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Oregon’s Blue Sky Budget?

Oregon’s 2011-13 Budget Built on $650 Million “Assumptions”

 — TEA Note: This from Dennis Richardson’s 7/22/2011 news letter. —

I am State Representative Dennis Richardson, and as one of the Co-Chairs of Oregon’s budget drafting committee, I write this newsletter for all Oregonians who care about having a leaner, smarter and more efficient state government.

The 2011 Legislative Session has concluded. We passed the 2011-13 Legislatively Adopted Budget (LAB), yet many of Oregon’s economic and budget challenges were left unresolved.

Unlike the federal government, the Oregon Constitution requires our state to maintain a balanced budget. This requirement means that proposed expenditures cannot exceed anticipated income or revenue to the State Treasury. Thus, the Legislature balanced the 2011-13 State Budget on paper based upon estimated anticipated revenues as of the May 2011 Quarterly Revenue Forecast.

The May 2011 Forecast estimated an increase of $1 billion more than the State ultimately spent in 2009-11. A one billion dollar increase in forecasted General Fund revenue was not nearly enough to maintain the size and cost of state government that existed when the 2009-11 LAB was passed. So, the 2011 legislature had a decision to make—either reduce proposed agency budgets even more or “kick the can down the road” by making “assumptions” regarding additional savings or revenue that would “hopefully” be realized in the second year of the 2011-13 biennium. In order to reach a compromise between the Republicans and Democrats of both the House and Senate, so that a budget could be passed, we chose the road of “assumptions.”

Some of our assumptions were prudent and some were not.

I believe it was prudent for the three Co-Chairs of the Ways & Means Committee to set aside $460 million as a buffer (the Budget’s Ending Balance), in case the revenue forecast turns out to be overly optimistic. On the other hand, the 2011-13 State Budget included $650 million of “assumptions” that are unlikely to materialize, such as the following:

–The State Budget assumes that $239 million of savings will be identified by the Oregon Health Authority’s health transformationinitiative and deducted from the OHA budget in the second year of the biennium;

–The State Budget assumes that $51 million of savings will be identified by the Department of Human Services’ long-term care transformational initiative and deducted from the DHS budget in the second year of the biennium;

–The State Budget assumes that $28 million will be saved by the Department of Corrections in “unspecified reductions”;

–The State Budget assumes that $19 million will be “loaned” from the Common School Fund to the Senior Property Tax Deferral program; the loan will need to be paid back before the end of the 2011-13 biennium, yet there is no source of revenue identified from which to fund the pay-back;

–The State Budget assumes that $310 million from the Ending Balance will be allocated in the February 2012 session to avoid 7% of additional cuts in agency and program budgets. This assumption has been made by my fellow Co-Chairs, and is not my recommendation.

I stated the following in my newsletter on the day the Co-Chair’s Budget was released (March 29, 2011):

“To allow for multiple risk factors, any of which could result in reductions of actual revenues received during the 2011-13 biennium, the Co-Chairs have included in the State Budget a prudent Ending Balance (EB) in the amount of $460 million. As much as $310 million of the EB may be appropriated during the 2012 Legislative Session, if economic conditions warrant it. (Emphasis added.)”

 

If Oregon experiences a tremendous economic recovery in the next seven months, I will join my fellow Co-Chairs of The Ways and Means Committee in considering the release of some portion of the Ending Balance, not to exceed $310 million. However, if Oregon is not in a clear and substantial recovery by February 2012, it would be detrimental to reduce the Ending Balance when substantial reserve funds may yet be needed to ameliorate revenue forecast reductions that might occur before the end of the 2011-13 biennium.

Consuming precious reserves to delay painful reductions to non-essential agencies and programs during a protracted recession is not a wise economic strategy for Oregon. With on-going economic uncertainty in our nation, I believe a dramatic turn-around in Oregon’s economy is highly unlikely. A recent report released by the American Legislative Exchange Council (ALEC), compares the future economic outlook of each of the 50 states. It issues a sobering reminder of Oregon’s economic standing;Oregon ranks 43rd on the list for future economic growth potential.Oregon’s ranking has fallen eight spots since 2008. I wish the news were more optimistic, but with recognition comes hope for the future. We must open our eyes toOregon’s economic reality, shake off the clouds of complacency and stand forth with bold and sensible ideas for reform.

Between now and the February 2012 Session, Oregon legislators need to prepare for the likelihood that at least some of the 2011-13 “assumptions” will not materialize.

To make up for revenue that was assumed yet unrealized, some legislators will want to extract more taxes and fees from Oregonians. Such regressive plans may temporarily protect the status quo, but they will not restore Oregon’s robust economy and create new jobs.

Half of my colleagues in the House and many in the Senate believe the answer to Oregon’s plight is to champion reform in State operations, strategically reduce its unsustainable spending and require it to live within its means. The unmet budget “assumptions” should be countered with specific spending alternatives that will allow for reallocation of reduced resources to those programs and services most essential to Oregon citizens.

In conclusion, the 2011 legislature balanced the State Budget for the 2011-13 biennium on paper by assuming that more than $650 million will come from sources not included in the May 2011 Revenue Forecast. To avoid the potential for a possible shutdown of Oregon’s state services, we legislators need to prepare for the distinct possibility that there will be insufficient State revenues to cover the expenditures approved for the second year of the 2011-13 State Budget.

If we are up to the task, we can resolve Oregon’s expected revenue shortfalls and avoid the confrontations and intransigence that have plagued other states and Washington,D.C.In the months ahead, I will discuss in this newsletter cost-saving ideas and ask for your input as we work together to solve the budget deficiencies caused by improvident “assumptions.”

Your ideas on how Oregon can operate more economically and efficiently are important. If you would like to share them with me, go to www.OregonTransformation.com. If you would like to share them with other legislators, go to the Legislator Directory.

Sincerely,

Dennis Richardson
State Representative

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