Tim Nesbitt: How Oregon Learned to Save for a Rainy Day
Among the lessons we should take from the past decade is that there is common ground to be found when it comes to taxes and spending.
Tim served as Chief of Staff for Gov. Kulongoski. A former union leader, he lives near Independence and oversees a specialty apple orchard. @TimNesbittOR
Psst! Shh! Don’t tell anyone, but there’s some good news in Gov. Kate Brown’s State budget: Oregon has a lot of money in the bank, more than twice what California has when adjusted for our population and proportionately three times what the State of Washington managed to set aside during the last decade.
It took a while. But Oregon finally learned how to save for a rainy day. As a result, we’re now in a better position to respond to the challenges of the moment than most other states in the nation.
How we accomplished this and what we can learn from this fiscal success story deserves more attention than we’ve given it.
Decades of Deficits Taught Us a Lesson
First a little history.
In the boom times of the 1990s, State income tax revenues grew by an astounding 130%. But most of those gains were siphoned back to schools and local governments to make up for the lost property tax revenues from Measure 5 and Measures 47/50. We managed to get back where we started by the end of the decade, but then…
The 2000s were another story. Two recessions forced the State into a cycle of cutting, patching, and restoring services from budget to budget. We depleted what modest reserves we had managed to accumulate despite warnings of another decade of deficits ahead. And then…
Finally, we managed to start saving for the future. We were helped by steady growth, low inflation, no recessionary setbacks, increased federal funding for health care, and by boosting revenues from sin taxes, business activity taxes, and corporate kicker reform. So now…
We are entering the 2020s with the largest budgetary reserves in state history.
The State Economist estimates we’ll end the current budget period with a total of $3.16 billion set aside in the Education Stability Fund, the Rainy Day Fund, and end-of-year fund balances, even after drawing down $400 million from the education fund earlier this year. These reserves amount to 15% of General Fund revenues collected in the current budget period. But that percentage is based on a two year budget. On an annual basis, Oregon’s reserves now total 30% of the state’s tax receipts.
How good is that?
I looked to the National Association of State Budget Officers (NASBO) for a comparison to the other 49 states.
The answer: Damn good.
Only two states in the country registered higher levels of reserves than Oregon, and those states—North Dakota and Wyoming—will be depleting their reserves as oil and gas tax receipts dry up.
Not Kumbaya, Just Conflicts, Compromises, and Coalitions of Convenience
Success in this case has a thousand parents. It took more than a good economy to produce the reserves we have now. It took compromise in the legislature, alliances of interest groups, and the engagement of diverse constituencies focused on the need to improve funding for schools and health care in particular.
Republicans joined Democrats in the creation of the Education Stability Fund. Democrats acceded to Republican demands for setting aside a portion of year-end surpluses in the Rainy Day Fund. Public unions helped fund the campaigns to win voter support for these proposals and to get rid of the corporate kicker. The business community promoted long-term budgeting for education. Hospitals and health care advocates stepped up to back tobacco tax increases. And, in the end, Oregon voters came through to endorse these reforms on the ballot.
But history, when sketched in broad strokes like these, can be deceiving. There was no Grand Bargain in which Democrats and Republicans agreed to raise taxes in exchange for limiting spending and setting aside funds for the future. Rather the last two decades saw a continuation of partisan conflict over taxes and spending.
What was different this time, compared to the battles of the 1990s, was that anti-tax populism failed the reality test brought on by the recessions of 2001 and 2008. Oregonians learned there was no free lunch when it came to tax cuts. Legislators of both parties turned their attention to restoring funds for schools, engaging communities in health care delivery, and stabilizing budgets across the board. Slowly, budget by budget, we got to better outcomes by expanding the common ground for compromise.
We’ll Need to Prepare for More Knowns and Unknowns in the Future
Sadly, though we may have earned bragging rights for fiscal management on the NASBO website, we’re not hearing any celebrations in Salem. The Governor barely mentioned our reserves in her budget message and was quick to point out that they remain far from adequate to meet the demands of this moment. Plus, she wants to make the best case she can for why we need more help from the Feds. All of that is understandable. But by downplaying our accomplishment in stabilizing budgets, we play into the hands of Mitch McConnell, who contends that blue states are profligate and unworthy of assistance. And, here at home, we risk losing our way on the path to smarter and more responsive budgeting in the future.
Among the lessons we should take from the past decade is that there is common ground to be found when it comes to taxes and spending, provided that the two are tightly connected to the services Oregonians care about and produce results they expect for their money. Another is that we are now more likely to view building reserves as an investment in resilience rather than a sketchy stratagem to sock away tax dollars in slush funds.
These are take-aways that we ought to be talking about as we work through the economic effects of the pandemic and prepare for a decade of challenges brought on by climate change, income inequality, and the known unknowns of potentially more years like 2020.
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#89
I just read your article in the news times about more gun control laws, wow, with 20 thousand anti gun laws already on the books that scum don’t obey you some how feel criminals will obey yours, that is a old failed concept. Disarming good people will not make it safer because bad people still kill and steal your freedom. We have the death penalty that Brown and Kitzhaber both denied us of. It’s proven that the death penalty stops rape, murder and other horrendous crimes. The last mass murder in Illinois was carried out by a mad dog in a human form that had serious mental problems. Thinking that Taking my guns and magazines away will some how prevent more crimes is insane. Russia has the strictest gun laws and the highest death crimes, cars are the number one killer and most every home with children has them. I want to stop deaths also but guns don’t come with trigger fingers and like hammers don’t attack people, people attack people. If you want a good common sense conversation call me. Ron Goulet Toledo Oregon.