Isaac Laquedem

You can't wait until 5:00 to close up shop? Sometimes the FDIC can't either

The FDIC is getting frisky: at 4:55 today it posted the news that it's closing First Regional Bank (Los Angeles), without waiting for business hours to end.

First-Citizens Bank & Trust Company, Raleigh, North Carolina, Assumes All of the Deposits of First Regional Bank, Los Angeles, California

FOR IMMEDIATE RELEASE January 29, 2010

Media Contact: Phone: (202) 898-6992 Cell: (703) 622-4790 David Barr Email: [email protected]

First Regional Bank, Los Angeles, California, was closed today by the California Department of Financial Institutions, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with First-Citizens Bank & Trust Company, Raleigh, North Carolina, to assume all of the deposits of First Regional Bank.

Measures 68, 69, 70, and 71: some progress toward repairing our tax system, limiting spending, and saving Oregon from itself

The legislature stopped its efforts to fix our tax system with what the voters turned into Measures 66 and 67.  I don't want to mock the legislature too much -- they do suffer from the disability of being ninety persons to my one -- so I do want to offer the measures that they undoubtedly would have proposed to the voters had they the political courage to say some uncomfortable truths in public.  I'm calling these Measures 68, 69, 70, and 71.  You won't find them in your Voters' Pamphlet, but they're what you should have been reading this week, instead of thirty of the pages of argument about 66 and 67.

Measure 68 repeals the income tax kicker.  It provides that if the state receives more income tax money in a biennium than it budgeted, the excess will be placed into an endowment fund from which the income, and only the income, will be used to support undergraduate academic education (no stadia or conference centers) at our public universities.  Support will be allocated to the public universities in proportion to their success at graduating students in four years.

Measure 69 finishes the reform of the Public Employees' Retirement System, usually called PERS.  It provides that any person who becomes a PERS participant after a certain date will have a defined contribution plan and not a defined benefit plan, and prohibits governments from promising to pay contributions in any year other than the year in which the contributions are earned.

Measure 70 restores proper funding to our schools by imposing a statewide tax on real property of one-half of one percent, to be allocated among our school districts in strict proportion to the number of high school seniors aged 19 or under who fulfilled all requirements for a high school diploma and graduated in the previous school year. 

Measure 71 revises Measure 11 (the measure that imposed minimum mandatory sentences) and our general sentencing laws to lower the minimum sentences for non-violent offenders and divert most of the savings to pay for intervention, drug treatment, and rehabilitation.  We spend too much on prisons and not enough on corrections.

Measure 67: What you get from a legislature with ADD

"ADD" is attention-deficit disorder, and it's what must have afflicted the legislature when it drafted Measure 67.  Measure 67, the companion to Measure 66, does to corporations what Measure 66 does to individuals: it nicks corporations and other business entities for some additional fees, swipes some money from the Secretary of State's business registry functions, doubles the cost to become a notary public, raises the general corporate income tax for 2009 and 2010 by about 20% (going from 6.6% to 7.9%) for corporate income above $250,000, steps back part of that increase for 2011 and 2012, and steps back a little more of that increase for 2013 and afterward.  It takes a little from a lot of pots.

The most notable part of Measure 67 is that it imposes a new tax on the Oregon gross sales (not income) of corporate taxpayers.  It's a modest tax on its surface, averaging about 0.1% of gross sales, but it is a new tax and not merely an increase in an existing tax.  Voters should think of it as a wildly variable income tax invented by a legislature that lacks a sound understanding of finance.  Opponents of Measure 67 point out that it hits unprofitable businesses with a new tax that is not based on their ability to pay.  I discount that argument; consistently unprofitable businesses don't stay in business very long, tax or no tax, and nothing Oregon does is going to preserve them.  Let's limit this discussion to profitable corporations.

A large grocer makes a profit of maybe 3% of sales.  For example, the operating profit of Kroger Co. (the parent of Fred Meyer and many other stores) was about 3.3% of sales in 2007 and 2008.  A tax of 0.1% of gross sales corresponds to a tax of about 3% on income.  This is in addition to the regular state corporate income tax.

By contrast, a successful software company enjoys far higher profits relative to gross sales.  Microsoft, for example, has regularly reported operating profits in the range of 40% of its gross sales.  A tax of 0.1% of gross sales of such a company corresponds to a tax of only about 0.25% on its income.

Our lawmakers also imposed the gross sales tax on banks and bank holding companies without defining "sales" for a bank.  Logically a bank's sales are its interest and fee income.  For a bank the size of (say) West Coast Bank, that number is in the range of $100 million a year and is derived from assets in the range of $1 billion.  A billion dollars of assets is a lot for most businesses, but it isn't for a bank, because a bank with $1 billion in assets will also owe about $900 million to its depositors.  In good times a bank this size should earn about $10 million to $15 million a year; in bad times it will lose money.  Yet, say our legislators, it should pay an extra $100,000/year (the cost of about two employees) whether it makes money or not.

The curious thing about Measure 67 is how different it is from Measure 66.  In Measure 66, our Solons said that only the richest 3% should pay more, and even they should pay just a little more; everyone else should get a free ride through the current crisis.  Then in Measure 67, they said that everyone should pay more, in many different ways, with only the merest inquiry into whether they could afford to.  Why the difference?  Measure 66 nicks voters, and Measure 67 doesn't, at least not directly.

Measure 67 is a scattershot based on bad math and bad business.  It deserves a "no" vote, and that is what I will give it when I fill in my ballot.

Isaac's Voters' Pamphlet: Measure 66 is a yes, alas

I put the dismal task off until this weekend, when at last I slogged through the Voters' Pamphlet on Measures 66 and 67: not just the arguments for and against, but the text of the measures themselves.

I came to two conclusions: first, the legislature doesn't really understand the federal tax system; and second, most of the people who submitted arguments for and against the two measures didn't read the measures.  How else to explain that most of the arguments conflate Measures 66 and 67 as if they were the same thing, or use "fair share" unbolstered by actual numbers?

Measure 66 increases the top marginal income tax bracket on individual taxpayers with taxable incomes over $125,000 and joint filers with taxable incomes over $250,000.  Those taxpayers (actually, almost all Oregon taxpayers) currently pay at a marginal rate of 9%: each dollar of taxable income above $5,000 (singles) or $10,000 (marrieds) incurs 9c in income tax.  Under Measure 66, for tax years 2009, 2010, and 2011 high-income taxpayers face two additional brackets: 10.8% above $125,000 and 11% above $250,000.  Those numbers are for solo filers; joint filers hit those brackets at $250,000 and $500,000.  For tax years 2012 and afterward, those two brackets are condensed into one that starts at $125,000 (singles) and $250,000 (joint) at a nominal rate of 9.9%.  The effective rate is higher because Measure 66 also phases out the deduction for federal income taxes paid by high-income taxpayers.

The legislature wrote and passed Measures 66 and 67.  After Governor Kulongoski signed them, opponents collected enough signatures to refer both measures to the voters.  Their concepts must reflect the legislature's view of Oregon's tax system.

We can infer, therefore, that a majority of the legislature believes that single Oregonians who make less than $125,000, and couples who make less than $250,000 (that's about 97% of us), are already paying their fair share of what it costs to run the state, because the legislature did not ask them to pay anything more.  (Others have ascribed a more cynical reason to the legislature's writing it this way, which is that the legislature wanted to make sure the measure would pass if put to a vote, and didn't want to raise taxes on more than a few percent of the electorate.)  Put bluntly, the legislature is recognizing privately that we can't afford any more government than what we have now.  I like that message, even if it doesn't match some of the electioneering speeches we heard in 2008.

The worst thing about Measure 66 is what isn't in it: it doesn't contain a repeal of Oregon's ridiculous "kicker" law that requires the government to refund to the taxpayers its income tax collections above budget, but doesn't give the state any way to save those windfalls as a rainy-day fund or apply them against unexpected shortfalls.  (It's the cowardice of the legislature to confront the kicker that's put it in this bind today.)  The second-worst thing about it is that it's far too narrow.  The legislature should have had the honesty to ask people who make about 50% or more than the average full-time job (let's say more than $60,000 or $70,000) to chip in a little bit more also.  Despte that, I intend to vote -- very reluctantly -- for Measure 66.  It's a bad way out of a bad hole, but it is a little better than the hole itself.

How many state colleges does Oregon have? Actually, none

Many years ago I learned the names and locations of the colleges and universities in Oregon's system of higher education.  There were two universities: University of Oregon (Eugene) and Oregon State University (Corvallis).  There were five colleges: Portland State College (the "night school," in Portland), Southern Oregon State College (Ashland), Oregon College of Education (the "teachers' college," in Monmouth), Eastern Oregon College (La Grande), and Oregon Technical Institute (Klamath Falls).

I recall Portland State College becoming Portland State University, on the logical ground that the state's largest city should have a public university to serve its population.  I paid no attention to the name changes of the other institutions until, a while back, I saw a billboard headed by the phrase "You and WOU."  Thinking that this might be a not very educated reference to one of our Congressmen, I looked more closely and saw that it advertised Western Oregon University.  "Where's that?" I asked, and learned that WOU is the former Oregon College of Education.  Similarly, Southern Oregon State College, which I and many others had slangily called "SOSC" (it rhymes with Bosc), is now Southern Oregon University, and Eastern Oregon College is now Eastern Oregon University.  We don't, in fact, have any public four-year colleges left in the state that are content to be colleges and focus on undergraduate education.  Not every college needs to become a university (Reed has resisted temptation quite nicely) and a state of our size should have one or two public schools whose only mission is to do a first-rate job of educating undergraduates.