Portland Business Journal
BYLINE: Matthew Kish
The state of Oregon has assembled a County Fiscal Crisis Team in case one of the state’s financially troubled counties collapses.
“The role of the team is to come up with transition plans should the counties hit the edge,” said Secretary of State Kate Brown, whose office last week released the first ever report on the financial condition of Oregon’s 36 counties.
Several potentially thorny issues could arise if a county can’t pay its bills, including who would collect property taxes, hold elections and keep the jails running.
The Secretary of State’s report concluded that while most counties are fiscally sound, eight are financially distressed, largely as a result of expiring federal timber payments. They are Polk, Lane, Douglas, Coos, Curry, Josephine, Jackson and Klamath counties.
Brown said the report should serve as a “yellow flashing light” for lawmakers and government officials.
The crisis team has been meeting every two weeks for the past two months in case a troubled county throws in the towel and asks for state help. It’s the latest sign that some of Oregon counties continue to hemorrhage financially. Of the eight distressed counties five – Josephine, Douglas, Curry, Coos and Jackson – get more than 10 percent of their budget from timber payments.
Curry County hit the breaking point in April when county commissioners declared a financial emergency.
The commissioners decided not to seek the assistance of the crisis team because under state law the county would be required to pay for half the cost of the group’s help, a roughly $75,000 bill it can’t afford.
The crisis team “wouldn’t do anything that we haven’t already done,” said Curry County Vice Chair Bill Waddle, who called the legislation that created the committee this year “lousy” and “empty political rhetoric.”
All the crisis team would do is give us “maybe a little more publicity,” Waddle said. “That’s a pretty high cost for publicity. $75,000 can pay a patrol deputy for a year.”
A spokeswoman for the state said the bill that enabled the crisis team – House Bill 4176 – provides the necessary framework for state intervention should a county need fiscal help. She added that counties are required to pay for half of the help in order to ensure county engagement.
‘Largest threat to the U.S. economy’
Nationwide, many local governments are straining from shouldering the continued burden of the 2008 economic collapse. The real estate meltdown wiped out property tax revenue and crimped sales tax collections.
Wall Street icon Meredith Whitney, a former bank analyst who predicted the 2008 economic collapse, made national headlines in 2010 when she declared on “60 Minutes” that the financial troubles of state and local governments were the “largest threat to the U.S. economy.”
In Oregon, the problems are more dire for one simple reason: timber.
The federal government owns more than 50 percent of the land in Oregon, mostly in southern and eastern Oregon. When the federal government reduced logging on federal land in 2000, it agreed to make up for the lost revenue by paying counties an annual subsidy.
Those subsidies hovered around $250 million per year for seven years, but they’ve been falling ever since. They’re scheduled to end this year, unless Oregon’s congressional delegation wins a hard fought battle to get the program extended.
Many doubt that will happen.
“The last timber payment has come,” said Mike McArthur, executive director of the Association of Oregon Counties, who applauded Oregon’s congressional delegation for getting the program extended twice.
Due to the federal government’s own financial problems, McArthur said even if the program is continued “it will be at a level so insufficient that many of Oregon’s counties will still be in fiscal crisis.”
Gary Blackmer, the auditor who compiled the report on Oregon’s counties, said congressional leaders would have to pull “a pretty amazing rabbit” out of a hat to get the program extended.
“This is a stressful period for local governments in general. It’s like a one in 25 years event, but when you compound it with the end of the timber payments” it’s even worse, Blackmer said.
Crisis point for some
Curry and Josephine counties have already hit the crisis point.
When Curry County commissioners declared a fiscal emergency in April, they said they needed to cut an additional $2 million from a $5.1 million budget. Curry County gets 17.7 percent of its budget from timber payments.
Last month Josephine County, which gets 24.2 percent of its budget from timber payments, released 39 inmates after voters turned down a property tax proposal that would have funded law enforcement. Gun sales have spiked since then, according to published reports.
“If you don’t feel like you’re safe traveling through Josephine County right now, you’re right,” McArthur said.
While several Oregon counties are struggling, it’s important to note that most aren’t.
And while revenue is a problem for some, debt levels remain low, meaning bond defaults are unlikely.
The Secretary of State’s report shows that no Oregon county has a debt payment higher than 8 percent of its budget. Most have debt payments around 5 percent, a number that’s considered healthy.
There are some “red flags,” but “investment grade bonds still look good in Oregon,” said Deidra Krys-Rusoff, a portfolio manager at Portland-based Ferguson Wellman Capital Management who specializes in municipal bonds.
Solutions start to emerge
The crisis team, which is under the auspices of Oregon Chief Operating Officer Michael Jordan, exists because the state is the provider of last resort for some services, such as assessment and tax collections.
“We want to make sure we’re organized in case” we have to step in, said Sarah Gates, operational performance manager in the Department of Administrative Services, who serves as a coordinator for the group.
The group has been monitoring the condition of Oregon’s distressed counties. It has representatives from law enforcement, corrections, public health, elections and the Oregon State Treasury and Department of Transportation.
As the group organizes, several solutions have emerged, including combining some services. For instance, in Portland the city repairs the roads, the county repairs the bridges and the state repairs the highways.
“That’s a lot of administration,” said Secretary of State Brown. “How can we do it more effectively and more efficiently?”
McArthur’s favorite example: Voters in a four-county region in north central Oregon approved a bond measure that funded a corrections facility that serves each of the counties.
McArthur said a 2009 report by a task force assembled by then Gov. Ted Kulongoski should serve as a blueprint for addressing the crisis. The report concluded that the loss of $250 million in timber payments will require local, state and federal solutions.
The most immediate solution, McArthur said, is raising taxes at the local level.
The Secretary of State’s report shows that the counties hardest hit by the loss of timber payments also have some of the lowest property taxes, the primary revenue source for county governments.
Josephine County has a property tax rate of $0.59 per $1,000 of assessed value, the lowest in the state. Curry County homeowners pay $0.60. As a point of comparison, Multnomah County homeowners pay $4.34.
Nonetheless, tax increases remain a tough sell with voters, especially older votes in rural counties, many of whom live on fixed incomes. McArthur estimated voters in Lane County – another distressed county – have rejected 12 tax increases. Josephine County voters have also rejected several.
Curry County’s Waddle, a Republican, attributed his defeat in this year’s primary to his support for a 3 percent sales tax. He says the proposal would have raised $5 million in its first year and plugged the gaping hole in the county’s budget, but he won’t put it in front of voters because it has no popular support.
“With that $5 million, and about the $2 million we get (in property tax revenue) we could start to build reserves back slowly and maybe add a deputy or two,” he said “We could get up to 24/7 police coverage and then put money away. We have buildings that are 50 or 60 years old, like the jail and the courthouse. We’re just one major storm away from disaster. It’s not a pretty situation.”
Copyright 2012 American City Business Journal, Inc.
All Rights Reserved