Commentary How we got into this mess

You don't have to be an old timer to know the causes of Oregon's fiscal plight. The chain of events began in 1990.

That was the year Democrat Barbara Roberts was elected governor, succeeding Neil Goldschmidt, who chose not to seek a second term. But voters made a more fateful decision that same November day (this was before the infernal mailed ballots): A slight majority, centered in the Portland suburbs, approved Measure 5.

In many ways, Measure 5 has been the governor of Oregon since. Those who voted for it did so because they wanted to put a lid on school property taxes.

But Measure 5 did something more significant, if less anticipated: It shifted most of the responsibility for the most expensive function of government -- public schools -- from local property taxes to the state income tax.

Before the election, the state's progressive, moderate voices (including most newspapers) warned that approval of Measure 5 would produce fiscal havoc. It would force the Legislature to make up lost school property tax dollars with state income tax dollars, leaving traditional state functions desperately short.

But we were wrong. The schools did not close and people on welfare did not starve for lack of state help.

Why not? Had all the earnest pro-government folks been lying? No. They simply forgot that not even the best economist can predict what is going to happen to a state's economy two years in advance.

The Oregon Legislature bases each biennial general fund budget on estimates of the revenue (chiefly from personal and corporate income taxes) to be received over the next two years. Those estimates are often dramatically wrong.

Barbara Roberts was inaugurated in January 1991. As a new biennium opened that July, it became evident that the economy was expanding faster than expected. The state's coffers were filling more amply. The eventual gap between what was needed and what was received turned out to be much smaller than feared.

The second important link was also forged in 1991, when the Legislature authorized the addition of video poker to the array of lottery games. Until then, the lottery was a minor contributor to the state budget. With video poker it quickly became major, and today accounts for more than 5 percent of general fund resources.

So an economic expansion fueled by high-tech investments around Portland (the "Silicon Forest") and the instant popularity of video poker saved Oregon from the fate predicted by Measure 5's detractors. This reinforced the cynicism of those who never believed the scare stories in the first place, an effect with long-range implications.

To top things off, in the last half of the '90s Oregon's most affluent citizens (and biggest taxpayers) joined their peers around the country playing a stock market gone berserk. Their taxable gains enriched the state treasury.

Everyone knows the rest of the story: As the century turned, two great engines of revenue growth sputtered. The economy slumped and the stock market swooned. Ironically, the only remaining reliable source of "extra" state money was the morally corrupt lottery, which preys upon the poor.

Thus, in the current biennium (2001-2003), which has only five months to go, state general fund income is falling about 20 percent short of original projections. Voters last week emphatically refused to temporarily raise income tax rates to bring the shortfall down to 17 or 18 percent.

And the new Democratic governor warned the Legislature not to count on an economic recovery in budgeting for the next biennium.

That was good advice. But whenever state tax money again rolls in far above expectations, as it will, the pressures will be as great as ever to spend the windfall or return it to taxpayers via the notorious kicker, rather than saving for hard times.

In broad outline, this is what brought us to today's unpleasant pass. And unfortunately, the basic cycle of underestimating and then overestimating -- and regretting -- is likely to be repeated.