The kicker: killing our credit rating
Kari Chisholm
Right now, Oregon's bond rating is AA+, same as the rating given to U.S. treasuries by Standard & Poor's (though the other two rating agencies still have the USA at AAA.)
Brent Barton, the former state representative, had an insightful and timely op-ed in Saturday's Oregonian. Barton notes that if Oregon were able to boost its rating to AAA, it would save taxpayers hundreds of millions of dollars:
Treasurer Ted Wheeler estimates that a better credit rating would save approximately $4.3 million for every $100 million in debt over the life of a bond. Given that the state supports $7.8 billion in bonds, a better credit rating would save hundreds of millions of dollars. Most of this money comes from the state's general fund and could otherwise support schools.
So, what would it take to raise our credit rating to AAA? Well, unlike with your personal credit, the ratings agencies are pretty explicit about what it would take:
When evaluating Oregon bonds earlier this year, Moody's observed: "The constitutional 2 percent 'kicker' that requires refunds of personal and/or corporate income taxes if collections are 2 percent or greater than the budgeted amount ... adds budgetary challenges, including cash flow pressures." There is a reason no other state has adopted Oregon's kicker system.
Incompetent as the ratings agencies may be, they recognize that Oregon's approach to public finance is unstable and, thus, unwise. The best thing we can do to stabilize state government is to divert the kicker into an emergency fund dedicated to protecting vital services. This precaution would liberate Oregon from its financial roller coaster and potentially save hundreds of millions of dollars by improving its credit rating.
That is an excellent point. And one that's been wildly ignored by anti-tax conservatives in our state.
After all, they argue that the kicker is an essential tool for constraining government spending and keeping tax rates low.
But their obsession with the kicker is actually doing the opposite - by driving up the cost of debt, we're wasting taxpayer dollars. If we killed the kicker, or diverted it into a long-term rainy-day savings account, we'd reduce the cost of debt and free up tax dollars for critical investments, or hey, tax cuts.
Whaddya say, political conservatives? Ready to be fiscally conservative?
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4:13 p.m.
Aug 14, '11
Full disclosure: In 2010, my firm built Brent Barton's campaign website. I speak only for myself.
4:32 p.m.
Aug 14, '11
The kicker is not designed to save money; it's designed to hamstring government. The fact that it does more harm to government and the amenities government provides than it gives back in cash is a feature not a bug.
4:44 p.m.
Aug 14, '11
Oh, I agree. If we were smart and starting over, we'd kill the kicker entirely - and then set up a rainy-day savings program that was independent of budgetary forecasts.
But given that we have the kicker, I think it makes sense to have it kick into a savings fund that can create some stability.
8:29 p.m.
Aug 14, '11
The problem is that no one trusts the government to not spend it if you redirect it to any kind of fund owned by the government. I am sure that everyone will all say “Oh it will only be spent if we REALLY REALLY need it”… and then the very next year and every year after that, we will “REALLY REALLY need it”.
Also we already have a “rainy day fund”, and I would have no problem increasing that if our politicians could actually balance a budget. Instead of really balancing the budget our Oregon government has made various assumptions about savings that may never actually occur ($310 Mil from assumptions about the current ending year balance, and $239 Mil from Oregon Health Authority, and many others totaling $650 Mil).
11:22 p.m.
Aug 14, '11
"The problem is that no one trusts the government to not spend it..."
It seems Moody's trusts the government to not spend it, otherwise why would they bother citing the kicker as a problem?
10:27 a.m.
Aug 15, '11
Saying the kicker “adds budgetary challenges” is far from saying that they trust the government not to spend it when it isn’t needed if it were redirected.
12:08 a.m.
Aug 16, '11
I tracked down the Moody’s rating review under discussion. Cited as credit challenges are the reliance on income taxes, the kicker, and high levels of debt. You’re claiming the only thing that matters is spending and debt, but for Moody’s two out of three of their concerns are about revenue stability. Moody's priorities are even clearer in the outlook:
“The credit outlook for the State of Oregon is stable... Oregon's unusually high dependence on personal income taxes poses downside forecast risk given the deeper-than-expected economic downturn. The constitutional 2% kicker prevents Oregon from fully capturing the revenue boost during periods of economic strength although building up the state's RDF is expected to have a positive effect on the state's long-term fiscal health. Oregon's now above average debt ratios are expected to rise slightly but remain manageable.”
Blow all the smoke you want about debt, to the people paid to think about it the word is "manageable".
6:12 a.m.
Aug 16, '11
So Moody's is really saying that the primary issue is Oregon's unusually high dependence on personal income taxes.
7:50 p.m.
Aug 16, '11
The income tax and the kicker are complimentary issues. The income tax creates volatility while the kicker hampers the adopted remedy (reserves).
It’s true you could attack the problem through the tax mix, but a pint says kicker reform happens before a sales tax.
1:28 p.m.
Aug 15, '11
Devin,
Most kicker reform proposals that I have seen would dictate the "when" and "how" the kicker money could be spent in tough economic times. So the issue of trust would be built into how the law is written.
6:23 p.m.
Aug 15, '11
The law can be changed according to the desires of the lobbyists who control what his happening, not you and I. Any empowerment of government is often a disenfranchisement of self. This is true even if you are on the dole.