‘Structural imbalances’ have state budget near tipping point

Sen. Richard Devlin	Sen. Betsy Johnson	Sen. Jackie Winters	Rep. Nancy Nathanson	Rep. Greg Smith

When you don’t have enough money to pay the bills, you need to either make more money, cut your costs or find some mixture of the two.

Democrats need Republican votes to raise new revenue, and Republicans want a plan to cut state costs before discussing new taxes. For weeks, a group of powerful legislators has been meeting in Salem to discuss how to cut costs. Their work has also set the table for what the state is facing if the government does not bring in more money. 

Informally dubbed the “Cost-Containment Work Group,” Ways and Means Co-Chairs Rep. Nancy Nathanson (D-Eugene) and Sen. Richard Devlin (D-Tualatin), and Ways and Means Vice Co-Chairs Rep. Greg Smith (R-Heppner), Sen. Jackie Winters (R-Salem) and Sen. Betsy Johnson (D-Scappoose) are heavily involved in crafting Oregon’s budget in the Joint Ways and Means Committee.

On April 21, the group delivered a letter to House Speaker Tina Kotek (D-Portland) and Senate President Peter Courtney (D-Salem). The letter, “Actions to curb future budge growth,” described a litany of options the Legislature could undertake to cut state spending. It also gave a stern warning about the nature of the budget itself.

“Oregon is facing a $1.6 billion budget deficit for the 2017-19 biennium,” the letter states. “This shortfall is the result of both short- and long-term factors.”

The full document proposes 29 alterations and principles. The letter warns that actions targeting the 2017-19 budget alone will not be enough:

“The current deficit is due to a structural imbalance between existing revenue streams and the growing costs of providing programs and services to Oregonians. The structural imbalance is due to choices legislators and voters have made over many years. Without action to contain the growing costs of state government now, the structural imbalance will cause even greater deficits in future years.”

With that opening salvo, the letter outlines a few short-term actions for the 2017-19 biennium and a number of longer-term actions, including:

• A hiring freeze for non-essential agency positions.
• Not automatically granting inflationary adjustments/COLA.
• Limiting state government full-time equivalent positions to 1 percent of the population instead of the current limit of 1.5 percent of the population.
• Increasing employees’ share of PERS costs.
• Combining the Public Employees Benefits Board and the Oregon Educators Benefit Board.
• Capping the two benefits boards’ annual growth rate at 3.4 percent.
• Requiring PERS employers to set aside excess operating funds for the prepayment of future employer costs.
• Changing the collective bargaining process to even-numbered years so the governor’s budget proposal includes the full cost of increases for the upcoming biennium.
• Prohibiting the creation of programs at the end of the biennium so as to make the cost of the program appear to be less than it will be long term.
• Limiting the creation of new task forces, boards and commissions.

Procedurally, there are plenty of bills still “alive” in various committees for a major cost-containment policy initiative. However, cost containment is tied to new taxes, and everyone in Salem is waiting on legislative leadership and Gov. Kate Brown to strike a deal.

On Thursday, Brown presented her own ideas for closing the budget gap. She wants to create a task force to sell off assets to cover Public Employees Retirement System costs, and she wants the state to better collect owed taxes and negotiate tougher with unions. 

Responses to the letter from the legislative work group came swiftly.

SEIU 503 President Steve Demarest told The Oregonian that the letter is “an effort to scapegoat people who have dedicated their lives to public service.” He called for lawmakers to solve the state's budget shortfall by increasing taxes on corporations.

Patrick Criteser, chair of the Oregon Business Plan coalition, in the same article said that business is in favor of "an approach that slows the runaway growth in state spending.”

An Albany Democrat-Herald editorial summarized the well-trod budget dance: “The letter could be an important step forward as both Democrats and Republicans come to grip with this basic fact: Creating a balanced budget will require both cost cuts and some sources of additional revenue.”

The letter does seem to have had some motivating effect on legislators. Discussions with legislators and legislative staff reveal a sense that substantive budget discussions are coming.

The letter, combined with the recent preview of what a $7.8 billion State School Fund would mean for Oregon schools, will hopefully encourage legislators to begin working toward a solution in earnest.

For schools, a deal is essential. Without new revenue, “cost containment” will fall heavily on the backs of students, with larger classes, shorter school years and fewer choices.

- Richard Donovan
Legislative specialist
rdonovan@osba.org