Oregon’s Fiscal Discipline Positions It for Inevitable Recession

 Economist Bill Conerly gives Oregon some love in a Forbes article that praises state policymakers for the fiscal discipline to create a Rainy Day Fund that now has grown to a size that should protect the state budget during an average-size downturn.

Economist Bill Conerly gives Oregon some love in a Forbes article that praises state policymakers for the fiscal discipline to create a Rainy Day Fund that now has grown to a size that should protect the state budget during an average-size downturn.

The economy is still growing, but someday it will stop. Economist Bill Conerly says Oregon state government, despite its liberal bent, is better prepared to meet the fiscal challenges of a recession than most states, including traditionally conservative ones.

“Oregon has built up its rainy-day funds to 9.7 percent of current expenditures, compared to an expected decline in a typical recession of 10 percent,” Conerly wrote in an article published last week by Forbes. “Further growth will occur next year, barring an immediate recession. That will cover the revenue shortfall of an average recession, but still leave difficult decisions about spending more on social services as people lose jobs.”

In the article, Conerly cites his personal experience advising Oregon policymakers following the crippling recession in the early 1980s. “State revenue fell so much in 1982 that the Governor [Atiyeh] had to call four special sessions of the legislature in one two-year budget period, plus two more special sessions the next biennium,” he said. That led to formation of the Governor’s Council of Economic Advisers.

As a member of the Council, initially appointed by Atiyeh, a Republican, and subsequently retained by five Democratic governors, Conerly said it became painfully obvious that revenue forecasts aren’t always accurate.

Oregon’s fiscal situation is complicated by the state’s heavy reliance on personal and corporate income tax revenues, which can balloon in good times and tank in bad times. “The state’s revenues swing wildly with fluctuations in corporate profits, capital gains and the earnings of small business owners, commissioned sales people and corporate executives on bonus plans,” Conerly explained. 

To compensate for sharp fluctuations in tax revenues, Conerly and his Council colleagues suggested creating a rainy-day fund.

“Building up a rainy day-fund means choosing not to spend available money,” Conerly wrote. “It’s difficult for any of us in our family budgeting, it’s difficult for politicians who gain votes by funding projects desired by constituencies, and it’s especially difficult for liberals, who believe in a larger role for government in healthcare and social services along with more funding for government schools. Though difficult, building up a rainy-day fund can be done.”

And it can be done, noted Conerly, a self-described free-market economist, in a “state with liberal political leadership that had the will to build a substantial reserve despite their desire to expand government spending.”

The secret, he said, is “to have that discipline, as Oregon and other states have demonstrated.”