Fees
As I've said many times, while Oregon's taxes are lower than average, its fees (and other charges) are higher than average. Here's a story from the Sunday Oregonian that shows what most tax advocates avoid mentioning...facts essential to an informed debate on how we pay for government.
Oregon legislators say they won't raise your taxes to balance the next budget. But they might make it more expensive for you to attend college, dredge a stream or get a teaching license.
Their blueprint is the governor's budget, which would increase a range of fees and other charges to help support programs. That continues Oregon's rapid climb in the past decade from 23rd to seventh in the nation in state and local government fees paid -- an average of more than $1,000 a year by every person.
The rise in revenue from fees -- paid by people who use a particular service -- has eased the pressure on the general fund, which comes primarily from taxes -- levied on the general population for services that benefit everyone.
That's one reason Oregon ranks among the nation's lowest-taxing but highest-spending states.
Fee increases don't carry the same stigma as tax increases, so they don't have the kind of voter opposition that drove Gov. Ted Kulongoski and lawmakers to their no-new-taxes pledge. But, as many retailers know, there could be a point at which people cannot, or will not, pay more. And there are questions about the fairness of some fees.
This trend has never been examined in depth by lawmakers, but a Senate committee plans to look at the implications this session.
The average Oregonian is not fooled by the misleading presentation of facts regarding how much we pay for government. Taxation is just part of the story. We know that Salem has a spending problem, and until the government does a much better job of addressing that, the majority of Oregonians are not going to trust Salem with the "blank check" a tax increase provides.
Higher fees and other charges are generally easier to swallow because they are more specific to purpose. It's like a la carte government...we're paying for what we're using. When it comes to fairness and pricing points, these are good areas to explore.
Kulongoski's budget boosts revenue from fees by 9 percent to about $3.5 billion for 2005-07, including college tuition increases of 5 percent a year and a doubling of food-safety permit fees. Fees represent about 13 percent of the state's $44.2 billion in total revenue.
Theresa McHugh, his chief of staff and budget adviser, said the Democratic governor decided not to extend his ban on taxes to fees. But he kept a tight rein on agency requests, she said, forcing them to demonstrate that programs supported by the fees are effective.
"Even when you can find someone to pay who wants to pay for the service, it may not be a good idea," McHugh said. "It makes the budget harder to explain, and you are expanding government. Somebody has to pay, and it is part of their personal burden."
This approach sounds eminently sensible. Bureaucracies have a natural tendency to protect their interests, which generally means not just maintaining the status quo, but trying to grow. Government agencies always ask for more money than they need to do the job, as they expect cuts during budget-balancing time. Been there, done that. Advocates who wail whenever agencies are given less than they asked for are either disingenuous and/or ignorant.
Governments can do more for more people with more money, but someone's got to foot the bill. Despite the recent lean years, Salem still spends more per capita than the average state, supported by a populace which earns a bit less per capita than the average state. And nowadays, Salem is in fiscal crisis.
This article today noted that the Government Performance Project gave Oregon a D grade for how the government manages our money. That tied us with California for worst in the nation.
Oregon's shift to supporting state government with fees has been dramatic.
In 1992, taxes accounted for 45 percent of total state revenue and fees brought in 10 percent. Ten years later, taxes had dropped to 36 percent and fees had grown to 13 percent, the most recent Census data show.
Along with infusions of federal money for transportation projects and health care, the shift helps explain why Oregon ranked 41st in state and local taxes per capita but 11th in spending in 2002.
The trend may be unmistakable, but the policy has been largely unconscious. "We've never taken a look at the policy implications of that change," said Paul Warner, legislative revenue officer.
I've blogged on this subject a number of times, and can understand why the author is using 2002 data when it would seem newer information should be available. Not all data is published annually, and a fair percentage of it just considers taxes when coming up with the per capita numbers. One sometimes has to use older data to ensure the comparisons are apples to apples.
Depending upon who's doing the calculations how, our state and local taxation per capita ranks from the mid-30s to the mid-40s, and our government's per capita spending (numbers that include fees and other charges) ranks from single digits to the teens. But, the end result is the same...we are taxed less than the average state, and Salem spends more per capita than the average state. Higher-than-average fees and other charges help make that possible.
That may change. An analysis of the fees shift has been included in the Senate Revenue Committee's work plan, Warner said.
"Fees have become such a huge portion of the budget, we've got to be crystal clear about the choices we make for the state," said Sen. Ryan Deckert, D-Beaverton, the committee chairman.
Deckert wants to do more than discuss fees in his committee. He'd like to buck the political tide and push the line back toward a government financed more by taxes and less by fees.
"Every day, Oregon is becoming more of a user-pay society," he said. "I think Oregonians ultimately want a straightforward finance structure where you do it once, pay the tax, and government leaves you alone for 364 days."
I'm not sure that the average Oregonians is very emotional about this subject. There's no question that when people have to pay various fees, a number of them wish they were lower or non-existent. But, that doesn't necessarily mean that Oregonians would rather go to an all tax system. There are some allures to parts of government being a la carte, especially to folks who fear that the central government won't spend the money wisely.
We continue to pour more money into our educational system, and we watch an increasing percentage of it get siphoned off by things like PERS, shrinking the number of teachers and the length of school years. Such a high percentage of our revenues are going towards government wages and especially benefits that there isn't much left over for the employees to govern or teach with. A good stock market would help, but the structural problem would remain.
Is it just me, or it is a bit hypocritical to criticize private social security accounts but continue to support plans like PERS that are tied to the stock market? Those expert PERS investors rode the bubble up and down just as most amateurs did. Their failures are causing PERS contributions to jump from an already exhorbitant 11.2 percent of employees' wages today to 16.6 percent in July and to 22.8 percent in July '07.
What an absurdly unaffordable system, whether or not the Supreme Court upholds the PERS "reforms" passed by the Legislature last year. Why aren't we either giving our retirees a pension tied to cost of living (like military retirees) or a 401k where the government doesn't cover investment losses?
Anyway, back to topic.
Fees offer lawmakers a political line of least resistance.
Efforts to raise gasoline taxes for highway projects have failed miserably in recent years, but the 2003 Legislature increased various vehicle fees to finance a $1.3 billion bond program for bridge repairs -- with hardly a ripple of protest.
Fees -- such as tuition, water and sewer charges, camping permits, teacher licenses, system development charges, and air quality permits -- can be an efficient way to pay for services people want.
But they also can create contentious questions of equity: How should the cost of regulating air quality be split between the pollution-generating industries and residents who benefit from clean air? Should developers, or residents who benefit from a growing community, pay for new streets, schools and other services?
Local communities, county governments, etc. are debating these issues every day. There's plenty of experience to learn from.
McHugh traces Oregon's increasing dependence on fees to the 1990 passage of Measure 5, which limited property taxes and forced the general fund, fueled mostly by income taxes, to pick up a larger share of K-12 school costs. Other parts of state government -- higher education, natural resources, parks -- felt the squeeze and looked to fees to maintain programs.
The shift is most visible in higher education. In 1989, taxpayers contributed about 56 percent of the cost of a state college education, McHugh said. That has dropped to about 30 percent. Tuition and fees for the average resident undergraduate climbed from $3,759 per term in 2001-02 to $5,037 in 2004-05.
Budget shortfalls drove the decisions to raise tuition, not a philosophical discussion about the appropriate level for students and their families to pay, Deckert said.
Budget realities also are behind the governor's plan to increase permits paid by food processors. General fund support for the agriculture department's food-safety program was cut in 2001-03, and the agency was told to spend down reserves in its 2003-05 budget. To maintain food-safety inspections and other enforcement, said Lisa Hanson, the assistant director, the agency proposed fee increases.
"There are social implications around how the state chooses to pay for the program," Hanson said. "It's not just an industry issue. Everybody benefits."
Once again, we have a big government advocate bending the debate into one of how the state collects revenues without addressing the Salem's spending woes. With the amount of money Oregon spends per capita on government, we ought to be getting at least average government services. But look at the decline in our educational system, the cut backs in state police, etc. We're not getting our money's worth...but our government employees sure are.
As fees mount, opposition could grow as residents resent paying for a service that benefits everyone. And Oregon's sluggish economic recovery means fees take a bigger bite from the pockets of people who need or want certain services. That may be taking place already in higher education as students shop for bargains out of state.
The Legislature is seeing some resistance this session. A House committee last week approved a bill that would split the costs of firefighting insurance equally between taxpayers and private landowners, including timber companies and rural homeowners. Currently, landowners pay 60 percent.
But despite misgivings, it seems unlikely that the political atmosphere will favor a move back to reliance on taxes soon. If anything, the search for someone other than taxpayers to foot the bill continues.
One idea, McHugh said, is to means-test services, or require people who can afford it to pay part or all of the cost of a government program. That already happens in health care and other human services, and McHugh said she's heard discussions about charging wealthier families for the cost of juvenile detention.
The idea could be extended to K-12 schools, McHugh said. Experiments along these lines are sparking controversy in England.
...
"How," McHugh said, "do you make sure a public institution is still public?"
McHugh's theoretical question is not one most Oregonians worry about. We want good government...and in several key areas, we're not getting it. It's not for lack of raw spending. The "how" problems far outweigh the "how much" problems when it comes to government spending. If we're not going to address the "how" issues, the answer to "how much" will always be "not enough," even if we have another stock market bubble.
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