March 6, 2009 Volume 110 Number 5

Oregon: Weak economy blows hole in state budget

Widespread job losses and swiftly falling business incomes have blown a hole in the budget of the State of Oregon, which relies on personal and corporate income tax to pay for schools, prisons, and social services. The 2007-2009 budget is coming up $800 million short, and projections are for a $3 billion shortfall in the 2009-2011 budget. That could spell a shortened school year and a host of other cuts.

Oregon Gov. Ted Kulongoski is asking public employee unions to agree to a wage freeze, step freeze, and 26 mandatory unpaid days off in the contract that would begin July 1 — and then come back in December for more bargaining over wages and health insurance.

“It’s the worst proposal I’ve seen in over 30 years,” said Oregon AFSCME Council 75 Executive Director Ken Allen, whose union represents 7,000 state workers. Twenty-four unpaid days would amount to one furlough day per month for two years — and a nearly 5 percent cut in the workers’ take-home pay. Allen said public employees are prepared to consider sacrifices, but not until reserve funds have been tapped, and the Legislature does its job on the income side.

“A revenue crisis demands a revenue solution,” said Chuck Sheketoff of the Oregon Center for Public Policy, a union-friendly think tank that advocates for a fairer tax system. Oregon is in a revenue crisis, Sheketoff said, not a spending crisis, yet lawmakers’ first reaction is more often to cut programs.

“When you have a tax measure, you have winners and losers, and the winners are never as grateful as the losers are vocal,” Sheketoff said.

But the crisis atmosphere is emboldening lawmakers to take a look at tax increase proposals that didn’t get traction two years ago.

Revenue proposals originate in the House of Representatives, and last week the House Revenue Committee held hearings on a number of ideas for new revenue. Allen said AFSCME and other unions are backing tax proposals that don’t harm the working class.

The biggest would be a new and higher income tax bracket for the wealthiest income tax payers — individuals making more than $125,000 and families earning $250,000 or more. High-income taxpayers have seen their taxes go down substantially at the federal level in the last decade.

“To us it’s a no-brainer,” Allen said. “It’s what Barack Obama campaigned on in Oregon, and he won by 14 or 15 points, so it’s not controversial.”

If lawmakers fail to act on that proposal, Allen said AFSCME and the Oregon AFL-CIO are committed to pursuing a ballot measure that would do it.

Other revenue proposals under consideration:

  • Increase Oregon’s beer tax — currently the lowest in the United States and untouched in 32 years. Proceeds would be dedicated to drug and alcohol treatment, and that would free up those funds for other uses.

  • Increase the corporate minimum tax — currently $10 a year, and untouched since 1930. That’s what some of the biggest companies in Oregon pay, if their books don’t happen to show profit in a particular year.

  • End the kicker refund — a practice unique to Oregon that sends money back to taxpayers if overall revenues exceed what the state economist predicts will come in. Those funds would instead be added to the state “rainy day” fund for use when revenues drop, as they are now.

  • Slow down the amount of money going out the door in the form of tax breaks, like the Business Energy Tax Credit, a subsidy for renewable energy that cost the Oregon treasury $200 million last year.

“What we’re saying to Legislature is, ‘You need to raise the revenue to plug these budget holes and protect services, and then we’ll be ready to make whatever smaller sacrifice we have to make,’” Allen said.

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