Former Rep. Brent Barton says credit analysts realize that Oregon’s instability 'stems in large part from Oregon's kicker system'

Oregon’s "kicker law" is often kicked around in political fights over spending and taxes. Republicans, generally, want to leave the refund law alone and force the state to save money by spending less. Democrats, generally, say the kicker is a constitutionally built-in anti-savings mechanism.

For those who don’t know, the kicker is officially called the state’s surplus refund law. It requires a refund to taxpayers if the state collects more money in taxes -- by at least 2 percent -- than economists projected. The idea is to make sure legislators don’t spend every dime they get from taxpayers.

Former state Rep. Brent Barton, a Democrat who represented part of Clackamas County, recently wrote a guest column for The Oregonian in which he urged the state to divert the kicker and use the money to build a savings fund that could boost our credit rating, which in turn would save millions of dollars in lower interest payments.

"The ratings agencies will not upgrade Oregon's credit rating until we stabilize state finances, and they realize that our instability stems in large part from Oregon's kicker system," he wrote.

We can’t predict what ratings agencies will or won’t do, and neither can anyone else. Instead, PolitiFact Oregon had a simple question: Do credit ratings analysts actually finger the kicker as responsible for the state’s financial instability?

Steve Buckstein of the Cascade Policy Institute, which promotes limited government, argues that without the kicker, legislators would spend every penny on hand for pay raises and new programs. The pressure not to spend is too great, he said.

On the other hand, the kicker could "kick" at awkward times, for example, after drastic funding reductions, as The Oregonian’s Harry Esteve illustrates in this 2009 news story:
 

"At the end of each legislative session, the state economist makes his best guess about how much revenue the state stands to receive over the next two years. He has lots of data to work with, and a complex set of equations, matrices and algorithms. But it's still a guess.

If he sets a low figure -- which makes sense this year given the current economic conditions -- and then the economy rebounds, the state could end up sending millions of dollars back to taxpayers at the same time it is making deep cuts to services. It happened during the last recession, in 2001, and there are growing fears it could happen again."

See the problem?

Let’s turn to the actual reports, to see for ourselves what analysts have said. Standard & Poor’s, Moody’s Investor Service, and Fitch are the houses that determine our creditworthiness, which in turn determines the interest rate at which we borrow money. For example, they loved that Oregon started a savings fund in 2007 by diverting the corporate kicker that year.

All three agencies consistently cite the state’s narrow reliance on economically sensitive corporate and personal income tax revenues as a negative.

They also dislike Oregon’s active citizen initiative process because it means voters can restrict how much money we collect and how we spend that money. Their big issue is reliability.  

Many times, but not always, the kicker law is singled out as an added concern. A March 7 Moody’s report says the kicker "adds budgetary challenges, including cash flow pressures."

Does that mean that a repeal of the kicker would increase our rating? Or that the existence of the kicker means we’re doomed to a lower rating? Kimberly Lyons, the primary analyst for Moody’s for Oregon, wouldn’t go so far. Ability to govern is what they measure and the kicker is not a defacto defect, Lyons said.

"There are other ways to make the structure work for the state. As long as the state is structurally balanced, that’s all we care about."

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But Gabriel Petek of Standard & Poor’s was more willing to weigh in on the kicker. He said that while Oregon’s reliance on income taxes is the "main driver" of the state’s financial volatility, the kicker makes it difficult to build reserves because we can’t reap the benefits of economic upsides to manage for the economic downsides. It’s as if we’ve deliberately hobbled ourselves.

Back to Barton. He checked in with PolitiFact Oregon while traveling. He said he should have stressed that the kicker magnifies Oregon’s fiscal instability rather than causes it.

"I probably should have been more precise in wording that sentence, as the verb ‘stems’ implies causation more than magnification. However, the fact remains that the ratings agencies recognize that the kicker system contributes significantly to Oregon's unstable fiscal system." 

Finally, we checked in with state Treasurer Ted Wheeler, who manages our money.  He acknowledged that if Oregon had jobs galore and oodles of extra money in the bank, the ratings agencies could upgrade us anyway, without kicker reform. But that’s not the case, he said, and so analysts continue to call out the kicker as a concern.

But doesn’t our financial instability really stem from our unnaturally high reliance on income and corporate taxes?

"The two go hand-in-hand. You can’t really separate them," Wheeler said.

"You’ve got the volatility from our reliance on the income tax, which in my mind is the most significant issue. You have all of your eggs in one basket, and the basket we’ve chosen is the volatility basket, and then when you combine the kicker with that, the two really are like the evil twins. They work hand in hand to make it hard for government to plan through a reliable revenue structure."

So what have we learned? Certainly government could save money without the kicker. But the kicker does exacerbate the volatility of the system that we’ve chosen to pay for public services. And the two analysts we interviewed were understandably wishy washy on how Oregon’s kicker figures into the state’s credit rating.

In a previous PolitiFact, we gave Rep. Matt Wand, R-Troutdale, a Mostly False for saying that previous Legislatures suspended the kicker, spent every dime and failed to stabilize state finances. (We explained that serious context was missing.)

In this PolitiFact, we come to a similar conclusion about Barton’s statement regarding the kicker’s relationship to financial stability. Oregon’s instability stems mainly from our heavy reliance on one revenue stream. The simplest way to counter that may be to divert the kicker. But a bigger difference, the reports suggest, would be made by adding other taxes -- hello, sales? -- to diversify Oregon’s revenue base. (Sorry, we had to say it.)

We rate the claim Mostly False.