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What if Oregon could enjoy the fastest economic growth rate of any state
over the next five years? What if, over the next two years, Oregon could
build a rainy day fund in excess of $2 billion to help cushion
inevitable economic downturns?

The first scenario above is what actually happened in Colorado from 1995
through 2000, the first five years of its citizen-imposed spending
limitation, known there as TABOR, or Taxpayer Bill of Rights. The second
scenario is what forecasters predict will happen here over the next two
years if Oregonians pass a spending limitation on the November ballot
known as the Rainy Day Amendment.

Tax and expenditure limitations are on the books in some 30 states,
keeping the size of government in check through limiting either state
revenue or spending. They generally do so by tying government growth to
either the growth of personal income or to a combination of inflation
plus population growth. Inflation plus population growth has
historically been more consistent and less volatile than the growth of
personal income, which can fluctuate widely.

Colorado's TABOR amendment is actually quite different from the proposed
Oregon Rainy Day Amendment. TABOR limits growth in both state and local
government revenue. It requires that revenue above the limitation be
returned to taxpayers, which worked well during the economic boom of the
late 1990s, but which put downward pressure on government budgets during
the bust that occurred in the early part of this decade. This so-called
ratchet down effect caused Colorado voters to suspend TABOR for five
years beginning last November.

Oregon's Rainy Day proposal limits not revenue, but expenditures. It
applies only to the state, not to local governments. Revenue collected
above the limitation can either be kept in a rainy day fund or returned
to taxpayers at the legislature's discretion. Oregon's proposal has no
ratchet down mechanism.

In fact, unlike in Colorado, if state revenues decline here the
government can call on the rainy day funds accumulated during the good
times to maintain state spending. Also, as in Colorado, the legislature
and citizens can vote to override the limits in the future.

The projected $2.2 billion that Oregon’s Rainy Day ballot
measure might keep from being spent over the next two years is being
portrayed as a "loss"� by opponents of the measure. They want voters
to believe that such a large amount of money will starve essential state
services. What they fail to acknowledge is that this money still will be
collected, just not spent right away. Also, the $2.2 billion should be
compared to the state's All Funds budget (currently over $42 billion)
rather than to the General Fund (currently almost $12 billion).

The legislature will have wide discretion in how it applies the
amendment's limit on total spending, and it will have no explicit limits
on the General Fund. Legislators thus could make spending adjustments
that would largely hold harmless budget items such as education, human
services, and public safety which make up over 90 percent of the General
Fund.

Both Oregon's Rainy Day Amendment and TABOR base their limits on growth
of state population and inflation. But beyond that, Oregon's proposal
gives the state more latitude to preserve excess revenues in a rainy day
fund, rather than return them to taxpayers. Opponents of the measure
today likely will be the first to argue for keeping those excess
revenues if it passes in November.

Sustainability is such a big concept in Oregon that it should be applied
to government growth as well as to the environment. Oregon's All Funds
budget grew twice as fast as the combined increase in population and
inflation over the past ten years, clearly not a sustainable path.
Opponents of the Rainy Day Amendment have the burden to explain why
state government should be allowed to grow faster than the private
sector. Oregon's tax revenues are highly variable from year to year
because of our reliance on income and capital gains taxes. Programs
begun at the height of a boom cannot be continued during a recession
except through tax hikes or borrowing. Opponents of the Rainy Day
Amendment have the burden to explain how better to cushion future
economic downturns if state government continues to immediately spend
every dime that comes in the door.

The Rainy Day Amendment offers the best features of the Colorado
limitation, which led to strong economic growth during the boom, while
avoiding the worst features that kept Colorado from easily adjusting to
the bust. Oregonians who want their government to be fiscally
responsible should seriously consider the opportunity it presents.