The future is looking grim for Oregon's poorest residents, according to several reports by think tanks and nonprofits who advocate for working families. A story in the Oct. 24 edition of the Skanner told how the Oregon Food Bank is struggling to meet demand for emergency food aid.
Tough times. But wait – things could get worse. Two other reports released last week say that isn't the only problem with the state's safety net – especially if the economy slows down.
A report by the Oregon Center for Public Policy, a nonprofit that advocates for low-income Oregonians, warns that a recession, like the one that hit unexpectedly in 2001, would leave the state of Oregon with few resources to help cushion the blow for thousands of families. And a study for the Northwest Federation of Community Organizations reported that living expenses have been rising much faster than wages, leaving thousands of working Oregonians struggling to make ends meet.
According to the OCPP report, not only is Oregon's new Rainy Day Fund under-funded, it isn't even available for the legislature to use until July 2009. The fund was created to help pay for state support schools and other government programs in times of economic crisis – such as when a recession causes tax revenues to drop drastically. But if a recession should arrive before July 2009 legislators won't be able to draw on it.
"We're not saying a recession is coming in the short term, but if it came, we'd be very unprepared," said Michael Leachman, one of the policy analysts who wrote the report.
And why would the legislature put a safety net fund out of reach? Pure politics, says Sen. Margaret Carter, D-N.E. Portland. Carter, who sits on the Ways & Means Committee, says some lawmakers want to be able to tell their constituents money put aside wouldn't be available for the current legislature to spend, despite the money in question being emergency money. But if a recession did hit before July 2009, the legislature could convene an emergency session and make the funds available with a two thirds majority — a considerable feat, says Carter, getting two thirds of lawmakers to agree on anything.
"If a recession were to hit in 90 days, and if its as bad as the one from 2001 to 2003, I'd have to say no (we're not prepared)," Carter told the Skanner. "I think $1 billion (saved) is a prudent amount."
So is a recession likely? Richard Berner, chief U.S. economist for the financial services giant, Morgan Stanley, argued in an Oct. 26 column that the housing downturn and "threats to consumer and capital spending, represent the most serious threat to the economy since early 2001." He puts the odds of a recession at "one in three."
Recessions are problematic because they're difficult to predict until they are upon us, said Chuck Sheketoff, OCPP's executive director and co-author of the report. That is why legislators should prepare for the worst – even during good times.
One state senator says the current state tax system puts Oregon at particular risk. Canby Democrat Kurt Schrader, co-chair of the joint Ways and Means Committee, says business and personal income taxes are unreliable sources of revenue. In boom years, money comes in droves and in bust years it dries up.
That's why Schrader is proposing a sales tax. Historically, in Oregon, sales tax proposals have been met with public resistance. Schrader admits the plan will be a hard sell, but he is coupling his sales tax proposal with other tax reductions or credits to discount arguments that the tax is regressive – taxes that put a greater burden on the budgets of lower-income individuals.
"We need to diversify our revenue base," Schrader said.
A tax on consumption would not only provide for a more even stream of revenue during boom and bust years, it would place a greater tax burden on tourists, business and individuals who earn their money under the table, he said. Schrader's plan would also allow most Oregonians to pay less in taxes.
But if a sales tax is the solution – and its unpopularity makes that doubtful — it couldn't happen until at least the next legislative session. Leachman says a much simpler solution is to adequately fund reserves.
"If we're saving enough in good times, that also creates stability in the system," Leachman told the Skanner.
The 2001 recession reduced the state's general fund by 15 percent. If that scenario were to repeat, the OCPP report says, the Legislature would need about $2 billion to keep state services at current levels. Just $321 million is in the bank.
Funding for the two reserve funds – the Education Stability Fund and Rainy Day Fund – will grow to about 6.8 percent of the General Fund Revenue by the end of the 2015 budget cycle, far short of the 15 percent needed to weather a 2001-level recession.
Leachman and Sheketoff argue that the Legislature should increase the cap on the fund to accommodate and put money from the income tax "kicker" into the Rainy Day Fund until that fund is capped, to properly prepare for any economic downturn. Some legislators are listening. Leachman says they have been asked to testify to the joint Senate and House Revenue Committee, and Sen. Ginny Burdick, D-Portland, has asked members of the Senate Finance and Revenue Committee to read the report.
As for solutions, the report suggests these options:
• Set wage policies by living wage standards;
• Give workers a stronger voice, establish job standards for employers and industries receiving public assistance;
• Invest in training programs, publicly funded jobs programs;
• Provide assistance programs to those making less than a living wage;
• Increasing access to health care and expanding public programs that work.
Families Fare Worse
If the legislature isn't prepared for an economic downturn, neither are the people they are supposed to serve, according to the 2007 Northwest Job Gap Study, "Living in the Red: Northwest Family Budgets Falling Behind."
The report says what many lower-income families and individuals already know: mandatory expenses are rising faster — much faster — than wages.
How much money does it take to make ends meet for an average household with children in Oregon. According to the study, in Multnomah County hourly wages should be:
• $20.61 for a single parent with one child;
• $25.88 for a single parent with two children
• $23.57 for a two parent family with two children where one parent works;
• $32.72 for a two adult, two children family where both are working
The driving force behind much of the cost is health care, childcare and housing. Between 2002 and 2006, for example, health care costs increased about 39 percent for households with all working adults. The cost of living rose about 13 percent. Yet Wages increased by just 7.42 percent.
The study points out that close to four out of every 10 job openings pay less than $11.67 an hour, the living wage for a single adult.
"Even dual-income families, in which both adults are working, often find they are not earning enough," said the report. "Fewer employers offer affordable, comprehensive health insurance benefits and insurance on the private market is usually out of reach. As a result, more and more families … are one health emergency away from financial catastrophe."