaced by the burdensome reality of having

to pay the money back with interest.

In 2006 Oregon’s

“Net Tax-Supported Debt” was roughly $6 Billion. By the end of

the current 2009-11 biennium, Oregon’s debt-load will exceed $9.6

Billion in Net Tax Supported Debt—a 57% increase in long-term debt

in less than four years. In only two biennia, Oregon went from a low debt

state to one of the highest indebted states in America. (Click here.) The

cost of servicing Oregon’s high debt levels is extremely expensive.

Large amounts of revenue are diverted from high priority uses for decades.

The total payments for all Oregon debt over the next two years is $1.3

Billion. (Click

here.)

Decrease

Expenditures.

As I see it, the expected shortfall for the 2011-13 Oregon State Budget will

exceed $4 Billion. This opinion is based on the following:

(1.) The

$1.3 billion reduction in revenue since the June 2009 close of session is not

just foreboding, it is indicative of a new and austere era in Oregon revenues

and spending.

(2.) The

likelihood of replacing the $1.6 Billion of one-time money used to create the

current State Budget, is a pipedream. The State Economist estimated a 6.5%

growth in income to support a forecast for $1.8 billion in new income tax

revenue for the 2011-13 biennium. I’m no economist, but when I look at

the declining revenue chart above, the precipitous drop in housing prices and

demand, the perennial level of high unemployment, the lack of consumer

confidence and spending, and the lack of available credit even though

interest rates are at an all-time low, it is clear to me, our economy is not

in recovery. The $1.6 billion in one-time spending used to balance our

current budget is not coming back for a long time.

(3.) The

dramatic increase in PERS employer payments will cost the State $400-$500

million in additional PERS payments in 2011-13 and $1 billion in 2013-15. The

PERS problem is dramatic and systemic. To learn more about it see the PERS

March and April newsletters at www.dennisrichardson.org.

(4.) The

$2.3 Billion required to maintain the Current Service Level (CSL) of State

government in 2011-13 cannot be paid. (Click here.) In sum,

there is no way to deal with such a large financial hole without cutting

costs, programs and services. Oregon’s new Governor and Legislators

wlll be forced to look at all options and take hard budget-bill votes in

order to balance the 2011-13 State Budget—not to mention the additional

cuts that will be required to maintain a balanced budget for the remaining

ten months of the current biennium.

Oregon is

not the only state to suffer reductions in revenues. Oregon budget advisors

and legislators would be wise to consider carefully what is being done in

other states. The National Conference of State Legislatures (NCSL) has

gathered information on what budget balancing measures are being used in all

50 states. To see a sampling and how they might be used in Oregon, Click here. NCSL is

an excellent resource to legislators in all 50 states. When we legislators

utilize the research and services provided by NCSL we gather information and

ideas in an effective, efficient and economical manner, without having to

“reinvent the wheel.”

In closing,

Oregon’s financial situation is dire. With revenues falling, with the

economy floundering and with expenses skyrocketing, there is no alternative

but for the State of Oregon to change its ways. Oregon has spent too much in

the past and has failed to make cuts when they could have been made more

discretely. Now such myopic spending practices are coming home to roost.

There will be no quick economic recovery and we should adjust our living and

spending habits accordingly. It will require creative and courageous new ways

of running our State if we are to balance our Budget and restore a vibrant

economy. Effective leadership will require the willingness to learn from

other jurisdictions, eliminate non-essential programs (and they are not all

essential), and restructure Oregon government with a more lean and efficient

design.

It is up to

us, the people, to see that our elected officials make the changes necessary

to reform and restore our government of the people, by the people and for the

people.

If you have

ideas that could help Oregon resolve its financial problems or if you know of

areas we should look at to cut waste, or redesign agencies & programs,

please share them on the Newsletter Blog (Click

here.)

Now is the

time.

Sincerely,

Dennis

State Representative

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August 26, 2010

From: vsaboe

[mailto:vsaboe@...]

Sent: Thursday, August 26, 2010 3:48 PM

' Cha'

Subject: FW: Oregon in Freefall--Revenue Drops $377.5 Million

Dear Colleagues,

Rep. Dennis ® is a PI attorney from Central Point

yes he is a “conservative” when it comes to money but who is also a long time

chiropractic patient, as is his wife and eight children! He helped me

tons during the 2005 legislative session with the IME issue and our workers

comp study bill and as Speaker Pro Tem gave an arousing speech on the lousy

track record of medicine in Oregon’s Workers Comp System and supported fully

our HB-2588…he was standing at the Speaker’s Podium when he addressed the

chamber that day. Subsequent to that speech the House overwhelmingly voted

in support of our Work comp study bill I think the vote was 53 yes, 4-6

no. Dennis is a straight shooter and a friend of the profession his words

about where we are at here in Oregon dollar wise and how we got there and where

we look to be headed are worth the read…..BTW I’m a registered “Independent”

voter.

Cheers,

Vern Saboe

From: Representative

Dennis [mailto:rep.dennisrichardson@...]

Sent: Thursday, August 26, 2010 3:05 PM

vsaboe@...

Subject: Oregon in Freefall--Revenue Drops $377.5 Million

Rep.

's Newsletter

August 26, 2010

Oregon in Freefall--

Revenue Drops $377.5 Million

I am State Representative Dennis

and I write this newsletter for Oregonians interested in what can

be done to make Oregon a better place to live and work.

Today, the

Oregon’s State Economist released the Quarterly Revenue Forecast that shows a

reduction of $377.5 Million in expected revenue for the remaining ten

months of this biennium. (Click Here.) This

news was expected. It is the fifth straight reduction in revenue estimates

for 2009-11, and demonstrates that Oregon continues in economic free-fall.

In fact,

this is Oregon’s ninth negative revenue forecast in the past 27 months. (Click here.)

The

following graph depicts only the five quarterly forecasts since the June 2009

close-of-session (COS).

History has

a sobering way of repeating itself. In March, 2007 the legislature crafted a

budget based on a woefully optimist revenue forecast. I wrote the following

on March 27, 2007, “…When the euphoria over the increased funding for nearly

every agency and program subsides, we fiscal conservatives are left with the

nagging question, ‘How will such increases be sustained in the future?’ Even

when you allow for the 1% allocated to the new Rainy Day Fund, a net spending

increase of more than 18% above the current biennial budget is breath-taking.

I can only sit here and shake my head. After all, the voters have spoken; the

liberals are in charge; and, who am I to rain on their parade. It’s like the

Roaring Twenties…Happy Days are here again.” Those days of high spending and

heavy borrowing are over. The sobering days of the dark decade that followed

the Roaring Twenties are now upon us.

Two changes

made since the Great Depression have avoided much of the trauma experienced

during the 1930’s.

1. The

unemployed have income—more than two years of unemployment benefits averaging

more than $300 per week have avoided the long lines at soup kitchens and have

kept millions of American families in their homes; and,

2. The

financial panic and runs on banks by terror-stricken depositors has been

avoided-- the Federal Reserve has a strategy of announcing the insolvency of

banks (103 so far this year) late on Friday afternoons, announcements made

with calm assurances that larger banks always assume the insolvent banks’

accounts and assets, and the transition will be seamless for depositors.

It is no

surprise that Oregon is in finacial free-fall. The May 2009 economic and revenue

forecast was the basis for the 2009-11 State Budget. Although the May 2009

forecast anticipated $12.5 Billion in General Fund revenues, it was down

$532.5 million from the forecast released only two months earlier in March

2009. (Click here.)

Notwithstanding the clear indication from such a large revenue reduction—not

to mention the reductions in the previous four Revenue Forecasts—in June of

2009 the Oregon Legislature ended the session by balancing the 2009-11 State

Budget using the declining revenue figure as well as $1.6 Billion of federal

stimulus money and other “one-time” revenues. (Click here.)

Draining Oregon’s savings accounts and accepting huge grants of federal

“stimulus” money might have made sense if there was reason to believe we were

in a short-term recession. In that event, such money would be merely a bridge

to the rising side of a “V” shaped recovery. Instead, we had reason to

believe then and we should clearly recognize now, we are living in a

multi-year “L” shaped recession/depression and the spending of $1.6 Billion

of one-time money was a bridge to nowhere.

In short,

the bridge funding is over and Oregon’s economy is continuing its fall into

dark waters of economic depression. As President Reagan once said, “A

recession is when your neighbor loses his job. A depression is when you lose

yours.”