Why is it Important?
A prosperous economiy needs quality public services including education, public safety, healthcare, parks and infrastructure. Communities with good schools, safe streets, and an exceptional quality of life help attract and retain innovative companies and individuals.
Sound tax policy -- the means to pay for public services -- also is critical for meeting our economic objectives.
Oregon needs a mix of taxes that provide stable public revenues, that are competitive with other states, that encourage investment, and that create incentives for the kind of high-income, innovation-driven business growth envisioned in the Oregon Business Plan.
The Oregon Business Plan Vision for Public Finance
A sustainable public finance system is based on four principles:
A strong, healthy economy is the best way to fund public services
When many people think about funding the government they think of taxes. But the level of taxation is not the most important factor determining how much money is available to invest in government services. Regardless of the tax rates, when the economy is strong and our incomes are rising, more dollars are heading to the government for education, parks, public safety and many other vital services – and the demand for social services is reduced. For any given tax rate, a strong economy allows for higher quality public services. Those services, especially education, in turn support a stronger, healthier economy. We call this concept the “Circle of Prosperity.” It is illustrated above. Creating an environment that helps Oregon create and retain more high wage jobs is the best way to get more dollars to public services. That is what the Oregon Business Plan is all about.
Even if we do a better job at supporting high wage jobs, recessions still happen and quality public services are needed throughout the economic cycle. That is why a strong economy is only one element of the Oregon Business Plan public finance agenda.
Oregon needs twenty-first century public services to support a twenty-first century innovation economy
The quality of public services matters a great deal to the health of Oregon and its communities. The current delivery models of public services--including education, health care, transportation and environmental services--were designed decades ago, without anticipation of the needs of this century or with the technology tools now available. Those systems served us well for years, but in today's global economy they are outmoded and outdated. They must be redesigned. Several of the Oregon Business Plan initiatives-particularly education and healthcare--go into great detail about what a 21st century system looks like, and how to get there.
How we budget matters
The first step toward service redesign is budget redesign. Oregon needs a new, transparent budgeting process that enables policy-makers to plan long-term, measure results and identify opportunities to provide better services at a lower cost to taxpayers. The current system is opaque, short-sighted and provides perverse incentives to maintain the status-quo.
The tax system must provide stable, adequate funding and create incentives for high wage job growth
Oregonian's total state and local tax burden is slightly below the national average, with average property taxes, no sales taxes, and really high income taxes compared to other states. Oregon relies more on income and capital gains taxes as a source of revenue than any other state, with top rates near the highest levels in the nation. While there are many benefits to the income tax, including its progressivity, it is an extremely unstable source of public revenue (capital gains taxes are the single most volatile source of public revenue). High income and capital gains taxes also create a disincentive for wealthy individuals to live, work and do business and investment deals in Oregon.
Oregon would be well-served by a more balanced tax structure that lowered income taxes, introduced sales taxes, and included a large emergency reserve fund.
Where We Stand Today
In contrast to our vision for A Circle of Prosperity, Oregon is cycling down a Circle of Scarcity. The most alarming trend is Oregon's slide in per-capita income relative to the nation as a whole. Since 1997, Oregon's per capita income has slide to 91% of the US average, while neighboring Washington State has seen tremendous growth in income and sits at 105% of the US average. This is a big deal in dollar terms: If Oregonians earned like Washingtonians, Oregon would have another $25 billion per year circulating throughour economy. At Oregon's tax rates, that would mean another $4 billion per biennium to invest in public services like qaulity education.
Lower personal income has translated into fewer dollars for public services, even as demand for those services--particularly corrections (as a result of ballot measures) and health related services (as a result of increased health care costs and an agingm unhealthier population)--have increased. In essence, Oregonians are demanding more and more services, while our tax base is shrinking compared to the US and peer states. This trend has resulted in the squeezing out of investments in education (particularly higher education), a key source of Oregon's future prosperity.
This Circle of Scarcity is unsustainable and to turn it around Oregon must both take action to grow the economy-with a goal of creating more high paying jobs-and redesign its public services to do more for less in a time of constrained resources.
Oregon Business Plan Strategy
To break the Circle of Scarcity and pursue the Circle of Prosperity, we suggest a five-point strategy.
1. Improve the business climate for high wage job growth, which is the best source of public revenue
The best source of public sector revenue is job and income growth. Oregon public officials, at all levels, need to understand the important role they can play in creating a better climate for job and income growth. The
2011 Oregon Business Plan Summary and the "
initiatives" pages of this website present our best ideas for how to get there. Suggestions provided by
Oregon's industry clusters provide additional ideas for helping individual sectors of Oregon's economy thrive.
2. Revamp the state budget process to focus on long-term needs and achieving results.
Oregon’s biennial budget process is strangling the state. It is myopic and incremental and does not drive continuous improvement. Myopia combined with a volatile tax system leads to continuous budget crises, and a slow withering of essential services. The key to budget redesign is identifying populations the state is trying to serve or support (e.g. students, patients, seniors, inmates), spelling out the results we seek for each group, identifying how much we are paying for those services per person today, and determining how much we want to pay for them moving forward. We should examine trends and forecast what costs will be in the future. We should anticipate the long-term revenue and expenditure impacts of each budget decision. A complete budget system overhaul is essential to get Oregon on track. It was recommended two years ago by Governor Kulongoski's Revenue Restructuring Task Force and it has been a centerpiece of Governor Kitzhaber's public finance strategy. Now is the time to act.
3. With a new budget process in place, redesign the delivery of services to provide the greatest value
If we don’t like the trend lines we see in our long-term budget picture, we need to reinvent the service to save dollars and get better results, or adjust our priorities. This means taking a fresh look at funding formulas, incentives and the menue of services we provide and determining if they are driving value and improvements in outcomes. If not, we need to change them. This is a long-term, concerted effort that will require tremendous cooperation between state, local and federal officials. However, given the enormity of our challenge, its the only way to get through the decade with the key services we value in tact. There are also many opportunities to "redesign" services that can be moved on quickly. The Governor Kulongoski's reset report outlined some of them. Governor Kitzhaber's efforts to redesign 0-20 education and Medicaid delivery are heading in the right direction. We must take a similar approach with public safety. Together, education, health/human services and public safety make up 90% of State General Fund spending.
4. Adjust the tax system with tweaks today; look forward to a complete overhaul in the future
Budget reform should be the first order of business for Oregon public finance policy. Meanwhile, steps can be taken to improve the tax system incrementally. We need to bolster the state's emergency reserve fund and create a permanent mechanism to fill it, such as future corporate and personal kickers. The fund should be particularly safeguard education and other needs when the economy turns south. We also need to lower the capital gains tax to encourage business creation and to attract and keep wealthy individuals and investors in Oregon.
Beyond these steps, the Oregon Business Plan has long advocated for a fundamental overhaul of the tax system, including the introduction of a sales/consumption tax with correseponding reductions in income and capital gains taxes. We recognize that strong leadership from our elected leaders, as well as a broad coalition of business, labor and consumer advocates is needed to bring this type of change forth to voters. We need to come together and develop such a plan.
5. Reform the ballot measure process to require long-term thinking and prioritization by voters
The impact of all the reforms above will be diminished unless we apply the same principles of long-term thinking to our ballot measure process. The Revenue Restructuring Task Force recommended several helpful changes. We support a ballot measure system that requires voters to answer the same tough questions about trade offs and priorities that we expect our legislators to ask in the budgeting process.
Progress
Click here to visit the measuring progress page.
Tell us what you think!
We need your input to shape the Oregon Business Plan. Are we on the right track? Do you have specific ideas to advance the strategy? Please share them.