Oregon government spending addiction
already been said regarding the ongoing Oregon
government spending addiction. Our Legislative Assembly
has a long tradition of spending all available revenue.
Moreover, it has not been content to spend only the
During the past ten
years, it has authorized the extensive borrowing of
money to “invest” in a variety of public projects. We
can certainly debate the wisdom and the return on
investment of each of those projects. What is not
debatable is the reality of the ongoing costs required
to pay the principle and interest on the accumulated
debt. That debt service is the first budget priority
and, for the most part, is due and payable for at least
the next twenty years.
Oregon’s net revenue
from its state-run lottery has been averaging a little
more than one billion dollars for each two-year budget
period. The State has been borrowing against that
“earning capacity”. Lottery revenue bonds are secured by
future lottery net earnings. The principle and interest
on current lottery revenue bonds obligations is about
$250 million per budget period. This means that about
one fourth of all future lottery revenue is obligated to
pay the debt service on lottery revenue bonds for about
the next twenty years.
The State’s net General
Fund revenue is estimated to be about sixteen billion
dollars for this two-year budget period. The principle
and interest on already issued general obligations bonds
secured by future general fund revenue is about $800
million. This means that about five percent of general
fund revenue is obligated to pay the debt service on
general obligations bonds for about the next twenty
The combined cost of
debt service on current and authorized lottery and
general fund borrowing exceeds five hundred million
dollars each year for the next twenty years. To put that
amount of money into perspective, it would pay the fully
loaded compensation of more than 6,500 state employees
such as teachers, counselors, school administrators,
police, firemen, and other employees that provide
critically needed services. Those potential employees
will not be hired, and will not provide needed services,
for at least the next twenty years, because that money
is dedicated to repay the principle and interest on
Legislative assembly has also authorized borrowing
against other sources of revenue.
As late as 2005, the
Oregon Department of Transportation was virtually debt
free. The agency had a long history of paying for new
construction projects and funding the costs of ongoing
maintenance and operations from current revenue.
However, that “pay as you go” policy ended when the
Legislative Assembly made the policy choice to borrow
money to build current projects and to secure the debt
with future revenue.
Money was subsequently
borrowed to fund the three Oregon Transportation
Investment Acts (OTIA), the Jobs and Transportation Act
(JTA), five Connect Oregon Acts designed to enhance
intermodal freight, plus a variety of transit projects
and other transportation ventures. Future state highway
funds and future lottery revenue were mortgaged to pay
the principle and interest on the debt accumulated by
these projects. The principle and interest payment on
that accumulated debt will be nearly $300 million per
year for the next twenty years.
To put that amount of
money into perspective, the estimated cost to overlay
pavement on an “average” mile of two-lane highway is
about $1 million. Over the next twenty years, about
6,000 miles of highway will not be repaved, because that
money is obligated to pay the debt service on the
The Department has
complained that their revenue from motor fuel taxes is
not keeping up with expenses because automobiles are
getting better fuel mileage. They are currently running
test projects designed to evaluate the efficiency and
equity of shifting to a tax on miles travelled as
opposed to the current tax on fuel used. The fact of the
matter is that the alleged decline in revenue resulting
from better fuel mileage is hardly a drop in the bucket
compared to the twenty-two percent of the Department’s
total revenue that is obligated to pay the principle and
interest payments on their accumulated debt.
It is against that
dismal backdrop that the plans are being made to borrow
at least another one and a half billion dollars to build
a new interstate five bridge across the Columbia River (CRC).
The proposal includes some creative financing and taps
two streams of future revenue that have not before been
encumbered by highway construction.
About $380 million of
the proposed debt is to be financed by General
Obligation bonds. The principle and interest on that
debt would be paid by Oregon taxpayers over the next
twenty years out of the General Fund. I estimate the
annual debt service on that mortgage to be a little less
than $30 million, with a total principle and interest
cost of about $600 million over the term of the loan.
About one and a quarter
billion dollars of the proposed debt would be financed
by revenue bonds whose principle and interest would be
paid by money collected from future tolls on the CRC
Bridge. The plan is to access the Transportation
Infrastructure Finance and Innovation Act (TIFIA) to
secure a federally guaranteed loan for $892 million that
provides fixed interest rate less than three percent for
up to 35 years. I estimate the annual debt service cost
of that loan at a little more than $40 million, with a
total principle and interest cost of about one billion
four hundred fifty million dollars over the 35 year term
of the loan.
However, the provisions
of the TIFIA credit instrument require the loan to be
“supported in whole or in part from user charges or
other dedicated non-federal funding sources that also
secure the obligations”. I interpret that provision to
mean that Oregon taxpayers must pay the difference in
the event that tolling revenue is not sufficient to pay
the annual debt service on the federal loan. The current
formula being used to predict future toll revenue is
flawed at best and appears to significantly overstate
potential future tolling receipts.
Another $68 million of
project costs would be provided on a pay-as-you-go basis
by ODOT. The source of funding to pay yet another $86
million in mitigation costs has not been identified.
The question is not
whether the State of Oregon and the Department of
Transportation have the capacity to incur more debt.
Both entities maintain good credit and bond ratings that
allow them to be able to continue to borrow money under
favorable loan conditions with very low interest rates.
The better questions
ask whether it is prudent financial policy to continue
to maintain maxed-out credit status. Is it good
farsighted monetary strategy to buy now and pay later?
Is it appropriate fiscal policy to expect the next
generation to pay for infrastructure that we cannot
afford to build today?
Please remember, if we do not
stand up for rural Oregon no one will.