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End Oregon’s Rob-Peter-to-Pay-Paul Funding Schemes

Commentary
March 2, 2009By Chuck Sheketoff

When lawmakers conceive of a new or expanded public program, they typically provide details to the budget-writing Joint Ways and Means Committee, who determine its cost. If they deem the program a priority, Ways and Means finds the money in the budget to pay for it, cuts a lower-priority program or works with the revenue committees to generate new funds.

Whether or not you agree with the outcome, the straightforward process reveals the choices made about funding priorities and places limits on program costs. In subsequent sessions, the legislature reevaluates the program and decides how much money it deserves.

But recently, proponents of new programs started pitching a new form of tax credit-financed schemes that sidestep the normal budget prioritization and accountability process. These schemes pay for public programs by handing tax breaks to those who opt to fund them. Their donations go to special state accounts and contributors get reimbursed through a tax credit.

If structured properly, tax credits can be an efficient mechanism for achieving important public policy goals. For example, they can effectively target help to low-income working families with children. But the new breed of tax-credits-for-donations scheme is a different animal.

These misguided schemes portray government as a menu of services from which individuals can choose which to fund. That mentality undermines public understanding that public structures are in place to support the common good — the idea that “we’re all in this together” — and exacerbates the distrust of government that has poisoned politics for too long.

Making matters worse, tax-credit-for-donations schemes in effect rob Peter to pay Paul. And in this case, Peter is our schools, health care and public safety. That’s because the money to pay for the tax credits must come from somewhere, and that somewhere is the General Fund, which by and large finances all the key public services that Oregonians rely upon each day.

One example of a rob-Peter-to-pay-Paul scheme is House Bill 2180. The bill would fund the development of community-scale renewable energy resource projects. The money would come from contributions to an account separate from the General Fund. Contributors, however, would get a dollar-for-dollar tax credit from the General Fund.

Because the bill sets no limit on the total number of contributors, there’s no telling how big a hit the General Fund will take. Thus, as if Oregon’s present budget crisis weren’t bad enough, House Bill 2180 would set up a fiscal sinkhole that could easily grow beyond the expectations of its proponents and place even greater pressure on schools and other key public services.

There’s no disputing that expanding renewable energy projects at the community level is a worthy goal, but should it take precedence over keeping school class size manageable or schools open for a full year? Is it more important than ensuring that foster kids are protected, that our seniors receive adequate care or that working families have access to child care?

Maybe, maybe not. But the choices about priorities should be clear and the full costs known up front. If the renewable energy project program is important enough to establish, it should compete for General Fund dollars with other important programs before the Ways and Means Committee. If there isn’t enough money to pay for it, the legislature can eliminate funding for lower-priority programs or raise taxes.

Doing away with reckless and unaccountable funding schemes in the tax code was a good idea even before Oregon’s fiscal crisis exploded, but now it’s imperative. All spending programs — in the budget and in the tax code — must undergo rigorous and regular review and have reasonably predictable costs. Tax-credit-for-donations funding schemes like HB 2180 fail on all those grounds.

It’s time that the legislature forces the Pauls of our budgetary world — the tax credit-financed special donation programs — to stop using the tax code and instead make their case against other spending priorities, so that Peter is robbed no more.


Charles Sheketoff is executive director of the Oregon Center for Public Policy, which does in-depth research and analysis on budget, tax, and economic issues with the goal to improve decision making and generate more opportunities for all Oregonians.

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