Mode-Hot 2011

About what I expected: slightly better but no tidal wave of new revenue to save the state.  The new forecast predicts an additional $128 million for the next biennium.  Always nice to have more, but realistically, this is hardly enough to make a real difference. It is clear that this is going to be a long and slow recovery and it will take time to recover the lost revenues.  In the meantime public school districts are resorting to draconian measures to further diminish what already is an embarrassment of a public education system.



Anyway here are a couple of pictures from the presentation to the legislature this morning.



The first is the graph of Personal Income Tax Collections presented as a % change from one year ago (3 month moving sum):

The second is revenue growth relative to the March forecast - corporate is doing better than forecast but personal is doing worse:





In the mean time lawmakers will haver another $40 million plus hole to fill before the end of the current fiscal year.

I direct your attention to a nice post from the Wall Street Journal's economics blog on this report from the OECD on heath care spending across advanced nations.  You may know that the US does poorly in terms of the control of health care costs, but this points out just how poorly we do.  We spend 141% more than the OECD average on health care.



From the post:

A new report finds that the U.S. spends far more on health care than any of the other 29 OECD nations, and gets less health for its money. Annual public and private health-care spending in the U.S. stands at $7,538 per person, 2.41 times the OECD average and 51% more than the second-biggest spender, Norway. Meanwhile, average U.S. life expectancy is 77.9 years, less than the OECD average of 79.4.



Improving the health-care system could go a long way toward fixing the U.S. government’s finances. The OECD estimates that if the U.S. reached the efficiency level of the best-performing countries, the government could save the equivalent of 2.7% of economic output every year. That’s enough to solve about a third of the country’s budget-deficit problem.



The hard part is figuring out how to make the system work better. Here, the report attempts to derive some guidance from the experience of the most successful countries.



Interestingly, the type of system doesn’t seem to matter much. Countries with state-run systems do about as well on average as countries with private systems. Among the things that do matter: Consumers need to have some skin in the game, through mechanisms such as co-payments; care needs to be well-coordinated among doctors’ offices, hospitals and nursing homes; providers of care need incentives to do a better job, such as pay for performance; and the price and quality of services should be better monitored and easier to see.



Many of those features are included in the health-care law the U.S. passed last year, though much has yet to be implemented. Improvements are undoubtedly possible. Whatever we decide to do, it’s time we did something.

The health care reform act was a powerful step in the right direction and I think it behooves those opposed to it on budgetary grounds to explain how other reform, like health care vouchers would both guarantee access to basic health care and control costs.

From the O:

At a minimum make this in real dollars, not nominal, but if you really want to inform, take out the federal dollars and put this in terms of percent of state GDP.



By the way, this is the construction site across the street from my office (which is located behind the photographer). Remember the wee little roller that was causing unsettlingly large tremors in my 100+ year-old brick building?  This is the reason.  When this cascade subduction quake-zilla thingy goes down I hope I am no where near my office...

In an otherwise very solid piece on the Oregon budget crisis by Harry Esteve in The Oregonian, there are a few high profile misfires.  I am most disappointed in this list which I think is misleading:

Eight reasons Oregon is in deep budget trouble

1. Recession: Unlike past economic troughs, this one was too deep, too vicious to muddle through with nips and tucks.

2. No sales tax: Our heavy dependence on income taxes to pay for schools and state programs leaves us vulnerable when jobs dry up.

3. Failure to apply spending brakes: Lawmakers went on a spree in 2007 that came back to bite them.

4. Dinky savings accounts: The state's first-ever rainy day fund, established in 2007, was all but depleted within two years.

5. Ballot measures approved by voters: Property tax limits, longer prison sentences, kicker rebates and mandatory parks spending leave little wiggle room when income stalls.

6. Public employee benefits: Most state employees get fully paid medical insurance. And the retirement system, despite rollbacks and changes for newer employees, still has old guaranteed returns and present retirement contributions that add up to soaring future costs.

7. Federal stimulus: It saved jobs for two years, but now it's going away and the economy did not recover fast enough to replace it.

8. The kicker: If the economy takes off faster than state officials anticipate, Oregon could be sending money back to individuals and corporations while cutting schools and services.

#1 is clearly correct, this is the worst recession since the great depression, there is no way to escape its downward pull.  But #2 is simply wrong.  As I have illustrated in this blog through a rather extensive bit of research, a sales tax would not solve anything as consumption and income are very highly correlated.  Sales taxes are almost as volatile as income taxes.  It is the shift away from property taxes that contributed most the the current volatility of state revenues - which is alluded to in #5.  [Though Ironically de-coupling property taxes from market values helped a tiny bit as the housing crisis hit] #6 is also misleading.  I don't know of a full accounting for all state employees, but the relatively generous benefits I get as a state employee are more than outweighed by the much lower salary I get relative to my peers.  I accepted a salary that was 25% below a competing offer when I moved back in 2006.  I had a very, very strong preference for living in Oregon, but we are at a competitive disadvantage amongst those without such preferences.



I do agree most strongly with #4 as you all well know.  In fact I think a good rainy-day fund built into the kicker would render the kicker question (#8) moot.   I think this is the #1 priority for the state legislature going into the next session.