By the time this editorial is published, the November general election will be history.
By the time this editorial is
published, the November general election will be history. Governor Kulongoski
will be serving the final two years of his term and will be ineligible
to seek re-election.
More than likely he will have Democrats in control of both houses of
the Legislature. The only real question will be whether the Democrats
will have attained “super-majority” status in the House of
Representatives (they already have it in the Senate) such that they can
pass tax increases without referral to the voters.
Kulongoski entered the governor’s office near the end of a recession
that began under President Clinton. It was a relatively mild recession
nationally and was further softened by President Bush’s tax cuts.
Oregon did not fair quite so well.
Now Kulongoski is likely to leave office in the middle of another recession
begun under President Bush. In contrast, this recession will be much harsher
due to the greed on Wall Street, the ineptitude of the current Congress,
and the specific intention of Congressional Democrats to let the Bush
tax cuts expire, thus raising taxes on individuals, business and capital
gains at the very time that we need to pump more money into the economy
rather than into government.
Oregon entered that first recession before the rest of the nation and
trailed the rest of the nation by almost a year in its recovery. By all
accounts, Kulongoski’s performance during the first recession would
earn him an “F.”
The governor’s first reaction was to raise taxes rather than control
spending. Twice during that recession Kulongoski supported massive tax
increases — the largest in Oregon’s history. Both times the
state’s voters turned back those tax increases by overwhelming majorities.
In the end, despite soaring rhetoric about prioritizing the state’s
needs, Kulongoski allowed the budget to default to across-the-board budget
cuts. During the process not a single program was eliminated. Government
spending may have dipped slightly, but not a single public employee lost
his or her job. The public employee unions proved once again that the
intended beneficiaries of public spending come second to their employees
and their generous benefits.
Beyond that, Kulongoski did little other than appoint blue ribbon commissions
whose advice he subsequently ignored. Even as the economy improved nationally,
Kulongoski was unable to capitalize on its resurgence or Oregon’s
unique status as a gateway to world commerce. Instead he focused on a
myriad of “green dreams” and shunned the historic natural
resource industries of the state. He kept the state forests locked up.
He allowed (some say encouraged) the union organization of growers to
the point that they ended their production. He waved goodbye to a succession
of large businesses that had their roots in Oregon, including Louisiana
Pacific and Freightliner.
Forty thousand jobs were lost during that first recession, and while
that number was eventually recovered, it was a different mix. Growth in
employment came heaviest in government employment and the hospitality
business (primarily minimum wage jobs). Between the beginning of 2007
and the beginning of 2008, Oregon once again lost another 23,000 jobs
in manufacturing and construction, and as the recession intensifies, those
numbers will grow.
The mistakes of the past are most likely to be repeated. Kulongoski is
easily the least “economically literate” governor that Oregon
has had in modern times. He is a labor lawyer and, except for a brief
stint in private practice representing the likes of the public employee
unions, he has spent most of his working life as a government official.
His principal advisors are former union officials, and he has routinely
eschewed advice from his own Council of Economic Advisors. He even sought
through an intermediary to intimidate several of them for critical comments
made in this magazine. (It is one thing to be ignorant, and it is quite
another to be ignorant and clasp your hands over your ears in fear that
someone might tell you so.)
But, with almost no expectation that Kulongoski will listen, we choose
to plow ahead with some practical advice on leadership during this current
1. Cut spending now. Former Gov. John Kitzhaber
deliberately maintained spending at the legislatively approved levels
even though he and the Legislature knew that the revenues were insufficient
to sustain that level of spending. He did it precisely to make the pain
in the final quarters of the biennium more acute so as to bolster his
chances of winning a tax increase. The net result was that the state was
forced to take all of the cuts in the final quarter instead of spreading
them out over a period of six quarters. Let’s not repeat that cynical
2. Cull those illegally in this country from healthcare
and welfare rolls. To this day, no one knows with any degree of
accuracy how many illegal immigrants are receiving healthcare or welfare
financed by Oregonians. The Federation for Immigration Reform estimated
that Oregon’s illegal immigrant population in 2005 was 139,000 and
has been growing ever since. The Kulongoski administration (like the Kitzhaber
administration before it) has routinely refused to determine the number
of illegal immigrants receiving healthcare or welfare benefits, and neither
the governor nor the secretary of state (who is charged by law with the
auditing function) have systematically checked to determine the real eligibility.
3. Freeze public employment. At any given
time there are a significant number of public employee jobs that have
been requisitioned but not filled. In addition, a certain number of people
routinely retire or leave public employment. In both such instances, the
jobs should remain unfilled (with the exception of law enforcement).
4. Fund education first. During his unsuccessful
gubernatorial primary campaign, Sen. Jason Atkinson promised to give the
Legislature 80 days to pass an education budget and promised to veto every
piece of legislation thereafter until such an education budget was passed
and approved. Kulongoski should do likewise. The governor and the Legislature
realize that the education budget is the public’s major concerned;
consequently, they hold it out until the end. They expend the budget to
fund their pet projects and less popular programs and then use the lack
of remaining dollars to fully fund education as an excuse to raise taxes
or fees. By funding education first and early, the governor and the legislature
would have to show their hands regarding the remainder of the budget.
Those less popular programs and pet programs would have to bear the lion’s
share of budget reductions.
5. Cull those illegally in this country from the
public education system. Since state payments to local schools
are based upon the average number attending, elimination of illegal migrants
from the education system will reduce the payments required from a stressed
state education budget.
These five simple steps may not provide a total cure for the anticipated
$2 billion shortfall for the next biennium, but they will eliminate a
substantial portion of the shortfall leaving the governor and the Legislature
an easier task to prioritize spending on the remaining programs.
Five additional suggestions should help prepare Oregon to regain lost
ground as the rest of the nation pulls out of the recession:
1. Reduce the capital gains tax by one-half. That
can be done by either reducing the rate or exempting one-half the gain
from state taxation. Every economist worth his/her salt will tell you
that the ability to attract new capital to a state is the touchstone for
future growth. Continuing to treat capital gains as ordinary income is
the antithesis for attracting new capital. There is no better time to
undertake this than during this economic downturn. History taught us that
during the last recession, revenue from taxing capital gains dropped to
near zero simply because there were no gains to tax. The precipitous drop
in the stock market coupled with the recession indicates the same will
be true in this recession. Reducing a tax that produces nearly nothing
will cause little budget pain and will produce a clear signal that Oregon
is once again open for business.
2. Eliminate all of the education mandates imposed
by the Legislature. The cost of implementing, tracking and reporting
on these mandates imposes an unnecessary burden on the budget.
3. Rescind all promised salary increases to government
executives. While the governor rescinded the paltry cost of living
portion of those raises, it only reduced the average 33 percent raise by
3 percent. Most government executives currently earn in excess of comparable
positions in the private sector. There is no need to gild that lily.
4. Renegotiate the unprecedented 12 percent salary
increase to public employee union members. Bring those increases
in line with what other public employees are receiving — about 3.5
5. Meet with your Council of Economic Advisors.
Apologize for ignoring them for the past six years and confess that you
don’t understand what drives the economy. Promise to listen this time
and act accordingly.
Given Gov. Kulongoski’s performance during the last recession,
our expectation is that he will respond as he always has — with
a series of tax increases. And for two more years Oregonians will watch
the continued out-migration of business and good paying jobs.