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This piece originally ran in the Oregonian on Jan 18.
A recession coupled with a looming state budget deficit provides a rare test of political will and leadership. In the next year, the Oregon Legislature must decide how to cope with mounting job losses that strain the budget of social assistance programs, while at the same time ensuring that revenues are sizable enough to match outlays. While some argue that we should just raise taxes to address the shortfall, that would only exacerbate the problem, contribute to continued job losses, and further erode the discretionary income of Oregon families.
With this new reality in mind, the Oregon legislature cannot raise taxes while Oregon families and businesses suffer. Instead, the legislature must take the lead by controlling spending, cutting and/or freezing new big-government programs, and privatizing some existing government services. The legislature should also reduce barriers to economic growth by removing costly regulations that provide little or no benefit to the public. Finally, the legislature should return more tax dollars to Oregonians to help stimulate economic growth.
The first order of business would be to eliminate Governor Kitzhaber's controversial and intrusive children's initiative and freeze spending on programs enacted in the last two years. What may have seemed like prudent spending when the economy was expanding at a near-record clip is not what is responsible in a time of contraction. Elimination of the children's initiative would save the Oregon taxpayers $59 million, while the freeze on new spending programs would save more than $200 million.
In addition to eliminating wasteful new spending, the legislature should ask that government trim its budgets as countless businesses have been forced to do in recent months. An across-the-board two percent cut in government spending would save Oregon taxpayers up to $240 million dollars, while do little to affect the state's ability to provide services. Many in government may call this draconian, but this reflects their insulation from the real world. In the private sector, businesses are constantly devising ways to do more with less to increase profitability. Conversely, government tries to do less with more. A 2 percent cut will stem this tide and protect Oregon taxpayers from further state encroachment.
The state must not be afraid to allow the private sector to assume some of the state's social and administrative responsibilities when it can perform the tasks more effectively and at lower cost. For example, the state should reduce the number of Oregon Department of Transportation employees and contract needed engineering services to private firms. Private firms could also contract for incarceration and Oregon Department of Motor Vehicles services. While the savings from such actions are difficult to estimate prior to a competitive bidding process, they could range into the hundreds of millions.
As important as fiscal restraint is for eliminating Oregon's budget deficit, removing barriers to economic growth and returning tax dollars back to Oregonians are vital if Oregon is to emerge from this recession with a strong and vibrant economy. Oregon is currently ranked last out of all states in job creation, while Oregon's all-funds budget grew by nearly 16 percent over the last biennium. Oregon taxpayers bare the burden of paying for the state's growth, frivolous spending, and intrusive regulatory agencies. And this sizeable burden makes investment in Oregon unattractive to out-of-state businesses.
The legislature must stop enacting policies that say, "Oregon is closed for business," and recognize that economic growth occurs when government removes barriers to investments and revenue growth. Punitive tax and regulatory policies discourage individuals and businesses from investing in Oregon because they crush incentives. The state should reduce across the board the percentages of personal income tax, reduce the state's capital gains tax, radically reform the state's land use system, and streamline, or eliminate, telecommunications taxes and regulations.
Oregon is blessed with vast natural resources that have been confiscated by ill-advised regulations. To remove this obstacle to growth, the state should reforming land use laws to ease the requirements for rezoning and allow for proper development of private lands. All of the state's regulations should be reevaluated to demonstrate that they provide the least costly method of achieving the set regulatory objectives. To this end, an administrative rules repeal method should be implemented to allow the public to remove regulations that restrict economic growth.
By creating an environment more appealing to businesses wishing to invest in the state, Oregon can simultaneously increase economic growth and tax revenues. But to accomplish this, our elected officials must look beyond shortsighted priorities and the pleading of special interests to recognize the state's vast potential. In a world of free-flowing capital and workforce mobility, Oregon has the potential to lure investment and jobs to the state if it would only reduce tax and regulatory policies that make locating in Oregon so onerous.
There is little doubt that the recession and budget deficit present the state with real challenges this legislative session. But it also affords the perfect opportunity to rebalance our priorities to improve the state's long-term growth prospects. With the right blend of tax and regulatory reforms, and the necessary political will, Oregon policymakers can use the current set of circumstances to reposition the state for growth in the 21st century.