Oregon in recession, state budget booming

Dr. Eric Fruits,

Oregon’s legislators are quick to complain that they had to find $2 billion in state budget cuts in the last legislative session. These  complaints are a bit disingenuous when, in fact, as the figure above shows, the legislatively approved budget has increased by $7.6 billion since the last budget.

Whenever one writes about state budgets, the more wonkish among us will argue that “total” state spending is the wrong number to look at. They argue that much of the funding and spending sits in dedicated accounts and that the Legislature has no discretion over much of the state’s spending.

This is what is known as the “colors of money” argument: Every dollar has a color—blue dollars can only be spent on roads, red dollars can only be spent on health services, green dollars are in the general fund, and so on. It is said that the colors cannot be mixed and the rules cannot be changed. But they can and the Legislature can change them.

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An example of this this “colors of money” fallacy is the massive expansion of Oregon’s state-provided and state-subsidized health insurance. The expansion was championed by the Governor and approved by the Legislature. The expansion was entirely within discretion of Oregon’s elected officials.

Over the next four years, the program will impose $1.2 billion in new and increased taxes on hospitals and health insurance—taxes that will be passed down to taxpayer/consumers. Oregon hopes that the Federal government will match Oregon’s increased spending so that new and expanded programs would spend at least $2.8 billion over the next four years. [This is what is known as the “Coupon Fallacy,” which is a topic for a future post.]

The Legislature, however, has painted all this money with its own color. In this way, politicians can complain about spending fewer green dollars while spending more red dollars and increasing total state spending.

Read more: http://www.econinternational.com/blog/2009/11/17/oregon%e2%80%99s-in-recession-but-the-state-budget-is-booming/#ixzz0X9ksB4wa

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