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Hard choices: Something must give in Oregon’s budget September 25, 2010

Posted by FairSentencing in : Current News , trackback

Budget decisions facing Oregon government read like a menu at a nightmare restaurant, with choices ranging from the barely palatable to the really expensive.

Close a prison or two? Knock poor families off welfare? Jettison tax breaks for green industry and retirees? Slap a tax on soda pop?

Pick your poison. The list grows longer by the week.

The short-term problem confronting Oregon is a $3.2 billion shortfall in the next two-year budget. Without a fundamental change in state spending habits, however, Oregonians can expect a decade of big, paralyzing gaps between the demand for services and the money to pay for them.

Here’s just one example of the state’s fiscal dilemma: Even as agency heads are looking for ways to cut spending, the Oregon Department of Human Services calculates it will need an additional $1.8 billion in 2011-2013 because of the rising tide of hard-hit families seeking state aid, an end to the flow of federal stimulus dollars and scheduled raises in staff pay and benefits.

To put that number in perspective, the total new money the state expects to receive over the next two years — to invest in schools, police and all other programs — is only $1.6 billion. And that assumes a robust economic recovery.

Budget scenarios like that have recast the debate in Salem. Options rejected by leaders in the past because they were politically perilous — hiking the beer tax, for example — or choices that once seemed unimaginable — cutting off state help to families in need — are now part of what has become an intense, statewide discussion.

Political candidates, business and union leaders, and ordinary citizens have begun to weigh in on the changes that need to happen as Oregon adjusts to a new era of austerity. Pressure is mounting on lawmakers to go beyond the traditional tweaks and do something big.

“This is the moment,” says Duncan Wyse, president of the Oregon Business Council, which has put revamping the state budget at the top of its priority list. “If we can’t do it now, I don’t know when we will.”

What follows are some of the dozens of proposals flying around for reconstructing Oregon’s budget to fit a tighter future. Some would require supermajority votes by the Legislature, some would have to be negotiated with unions, some would need to be approved by federal officials and some would require a statewide vote to amend the Oregon Constitution.

As Julia Child used to say, “Bon appetit.”


PERS: Few dispute the skyrocketing cost of retirement benefits for state workers. Both major candidates for governor, Republican Chris Dudley and Democrat John Kitzhaber, have called for cutbacks, as has Gov. Ted Kulongoski. Expect a debate over the 6 percent of salary employees are required to contribute to pension plans, but which the state pays under negotiated labor contracts.

Ending the 6-percent pickup doesn’t guarantee savings — estimated at $750 million over two years — because current labor contracts call for the money to revert to salary if it doesn’t go to retirement plans.

Future changes would also be subject to negotiation and could prompt talk of a state worker strike.

State worker health insurance: The state pays the entire cost of employee health insurance premiums, currently valued at $1,070 a month per worker. Few private companies offer such generous health benefits.

Lawmakers and the next governor will be under substantial pressure to match state worker compensation to the private sector, which could mean requiring them to pay a share of their premiums. These changes also would require contract negotiations.


Reinventing the budget: The Oregon Business Council and ECONorthwest have crunched numbers showing that at current growth rates, spending on health care, human services and prisons will continue to rise at rates well above inflation, causing the state’s investment in education to remain static or shrink.

One way to change that, the council says, is to set explicit targets for state agencies, not just give them what they had in the previous budget and adjust for inflation. The council recommends aiming dollars where they can spur the economy, such as education and job training.

“Kicker” reform: Democrats, including Kitzhaber, want voters to change the state kicker law to divert any surplus income into a reserve account instead of returning it to taxpayers. When the account reaches a specified level, 10 to 15 percent of the general fund, say, the kicker would function as it does now, with taxpayers getting refunds if state revenues exceed projections by more than 2 percent.

Republicans, including Dudley, want the kicker left as is. To build up reserve accounts, they propose requiring a small percent of general fund revenue be squirreled away before it can be used for schools, health care or other services.

Either plan requires a statewide vote to amend the state Constitution.

Prison downsizing: Oregon’s crime rate has fallen to its lowest level in four decades, yet the incarceration rate remains high. With corrections consuming an increasing share of the state revenue pie, expect a flurry of bills aimed at paring the prison population.

Among the options for reducing the number of state inmates include changing Measure 11’s mandatory sentences, giving more earned time off for good behavior and allowing some inmates to spend the final year of their sentences under a home detention program. Changing Measure 11 sentences requires a two-thirds vote by the Legislature.

Also looming is Measure 73, on the November ballot, which would require more prison beds by lengthening sentences for repeat drunken drivers and sex offenders.


Local options: Only 25 Oregon school districts have successfully passed local option levies, which allow them to collect more property taxes to run their classrooms. What about the other 167?

Some have tried and failed. Most haven’t even tried. That, by some reckoning, leaves money on the table.

Portland, for example, supplements its school budget to the tune of $38 million a year by tacking on a local option, which expires next year. “It’s hard for me to imagine a set of circumstances in which we wouldn’t renew it,” says school board member David Wynde.

Cut welfare programs: Oregon is supposed to spend about $471.6 million in the next two-year budget for its share of the state-federal Temporary Assistance to Needy Families program.

Demand for welfare help remains high, with 27,757 families, including 50,900 children, receiving benefits in August. Oregon could save money by following other states in reducing cash payments to families or giving a flat amount, regardless of how many children are in the home.

For example, Oregon allows a family of three as much as $528 a month. In contrast, Idaho adults are cut off from cash payments after two years and families receive a maximum $309 grant, regardless of the number of children.

What if Oregon follows Idaho’s model? The result would be fewer families getting cash assistance, with children becoming the majority of the recipients.

Food stamps aren’t touchable. Federal rules dictate the amount that families receive and what they can buy at the store.

Health care cuts: National health care reform took away a lot of choices Oregon once had. Even bad ones.

In 2003, relatives rushed to take elders out of Oregon after the state shaved nearly 6,000 people from long-term care programs by further restricting who was eligible for government-paid health care.

Recent federal decisions prevent states from shedding people from their Medicaid-supported programs by rewriting eligibility rules. In certain circumstances, the rules will allow Oregon to cut payments to doctors, hospitals and other providers; eliminate coverage of some services, such as dental care for adults, and require patients to help shoulder the cost of their care through copayments. All of those options have appeared on recent state cut lists.

Some lawmakers are questioning the need to build a new state mental hospital in Junction City. The state has spent $3.2 million on site preparation, with the deadline to pull the plug on the project rapidly approaching.

Pink slips: “There will be layoffs,” a grim Kulongoski promised six months ago after announcing another big budget shortfall. He just didn’t say how many.

So far this year, 57 state workers have lost their jobs out of a workforce of more than 35,000. A grand total of 241 — less than 1 percent — have been laid off since July 1, 2009, when the recession began sapping Oregon of more than $1 billion in expected revenue.

Oregon, like many other states, relied on federal stimulus aid to forestall layoffs and used furlough days to cut payroll costs. A new report by the National Governors Association suggests layoffs may replace furloughs as the budget-balancer of choice in the coming year.


Beer and wine taxes: Hundreds of Oregon wineries are getting away with paying minuscule or no taxes on their products, says Robert Kerivan, owner of Bridgeview Vineyards & Winery in Cave Junction. They’re considered small vintners for tax purposes and are exempt from the $1.60 per case tax that bigger wineries pay — even though their wines may sell for $40 a bottle and up.

“What’s going on is morally wrong,” Kerivan says.

But tax increases require a three-fifths vote of approval in the Legislature. Every attempt to raise taxes on wine or beer has been stamped out by an effective lobby.

How effective? Oregon hasn’t raised its beer tax in 33 years. And it’s the lowest in the nation.

Last year, the Legislative Revenue Office estimated the state could bring in an additional $2.8 million a year if it increased the beer tax by $1 per barrel and another $2.9 million by hiking the wine tax by a quarter a gallon.

Sodas and cigarettes: Borrowing an idea from Washington and other states, the Oregon Health Improvement Plan Committee has talked of proposing a tax on sugar-sweetened beverages and further increases on tobacco taxes.

The committee, which advises the state’s Health Policy Board and public health officials, says the proceeds could be spent to fight obesity and on anti-smoking programs, which would reduce future health care costs.

According to the Yale Rudd Center for Food Policy and Obesity, a 6-cent tax on a 12-ounce can of soda and other sugary drinks would raise $104 million a year for Oregon’s state government.

The Legislature’s revenue office estimates that increasing the tax on a pack of cigarettes by a dime would raise $10.6 million a year.

Senior medical tax deduction: Oregon is the only state to allow residents 62 and older to deduct all their medical expenses from their state income tax. It’s a break that not only applies to the older Oregonian, but to that person’s entire household.

For the current budget, the deduction means Oregon will forgo about $120 million in revenue. In 2011-13, the estimated cost rises to $162 million.

Sen. Ginny Burdick, chair of the Senate’s Finance and Revenue Committee, said she’ll try — again — to end the deduction but it won’t be easy, even with a $3 billion budget gap.

“People are afraid of offending seniors,” Burdick says. “That’s the political reality.”

In addition, radically changing or eliminating the deduction would require a three-fifths vote.


Sales tax: It gets mentioned every year, and it could raise a boatload of money for public schools and state programs. But few give it any reasonable chance because Oregon voters seem to have it in their DNA that when something says it costs $10.95, by gum it should cost $10.95.

Marijuana tax: Cash-strapped California may beat us to it: On Nov. 2, voters there will decide whether to legalize and tax marijuana.

California’s Board of Equalization estimates that the pot tax could raise $1.4 billion for the state. But researchers at Rand Corp. looked at the assumptions — price, demand, reduced cost of law enforcement — and declared it all but impossible to estimate how much a state could truly net off marijuana.

So it’s understandable that Paul Warner, head of the Legislature’s revenue office, can’t come up with a number either. Depending on what happens south of Oregon’s border, Warner says: “In the not-to-distant future, we may have to come up with a credible estimate.”

Soak the tourists: Sticking with the California theme, Gov. Arnold Schwarzenegger has suggested selling off public lands or closing state parks to raise money.

No one in Oregon is talking about hanging a “for sale” sign at Tolovana or any of the state’s other state parks. And the last time we tried gouging out-of-staters — levying a $2-per-night surcharge — it didn’t go so well.

Oregon didn’t make much money, but it did get a lot of bad PR, says state parks spokesman Chris Havel. People stopped coming and other states retaliated, charging Oregonians more.

Bonding: States can come up with extra money in emergencies the same way ordinary families do, by borrowing it. Kulongoski says that might be the only way to keep the state solvent until the economy gets going again.

A number of legislators are floating bonding proposals for construction projects and balancing the budget. But the state treasurer says Oregon has maxed out its debt capacity.

The Legislature borrowed to get out of the last bad recession in 2003, selling $400 million in bonds backed by income from a big tobacco lawsuit settlement. Those bonds are still being paid off, costing taxpayers $70 million a year.



1. sharon - September 25, 2010

Thanks for the excellent information!

2. admin - September 26, 2010

You’re welcome, Sharon! It’s really nice to hear from you!

3. wilma meyers - November 20, 2010

It is nearly impossible to work in this state, which has no workable transportation [like the east coast.] It is too harsh a treatment, and desperation drives people to drive. The answer is, the “second I.D.”, the vehicle will not start when the person’s breath registered alcohol.
This system, though incovenent to the driver, works. And prison would not more burdened. And the police would still make some money from the I.D. devise. However, MADD just wants blood, I think. Lets try the I.D. item, it works. Thanks. Wilma