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|Sadler's Sense: Why We Must Pay the Piper Now
Government is treating its fiscal affairs just like the American family treats theirs -- going into debt by pledging tomorrow's income for today's purchases.
By Russell Sadler
Posted on Feb 1, 2004
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It is the conservative's most cherished cliché. Government must tighten its belt during hard times just like American families tighten their belts. State Rep. Randy Miller, R-West Linn expressed this cliché most recently in a letter to the State's Largest Daily Newspaper.
"It is government's unwillingness to face the same realities of a reduced or flat income stream that working Oregonians have experienced over the past two years that has caused the fiscal crunch. A spendthrift should not be rewarded with more money," he wrote urging defeat of the budget-balancing Measure 30.
Miller, who co-chairs the Legislature's budget-writing Ways and Means Committee, can be excused for his naiveté about "working Oregonians." Miller is a wealthy man who got his money the old-fashioned way. He inherited it.
In the real world, "working Oregonians," like other working Americans, have not allowed a "reduced or flat income stream" trouble them much in the last two years. Most Americans went into debt while their savings declined.
The most recent figures from the Federal Reserve show consumer debt hit a record $1.98 trillion dollars in October, 2003. Consumer debt now averages some $18,700 per household. Credit card debt alone is $735 billion -- nearly $7,000 a household. Since about 40 percent of credit card users pay their bills each month, the average credit card debt per indebted household is closer to $12,000. The two percent drop in savings means families lack the means to deal with financial emergencies, much less their retirement.
Ironically, the conservative's cliché is accurate. Government is treating its fiscal affairs just like the American family treats theirs -- going into debt by pledging tomorrow's income for today's purchases.
The conservative Bush administration is spending more than the liberal Carter and Clinton administrations. The Bush administration's recent estimate of a $450 billion deficit this fiscal year is $151 billion higher than previous estimates. The deficit will be made up borrowing money. The largest buyer of American debt so far is the Chinese government.
Nor is the Republican penchant for borrowing to avoid raising taxes limited to the Bush administration. In Oregon, short-term, unsecured borrowing has ballooned by more than $1.3 billion since the Republicans took control of the Oregon Legislature.
Since the early 1990s, the State of Oregon has sold about $856 million in "Certificates of Participation." This is a form of bonded debt that does not require voter approval because it simply pledges future tax receipts to pay off the bonds. Two-thirds of the $856 million was spent to buy land and build prisons to house the felons convicted under Measure 11 -- Kevin Mannix' minimum-sentencing initiative approved by voters in 1994. The remaining third of the money was spent on capital investments like a crime lab for the State Police, computer systems for state agencies and an underground parking lot at the State Capitol.
After the defeat of Measure 28 in January 2003, the State Economist told the Legislature it not have enough cash to pay its bills through the end of the budget period that ended in June, 2003. The Republican leadership plugged the hole by ordering State Treasurer Randall Edwards to issue $450 million in "Oregon Appropriation Bonds" to pay for the state's remaining operating expenses. Borrowing was apparently the Republicans' "Secret Plan." The collateral for these 10-year bonds is nothing more than a promise to pay them off from future General Fund income tax revenues. The interest for plugging the deficit in the last budget period is $120 million over the next decade. The money is gone -- spent on operating costs. Edwards, a Democrat, is quietly telling the Republican leadership that if Measure 30 fails this February, the markets will brand Oregon as fiscally irresponsible if it borrows again to plug this budget period's deficit.
During the same period the Republican legislative leadership borrowed more than $1.3 billion dollars, it cooked the state's books pretending there was a budget "surplus" justifying "kicker" income tax refunds. During the period the Republicans have controlled the Legislature, they have refunded $1.1 billion in personal income taxes and $370 million in corporate income taxes -- for a total of about $1.3 billion. The interest cost of this partisan shell game is more than $300 million dollars over the next 20 years.
Rep. Miller may not have been a ringleader in this fiscal legerdemain, but as co-chair of the budget-writing Ways and Means Committee he is unarguably an accomplice.
Oregon did not need new taxes or even tax reform. It just needed to keep the all tax money it collected over the last decade. If the Legislature had not "refunded" the fake "surplus," the state budget would be balanced today without much of the borrowing.
Lack of a balanced budget, increased short-term borrowing and fear of initiative petitions increasing spending while other initiatives limit revenues caused three bond rating agencies to reduce Oregon's credit rating within the last few months, effectively raising the interest rate on future Oregon bonds.
Confidence of the markets can only be restored by paying Oregon's bills when due. The passage of Measure 30 would be only the first step in rescuing Oregon from the Republican leadership's fiscal malpractice.
Copyright © 2004 by Russell Sadler
Editor's note: Columnist Russell Sadler is spending the winter in Eugene writing a short history of Oregon for tourists and newcomers. He can be reached at firstname.lastname@example.org
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