OREGON STATE ECONOMIC STATUS
The latest Oregon Economic Forecast is at
best deceptive. The state economist forecasts a $62 million
increase in state revenue for the fourth quarter of 2010.
This allegedly breaks an uninterrupted string of nine
consecutive quarters of declining state revenue.
Unfortunately, the so-called increase in
state revenue is entirely the result of an accounting
gimmick. That accounting trick should result in jail time if
attempted by any private sector businessman or accountant.
The explanation is somewhat convoluted.
The Oregon Department of Revenue increased
the percentage of state
income tax withholding to begin January 1st. This is not a
tax increase. It is a change in the timing of when the tax
is collected. The action was allegedly taken because not
enough money was being withheld, resulting in the need for
too many taxpayers to write a check on April 15th.
Most of those affected by the income tax
withholding increase will be
taxpayers earning less than $50,000 per year. They will
receive less net pay each
month allowing the government to use those funds during the
tax year. Excess withholdings will be refunded when their
tax returns are filed.
The State will now withhold approximately
$200 million more per year from Oregonians’ paychecks. That
means they will collect about $100 million more during the
first half of 2011, which is the last quarter of the current
2009-11 budget cycle.
The accounting gimmick is to count that
withholding as revenue in this budget cycle even though the
money represents tax revenue for 2011 that is due and
payable April 15, 2012.
The further deception is that much of the
increase in withholding must be refunded to taxpayers after
they file their 2011 tax returns in 2012. Those projected
refunds will be deducted from the revenue for the next
budget cycle for 2011-13.
In the absence of this accounting smoke and
mirrors, the economic forecast would have projected a tenth
consecutive quarter of yet another $40 million reduction in
The close of session revenue forecast for
June 2009 estimated general fund revenue for this budget
cycle at $13.6 billion. That estimate is now calculated at
$12.3 billion after ten consecutive quarters of reduced
state revenue. The cumulative loss in state general fund
revenue for this budget cycle now totals more than $1.3
billion. That revenue loss computes to about $1,200 for each
Oregon family of four.
The primary cause of the continuing loss in
state revenue is the ongoing loss in Oregon private sector
jobs. All of the state revenue used to pay for services and
public employee compensation originates from the private
During this recession, the private sector
has lost more than 150,000 jobs, while state government has
added more than 4,000 jobs. We do not have to be economists
to understand that equation is not sustainable.
A FIVE BILLION DOLLAR GENERAL FUND BUDGET
Smoke and mirrors forecasts and deceptive
accounting will not change the facts. The Oregon Legislature
is faced with a daunting task in order to balance the next
The current budgets used about $1.6 billion
of one time revenue from federal grants, state reserves, and
transfers of agency ending fund balances. Those sources of
revenue are unlikely to be available for the next budgets.
Another $2.2 billion is needed to maintain
Oregon current service levels under current budgeting
policies. These “roll-up” costs include increases in public
employee compensation through salary step increases, cost of
living increases, higher cost of medical insurance and
higher cost of retirement benefits; increased cost of new
debt service, expanded projected case loads, and the cost
of any new or expanded services.
The state economist is actually predicting
higher general fund revenue for the next budget cycle.
However, the ongoing loss of $1.3 billion of state revenue
in the current budget cycle must first be replaced before
general fund revenue can actually grow. My concern is that
after ten consecutive quarters of general fund revenue
decline that reversal appears unlikely to occur and is more
likely to continue.
The sum of these projected shortfalls is $5.1 billion. This
means that Oregon appears to have at least $5.1 billion less
general fund revenue available than is required to continue
state government business as usual. That shortfall equates
to about $5,300 dollars for each Oregon family of four.
We often joke about California’s absurd
budget deficits. Unfortunately, Oregon faces a much larger
budget problem than California when computed on a per capita
It is apparent that the money is not
available to continue Oregon state government as it is
currently run. The time has come when your state government
must live within its means. Even Governor Kulongoski’s
bipartisan Reset Cabinet Report made that crystal clear.
That Reset Cabinet calculated that three out
of every four general fund dollars are currently being spent
on public employee compensation. Your state legislature must
identify and fund core government services, find ways to
reduce the cost of those core services, combine state
services wherever possible, privatize other services and
even privatize entire agencies, as well as simply
eliminating many discretionary services.
What needs to be done is unmistakable. The
question is will the Governor and the Legislators have the
fortitude to get it done?
MORE SPECIFICS ON THE “GREEN JOB ECONOMY”
Oregon is making an all out effort to
shift to a green-based economy. Unfortunately, the nearly
two decades of political effort has netted only about 50,000
green jobs. Moreover, a preponderance of those green jobs is
held by government and utility employees, and most of those
green jobs are subsidized with taxpayer or utility ratepayer
The more than 98 percent of Oregonians
working at non-green jobs are subsidizing the 50,000
employees that are working at green jobs. Further, the
higher tax and utility rates that are necessary to create
and sustain these subsidies cause tens of thousands of
private sector jobs not to be created.
A grand example of this process is outlined
in a recent “White House memo on Renewable Energy Loan
Guarantees and Grants” written by White House advisors Larry
Summers, Carol Browner and Ron Klain. The eight page memo
describes, and summarizes, the financing for the Shepherds
Flat wind farm to be located on thirty square miles of
private land adjacent to the Columbia River Gorge near
The immense Shepherds Flat project will
consist of 338 General Electric wind turbines, capable of
maximum generation of 845 megawatts. The project is
estimated to cost about $1.9 billion. It will employ about
400 workers during construction. When completed, it will add
about $16 million to Oregon’s annual economy in the form of
property taxes and land owner royalties.
The rest of the storey is less encouraging.
After construction, the entire project will
provide only about 35 green jobs. The average generation
capacity will be about one third of the projected 845
megawatt hours because the wind is a variable resource. When
the wind does not blow the wind generation stops and must be
replaced with back-up generation sources such as hydro and
The memo states that the electricity to be
generated by the Shepherds Flat project has already been
contracted to Southern California Edison so it will not
directly benefit Oregonians.
The project owners will invest a maximum of
about $200 million into the project. They expect to earn an
annual return of 30 percent on that equity investment
calculating to about $60 million of profit each year.
At the same time, taxpayers and ratepayers
will be paying $1,238,000,000 (one billion two hundred
thirty eight million dollars) of the project construction
and generation costs in the form of grants, tax credits,
accelerated depreciation, loan guarantees, and in the
premiums paid for the renewable wind power.
The White House memo explains these costs
in some detail.
The federal 1603 Grant provides 30 percent
of the project construction cost. It is calculated to equal
the value of a 30 percent investment tax credit and is
provided as a grant at the start of the project. That Grant
is equal to $500 million for the Shepherds Flat project.
The Oregon Business Energy Tax Credit
provides a separate $18 million dollars to the project from
Oregon tax revenue.
The project will be allowed to accelerate
the depreciation of the project assets thereby increasing
the tax deduction for both state and federal income tax.
That accelerated deduction will save the project another
$200 million dollars.
The federal government will guarantee that
the project loans are repaid in a timely manner. The cost of
that $1,300,000,000 (one billion three hundred million
dollar) loan guarantee is estimated to be $300 million
The total of more than one billion dollars
of grants, tax credits, accelerated depreciation and loan
guarantees will all be paid by taxpaying citizens.
The Oregon Renewable Portfolio Standard
requires utilities to purchase electricity from renewable
energy generation sources. According to the memo, the
Renewable Portfolio Standard premium to be paid for wind
power generated at Shepherds Flat will cost ratepayers $220
million dollars. That subsidy is necessary because the
project cannot generate electricity at a competitive cost;
therefore, it requires cost adjustment in order to be sold
on the open utility market. Project owners and utilities are
immune from these costs because the Renewable Portfolio
Standard mandates that the costs to be transferred to the
The estimated sixty million dollar per year,
thirty percent return on
equity investment expected by the project owner is possible
only because of the
tax credits, grants, guarantees and subsidies that will be
paid by taxpayers and utility ratepayers. The project
cannot, and will not, produce electricity at competitive
rates. Taxpayers and utility ratepayers will continue to
bear the excess costs while the company is profiting.
The Shepherds Flat project alone will suck
more than one and a quarter billion dollars out of the
private sector economy. The incredible number of private
sector non-green jobs that will never be created as a direct
result of this project, and its thirty five green jobs, is
an exercise for an economist to calculate.
The project is expected to reduce carbon
dioxide emissions by about eighteen million tons through the
year 2033. Some people may believe that the project’s cost
is worth the alleged environmental benefits. However, the
White House memo points out that the carbon reduction would
have to be valued at nearly $130 per ton of CO2 for the
alleged climate benefits to equal the cost to taxpayers and
ratepayers. That amount is more than six times the current
value of the maximum CO reduction-climate-benefit estimated
by the U.S. Government.
In this instance, it certainly appears that
big government is paying big business to build and operate
uncompetitive energy generation facilities using taxpayer
and ratepayer funding to insure that big business profits.
The White House memo is available on line at: “Summers
renewable energy memo”.
It should be downloaded and studied by every
citizen because it clearly delineates the economic absurdity
of some of these renewable energy investments.
Please remember that if we do not stand up
for rural Oregon no one will.