Protecting public education funding, this session and into the future, is at the top of OSBA’s priorities. Sometimes a bill comes along that tries to pull away school funding for an equally worthy issue, but we always think that is a false choice.
While taxes and transportation are holding the public spotlight in Salem, we are keeping an eye on a narrow bill that could have long-lasting repercussions. House Bill 4075 would leverage public education funding to help a hospital in Coos Bay.
HB 4075 would direct the state treasurer to guarantee a loan for the Bay Area Hospital. The hospital took a loan for a new electronic records system prior to the COVID-19 pandemic. After operating in the red for multiple years, the hospital fell out of compliance with the loan terms (though it did not miss any payments), leaving it in a vulnerable position.
The hospital is now paying a higher interest rate on the loan, and the bank could call the note due at any time. There is also a $35 million balloon payment due in four years that the hospital does not have the liquidity to cover.
The hospital and its local labor union, the United Food and Commercial Workers International Union, initially approached the Legislature this session requesting a loan from the state. That request shifted to having the state act as the guarantor for a loan, allowing the hospital to refinance or restructure its loan. The sticking point for us is the pot of funds they are proposing the state use as the backstop for their loan: the Unclaimed Property and Estates Fund.
The Unclaimed Property and Estates Fund holds in trust money that belongs to Oregonians until they claim it. For example, if an insurance company sends a check to someone and it’s undeliverable, the company can’t just keep the money; it must pass the money to the state to hold on that individual’s behalf until claimed. Oregonians can search for any money they might be owed here.
While money sits in the fund, it earns interest. That interest flows into the Common School Fund, along with earnings from the management of select state lands. The State Land Board makes a distribution each year from the Common School Fund to all Oregon districts. These dollars are considered “local revenue” for purposes of the State School Fund, and they are factored into the Legislature’s process for making estimates about how much General Fund money is needed in the State School Fund.
If the bill passes in its current form, treasury would need to withhold from the Common School Fund each year the amount needed to cover the outstanding balance on the hospital’s loan. In the first year, the math works out to a loss for schools of roughly $1.6 million. With a loan of 20 years, the total loss to schools would be roughly $20 million. At a time when districts statewide are facing potential budget cuts, every dollar for schools is important.
More concerning than the loss, though, is the precedent this bill would set. If the Legislature is willing to use this tool once, it will send the signal to others that this option is now on the table.
With the state of our health system, that is a real concern. The Hospital Association of Oregon reported that nearly half of hospitals in Oregon are operating at a loss.
The shaky state of health care finances in Oregon adds one other kink to this proposal: Should the state have to cover the loan, the full amount needed to cover the outstanding balance (and possibly fees) would be lost from the Common School Fund forever. Treasury estimates the impact could be up to $60 million in this scenario.
Vickie Walker, former Department of State Lands director and former legislator, testified before the House Rules Committee on Tuesday, Feb. 24, that this is all a dangerous proposition.
Education advocates are likewise concerned. OSBA joined with the Coalition of Oregon School Administrators, the Oregon Education Association, the Oregon School Employees Association and the Oregon Association of Education Service Districts to submit testimony laying out the impacts of the bill on K-12 funding. Our concerns are not based on a lack of support for the hospital, but a desire to not pit health care against funding for schools.
The Legislature has other options, including tapping the nearly $2 billion Rainy Day Fund. Oregon has hit one of the necessary economic triggers to be able to dip into its reserves.
In a work session Wednesday afternoon, Rep. Dacia Grayber rightly challenged this false binary choice while affirming the need to protect the hospital.
“There are other options on the table. I know (the proponents) have been told there are not, but we have a recent revenue forecast. We have reserves. We are finding money to keep the Blazers in Portland, potentially,” said Rep. Grayber, D-Portland. “If we can do that, I think there are ways we can work together and find a path that pulls the money from somewhere else.”
We agree with Rep. Grayber. We want the hospital protected too, but not on the backs of students.
The bill is headed to the Joint Ways and Means Committee, where we hope legislators will identify an alternative funding source. They have options and only need the political will to step up.
We don’t have to choose between patients and students.
– Stacy Michaelson
OSBA Government Relations and Communications director
