A beautiful early Spring Saturday afternoon: sunny, blue sky, light breeze, almost warm. Of course what people want on a day like that is to spend 90 minutes listening to policy wonks talk about the state of Oregon’s finances. What better way to enjoy the day?

As it turned out, a few dozen of us chose to do exactly that yesterday afternoon. We do what we can to keep Portland weird.

It was billed as the “Financial State of the State” and was hosted by Rep Jules Bailey. Joining him were State Economist Tom Potiowsky, who spoke about Oregon’s recent economic history (we never miss a recession!) and Rep Tina Kotek, a member of the Ways and Means Committee, who talked about the budget: how Oregon spends its money. Rep Bailey must have drawn the short straw because he got to talk about “revenues” — ie, taxes.

While it may have been too nice a day to be inside, the material presented should be required basic knowledge for anyone making a decision on Oregon’s taxes or how we spend the state’s money. That would include all voters. Since I was one of the few chuckleheaded enough to show up for the town hall hosted by Rep Jules Bailey, I’ll share what I learned so you can take your time — and save it for a dark, rainy evening.

State Economist Tom Potiowsky on Economic History & Forecasting

If your vision of an economist is a bland little man unable to converse with adults in plain English, then you need to meet Tom Potiowsky. While skilled in the occult arts of economics, he can present material as drearily as a legislative committee needs it or with the kind of verve that holds the interest of a small group of interested citizens. Seriously. Book him for your next party of activists wanting to change Oregon. Here are the highlights:

• Oregon has never missed a single recession or recovery. We don’t necessarily match what happens in the rest of the country exactly, but we’re close enough that national issues and events matter to Oregon. A lot.
• The recession ended last fall (September 22nd, in the middle of the afternoon, a fact he challenges anyone to refute) and, while some aspects have been welcome — exports to the Pacific Rim in particular — there are enough other issues to make him warn that, in 2010, the recovery will be “soft”.
• In terms of joblessness, we’re doing better now than we were a year ago, but still worse than most of the rest of the country.
• Underemployment ranges 17-20%, everything from those who’ve quit working to those working an enforced part-time. Underemployment, says Potiowsky, is a “better measure of the stress that’s happening”.
• The 2000s were a “lost decade”: Oregon had two back-to-back recessions and the economy in 2010 is basically where it was in 2000, despite population growth and other factors.

In May of 2009, as the State Economist does every other year, he presented his forecast for the coming biennium (2009-11). That forecast does not merely serve as a guide for the State’s budget process; it sets the ceiling on spending. Potiowsky, in answer to my question, said “my forecast should be more advisory rather than … us setting the budget”. Two big points:

‘Nuff said.

Rep Jules Bailey: Revenues

Rep Bailey knows how to rock the PowerPoint (although I suspect he’s using Keynote; it does have a certain sexiness Microsoft will never have). And while all most people care to know about taxes is how much they hate them, he has the facts a citizen needs to understand why hatred is not good enough for a democracy.

• Measure 5 (1980) cut property taxes by over 40% but it also forced the state and local governments to “trade places” in funding education. Where the state used to pick up 30% of the tab, it now pays 70% (and vice versa for local governments).
• Oregon’s overall tax burden ranks 34th in the nation. We’re 3rd or 4th in terms of personal income tax (the uncertainty stems from the unknown effects of Measure 66) but this is offset by one small detail: we have no sales tax.
• Oregon’s personal income tax is twice the national average, but in most states, people pay almost equally sales and personal income tax. It’s a wash.
• In 2007, just months before the Great Recession began, Oregon returned $1.1 billion in “excess” revenues back to tax payers. The kicker has “kicked” over $2 billion since being instituted, but the 2007 rebate helped ensure Oregon’s recession would be especially horrific.
• We now have a rainy day fund and education savings fund to help cushion economic blows, but guess what? If the economy recovers in just the wrong way, we could still see a kicker despite the huge economic problems of this biennium. The kicker only looks at revenues within the biennium, not the need for those revenues in coming years.
• Tax credits are not a silver bullet: We cannot reduce these enough to fix Oregon’s budget.

Sen Diane Rosenbaum added a few comments, beginning with the observation that Oregon’s tax system could not be crazier if we’d been trying to make it so. She said she is hopeful, despite everything, because of the vote of Oregonians in January to restore a measure of tax fairness. But she also warned that whatever the Legislature tried to do, it would be voters who made the final decision because everything gets referred to voters.

Rep Tina Kotek: Where your money goes

Rep Kotek serves on the Ways and Means Committee which writes Oregon’s budget, and she began with a Budget Primer.

• The overall budget is the “Total Fund” budget (TF); in this biennium it comes to $56 billion.
• The General Fund (GF) — where income taxes and property taxes go — is approximate 25% of the budget. 95% of the GF goes to 3 things: education, health care and public safety. This is the money the Legislature has to “spend”.
• The Lottery Fund (LF) is spent with the GF but is less than 2% of the TF.
• Federal monies amount to 25% of the TF. This is money that is targeted to specific programs.
• The major part of the TF is “Other Funds” (OF): fees, licenses, etc. Like Federal funds, OF monies are targeted and not part of the Legislature’s spending.
• In all, about 60% of the TF goes to local governments, and the biggest share goes to schools.
• The 2007-09 budget, while an increase in the amount of the TF, was actually 1% lower than the previous biennium. (Numbers can never stand alone; they must always be measured against something relevant.)
• EBL: Essential Budget Level. This is what is required to keep spending on programs current as the state moves from biennial budget to biennial budget.

The 2009-11 biennium included a 12% reduction from the EBL. 2011-13 is expected to fall $2.5 billion short. With revenues unlikely to increase enough to keep up with budgetary needs, and most of the programs that are funded in the GF already cut to the bone (as a superintendent described his school districts budget to me in January), the Legislature will have to:

• find efficiencies
• prioritize essential programs (ie, decide which ones are “non-essential” and can be cut)
• examine tax loopholes

PERS, which several people asked about (and the cost of which is spread throughout various parts of the GF), is stable in comparison to retirement programs in other states. However, like everything else, the problems in the stock market have had an effect on PERS accounts.

A member of the audience made the point that Oregonians whose private pensions have been destroyed by the economic meltdown look at PERS beneficiaries who are not only sheltered from the destruction but able to pick up extra money working state jobs — and it just pisses people off. None of the electeds argued with the comment.

Finally, Rep Kotek noted that when Republicans ran the Legislature, instead of spending money on programs, they handed out tax credits. In terms of the budget, a tax credit is an expenditure, so the huge amount of tax credits in the budget — an amount that will soon be greater than the GF — means the Legislature is going to have go beyond what they did in 2009 (requiring all tax credits to sunset and be reviewed) and actually deep-six those which no longer serve a sufficient purpose. However, she said, nothing fills up a committee room at the Capital like a hearing on a tax credit. And not with citizens but lobbyists, paid to save the tax credit. How much did she think could be saved via ending unnecessary tax credits? Maybe $100 million.