Kicker? The state has no surplus.
Russell Sadler
A witty headline writer called it “Kicker Shock.” It was the news that Oregon taxpayers -- personal and corporate -- would divvy up a record rebate of $665 million. Oregon’s vigorous economy just produced record revenues and the highest “surplus” in the 25 years since the “kicker” went into effect in 1981.
Oregon’s personal income taxpayers will share some $460 million. Corporations doing business in Oregon will divide $205 million.
You are probably thinking all these numbers mean the state is now taking in $665 million more than it is spending and the surplus really should be returned to the taxpayers.
You would be wrong.
The state has no surplus. It is actually operating on borrowed money. Oregon also has the largest unsecured debt in the state’s post-World War II history -- over $1.3 billion.
There is no surplus. The kicker is a fraud, the result of deliberately cooked books and politically convenient fiscal amnesia. A little history is in order.
The kicker was the brainchild of the late Jason Boe, a conservative Democrat from Reedsport, who served as Senate President from 1973-80. The perceptive reader will recognize the latter years of that period as the “stagflation” of the Carter administration.
During this time, Oregonians’ wages rose with the cost of living, lifting them into a higher tax bracket, but rising prices meant there was no increase in buying power. Increased income taxes actually meant some Oregonians had less buying power. Boe’s kicker was designed to prevent the state from profiting from inflation ratcheting taxpayers into higher brackets.
If actual income tax revenues exceeded the state’s budget estimate by more than two percent, all the additional money must be refunded. Voters approved that statute overwhelmingly in 1980. It seemed like a good idea at the time.
By 1981, when the kicker went into effect, Carter’s stagflation was a thing of the past. Ronald Reagan had been elected president. Oregon -- and the rest of the nation -- tobogganed into the deepest recession since the Great Depression. There were no more surpluses -- just deficits and budget cuts for nearly a decade.
Oregon Republicans took control of the Oregon House in 1991 and the Oregon Senate in 1995, just as the the state’s tax revenue was returning to normal. But prudent budgeting during the recession had reduced state revenue estimates so low that the return of prosperity assured that revenues would exceed estimates by more than two percent -- the kicker started kicking in earnest. The problem was the two percent trigger that declared all additional revenues “surplus” had no relationship to the state’s real financial obligations.
For example, 1990’s Ballot Measure 5 shifted billions of dollars in school costs from locally raised property taxes to state-raised income taxes with no new revenue to pay for the shift.
1994’s Ballot Measure 11, imposing mandatory minimum sentences, quadrupled the number of inmates in prison without providing any new money to build and operate new prisons.
Oregon Republicans could not resist the temptation to mail out politically popular “rebate” checks. They cooked the books by declaring certain financial obligations “off the books.” The Legislature’s Republicans simply declared a “surplus,” mailed out the checks and quietly borrowed the money to pay the bills.
During the last 15 years, the Republicans who controlled the Legislature sent out $1.3 billion in “surplus kicker rebates” to personal and corporate income taxpayers. During the same period, Oregon borrowed about $1.3 billion to pay its bills. The only collateral for those “Certificates of Participation” is the promise to pay them off out of future income tax revenues.
The interest on that debt in the 2005-07 budget period is $167 million. At the very least, the $665 million “surplus” could be used to pay down some of that debt and save the next generation the interest costs.
There are other substantial obligations lawmakers like to pretend they do not have. There is the deficit in the politically mismanaged Public Employees Retirement System.
There is the unfunded liability associated with Ballot Measure 37, the developers’ compensation initiative -- potentially one of the largest of the state’s unfunded liabilities.
Despite growing evidence the kicker is an expensive, politically motivated shell game of “borrow and spend,” voters enshrined this political gimmick in the Oregon Constitution in 2000.
Some Republicans spoke out against their party’s reckless “borrow and spend” practices, most noticeably, Sen. Ben Westlund, R-Bend.
Westlund was promptly threatened with a primary opponent who would “take him out.” Westlund decided to run for governor as an independent instead, assuring further public discussion of the fraudulent kicker and its costly consequences. Kicker shock is not how much taxpayers are going to get in “rebates.” Kicker shock is how much those fake “rebates” are costing taxpayers.
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Mar 12, '06
"over $1.3 billion" in "unsecured debt"
That is an understatement. Toss in revenue bonds and PERS bonds, at both the state and local level. Now, these are not technically "appropriations" but could theoretically supplant all need for legislative appropriations other than to the cover debt payments, but always "optionally" limited only by our worry about pissing off bond rating punks as to future debt requests or discounting of current debt.
Mar 12, '06
With even David Reinhard suggesting a kicker fix, somehow I think the days of "kicker is in the constitution and can't even be discussed because the voters have spoken" are or should be discussed.
But how many legislators / challengers will talk publicly about this?
Mar 13, '06
Just think about it as a reverse mortgage on state properties. We're just a couple of constitutional amendments away from using the capital, OHSU, UofO, OSU, state parks, state forests, state roads, etc. as collateral for more loans. I'll bet we could go a few decades without paying any taxes if we played our cards right.
Mar 13, '06
RS:
Please -- The total kicker over the past 15 years has been $1.3 billion -- during the same time the state government budgets have been around around...what....$220 BILLION??? come on...these "kickers" are not even 1% of the budgets over the past 15 years. If you spent them, where would the roll-up budgets be now???? Waiting for the kicker to balance the state's budget is like waiting to hit the state lottery to save for your retirement.
If Democrat continue to use political capital to go after unpredictable revenues (like the kicker) we will lose election and NEVER balance the books in Salem.
The fact is that ever time Democrats say they want to "steal" the kicker" it is for short-term, sort-sighted money and it confirms to the voters that we will spend anything and everything we can get our hands on.
How about skipping the temptation of the kicker and let's talk real tax reform????? How about some solid, thoughtful public policy, rather than the knee-jerk "wow let's take that pot-o-money" reaction to a "voter loved" gimmick --- the kicker is not enough money to fight over.
Be real....
Mar 14, '06
Why isn't getting rid of the kicker tax reform in itself. It's stupid that a state can't have a surplus rainy day fund.
Mar 14, '06
PDX Dude:
Let's assume we can take the kicker this year.....then what?
The Republicans will say that we raised taxes, when we didn't, and then any hope for new revenue options will be off the table.
The kicker is almost no "real" money, we need stable funding, not some stupid chunk of change that happens maybe four times in 20 years.
We have one shot...and the kicker isn't enough to fight over, and the voter like it. Forget it and move on...for the sake of a political future,
Mar 14, '06
Given that the main activity of our Legislature seems to be redistributing Portland income to the rural districts, why shouldn't the state's largest city support Republican-style government-shrinking, applaud the kicker(s), and tax ourselves for our local needs?
Mar 14, '06
Dear Mr. Sadler,
When i was a young man you use to talk politics to me at the Mission Mexican restaurant in Eugene. Now that i am older i am still trying to figure this stuff out and to be honest with you i dont care about the money that i get back, it definately needs to go back to the state. i am in favor of the state using it to go back to all the right places.
Damien Beck
Apr 3, '06
It's come to my attention that Russell Sadler's March 12 op-ed included an egregiously inaccurate statistic. He claimed that Measure 11 "quadrupled the number of inmates in prison". This statistic bears no resemblance to reality. Here are the facts.
On April 1, 1995, when Measure 11 took effect, Oregon's prison population was 7,260. (Source 1: Oregon Department of Corrections)
The October, 2005 prison population forecast estimated that the number of prisoners as of January, 2006 would be 13,040. (Source 2: Oregon Department of Administrative Services)
That is an increase of 5,780 prisoners. Of this, 3,706 prisoners are attributed to the direct or indirect impact of Measure 11 according to the Department of Administrative Services estimate (2488 direct, 1217 indirect). (Source 3: Oregon Department of Administrative Services)
Thus Measure 11 can be said to have caused an increase in prison population of about 50 percent, or one sixth of Mr. Sadler's claim.
In the 1994 election, the voters pamphlet fiscal impact statement estimated that Measure 11 would require an additional 6,085 beds by 2001. (Source 4: Crime Victims United Web site)
The actual number as of July 1, 2001, as estimated by the Department of Administrative Services, was 2,589.
The Measure 11 crimes are Robbery I and II, Assault I and II, Kidnapping I and II, Arson I when it risks causing serious injury or death, Using a Child in a Display of Sexually Explicit Material, Compelling Prostitution, Sexual Abuse I, Rape, Sodomy and Unlawful Sexual Penetration I and II, Manslaughter I and II, Attempted Murder, Attempted Aggravated Murder, and Murder.
In the period from 1995 through 2002, Oregon led the nation in decrease in violent crime rate with a total decrease of 44 percent. (Source 5: Bureau of Justice Statistics). This decrease represented a savings of 34,000 violent crimes relative to the 1995 violent crime rate. We do not claim that Measure 11 is solely responsible for this decrease but we do believe that it made a substantial contribution.
More statistics on Measure 11 can be found at www.crimevictimsunited.org.
Howard Rodstein Crime Victims United
Sources:
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<hr/>Oregon Deparment of Corrections Prison Population History: http://www.doc.state.or.us/research/POPS4.pdf
Oregon Department of Administrative Services, Office of Economic Analysis, prison population forecast: http://www.oea.das.state.or.us/DAS/OEA/docs/prison/prison1005.pdf
Oregon Department of Administrative Services, Office of Economic Analysis. Contact Suzanne Porter and ask for "Measure 11 Impact" data.
Full text of Ballot Measure 11: http://www.crimevictimsunited.org/measure11/measure11fulltext.htm
Bureau of Justice Statistics http://www.ojp.usdoj.gov/bjs