Governor Kitzhaber’s Recommended Budget

Governor Kitzhaber’s recommended budget was released last week. The document represents the first budget proposal in decades that attempts to curtail the unsustainable growth in the size and the cost of Oregon government. In fact, his recommended budget closes much of the gaping hole in Oregon’s current financial statement.

For the first time in a quarter of a century, an Oregon Governor has crafted a spending plan based on the money that we are likely to have available to spend, rather than on the inflated cost of the services that many Legislators would like to have provided. Like a family budget, it attempts to spend for what we can afford to purchase rather than spending for everything that we would like to buy.

Moreover, Kitzhaber’s plan departs from the rigged-game of current service level budgeting that automatically builds double digit increases into each new budget. That budget model assumes that all state services are of equal priority and that all services will be continued to be provided.  It further assumes that those programs will continue to grow in size.  The model then automatically builds bloated, double-digit cost inflation into the price of delivering those services.

Had the governor chosen to apply that model to his proposed budget, it would have required spending nearly twenty percent more money during the next two years, to provide essentially the same services that were provided to Oregonians during the past two years. Spending anything less than that artificially bloated amount is then characterized as a cut in government spending that would force a reduction in government services.

For the past six years, I have consistently expressed strong opposition to this insane budget model, because it perpetuates double digit increases in the cost of Oregon government services. Moreover, I think it intentionally misleads Oregonians to believe that government costs are being reduced at the same time that those costs are actually being rapidly increased.

The state budget deficit would have been between three and five billion dollars if Governor Kitzhaber had chosen to continue to use that unsustainable current service level model.

 For instance, according to the Cascade Policy Institute, the current service level model would have automatically inflated costs to require:

1.)  More than a 13 percent increase in public employee compensation to restore payment for furlough days, step increases, and to pay for the increased costs of employee retirement benefits.

2.)  An additional 4 ½ percent increase in compensation for cost of living adjustments.

3.)  An additional 9 percent per year increase in the cost of public employee health insurance benefits.

4.)  A 2.4 percent increase in standard inflation for services and supplies, as well as a 3.9 percent standard inflation for medical costs.

5.)  It would have required one billion three hundred million in additional funds to backfill the one-time funds used in the 2009-11 budgets.

6.)  It automatically added $466 million for growth in human services caseloads, and another $239 million to pay for the phase-in of new or expanded programs.

7.)  Finally, it accounted for the $172 million increase in costs required to pay the debt service on new state borrowing. 

Our own legislative Fiscal Office calculates that in a normal, unrestrained budget cycle, the current service level model would automatically increase most public employees’ compensation by between 19 and 20 percent in a single two year budget period.

Governor Kitzhaber has recommended basing state spending for the next two years on the amount that is actually being spent during the current two year budget. His spending plan is already reduced by more than a billion dollars that was made necessary by falling state revenue during the current two year budget period. It is reduced by well more than another billion dollars by backing out the money from federal grants, state reserve funds, and sweeps of agency ending balances that were included in the current two year spending plan. These one-time sources of revenue are not likely to be available to spend in the next budgets. Finally, his plan avoids more than $2 billion in automatic current service level spending increases.

In short, the Governor recommends budgeting no more than we are actually spending in the current two year budget, less the amount of
one-time reserves being spent in that current spending plan.

He further recommends waiting to see if more revenue materializes before including that money in the spending plan. If and when that money becomes available, the Governor proposes to spend part of that money on Oregonian’s highest priority services and to save the rest.

Governor Kitzhaber and I do have disparate views on many policy issues, and we may have differing views on some spending priorities.
But I applaud his effort to create a sane, sound, sustainable budget structure for Oregon. It is now up to the Legislature to enact budgets that adhere to the Governor’s spending restraints.

Rather than asking what services agencies must cut due to budget constraints, we should be asking the agencies how they will continue to provide those services with less funding. We should be focusing on how the agencies will become more efficient and how they will reduce duplication and waste. We should be asking the agencies how they can do it faster, cheaper and better.

The Governor has served up a budget and the ball is in our court. It is now up to the Legislature to hold the line on spending.

Please remember, if we do not stand up for rural Oregon no one will.

Best regards,
Doug