Update on Budget and Revenue
Over the past few weeks, I’ve been talking about the primary fiscal challenges facing the state – the budget, the deficit, reducing long-term costs, and the future.
Generally, the economy looks good. Statewide unemployment is the lowest ever recorded. Average wages are rising by 4 percent annually. The state is enjoying an unprecedented housing construction boom, and even lagging rural areas are adding jobs at a steady pace.
More people are working; more people are being paid more to work; and consequently more tax revenue is being collected. But because costs of schools, health care, and senior services are rising even faster, it’s still not enough to fund state services at their current level.
Overall, the state faces a $1.4 billion shortfall in the next two-year budget cycle—that could lead to more overcrowded schools, a shorter school year, and cuts to health care services.
Past legislatures and voter-approved ballot measures have led to hundreds of millions of dollars in mandated spending and strict tax limitations. Health care costs, in part due to the federal government’s decreasing payments for Medicaid expansion, have driven up costs by $1 billion in the next budget cycle. That’s the biggest piece of the funding gap.
The increasing cost of retired public employees’ pensions (PERS) also plays a big role. And ballot measures passed by voters in November play an even bigger role in the shortfall than pensions.
Oregon’s Budget Gap:
State revenue in the coming two-year budget cycle is forecast at $19.7 billion, up $1.3 billion. But for the reasons outlined above, the cost of providing our current level of service is rising twice as fast. Here are the primary drivers of the budget shortfall:
$1 billion: Health insurance costs, largely due to reduced federal support for Oregon’s Medicaid expansion under the Affordable Care Act
$357 million: Unfunded ballot measure spending passed by voters last November
$350 million: Court-mandated public pension cost increases
A Worst-Case Scenario Budget:
Without bold action to reduce long-term costs of delivering services and reforming our revenue system, we’re looking at years of painful short-term cuts.
Here are a few examples from the current budget that bring the impact of those reductions into focus:
A $7.8 billion K-12 budget would mean teacher layoffs and increased class sizes. School districts need at least $8.4 billion to be able to continue what they’re doing now.
Without new revenue, 350,000 low-income Oregonians could lose health coverage and about 50 treatments would be removed from the state’s prioritized list of covered treatments.
The Department of Human Services could be forced to cut programs that help children and the elderly, such as Oregon Project Independence, which helps seniors and people with disabilities remain in their homes and job-related day care for families receiving temporary assistance.
Community colleges would get $7.6 million less and the state’s seven public universities would see $9.4 million in cuts. Oregon Promise, which provides low-cost community college for qualified Oregon students, is scaled back under the new budget plan.
Measure 96 which increased Veterans Programs by $18 million was offset by other program cuts of $5 million.
Highway maintenance could be reduced by $30 million, costing Oregonians money in increased gas consumption and higher auto repair bills.
For those Oregonians who believe we currently spend too much, you will see some programs eliminated and others cut by 8-20%. And for Oregonians who rely on state services – and that is all of us in one way or another–will see staff reductions, increased response time, and/or higher user fees.
All of this is made more uncertain by changes at the national level where we’ve seen plans to cut programs like the Coast Guard, Sea Grant, NOAA, federal housing assistance, and even Meals on Wheels.
A Better Way Forward:
I believe there’s a better way forward than cutting schools, undermining the economy, and reducing senior programs. By reducing long-term costs and fixing our unstable revenue system, we can put Oregon on a sustainable footing for the future.
Governor Brown and legislators have proposed cost-saving measures, like a hiring freeze, selling disused state assets, PERS adjustments, changes in agency structures, and increasing our focus on debt collection — an issue I have prioritized for the past two sessions.
These are serious ideas and proposals for changing our long-term expenses going forward. Overall, the plan would eliminate $400-600 million each budget cycle.
The big question we face is how do we make taxes more fair while adequately funding Oregonians’ priorities: an education our kids and grandkids deserve, affordable college, support for vulnerable Oregonians, a stable and stronger economy, and keeping our communities safe and healthy?
Budget and revenue leaders in the Oregon House of Representatives have released a proposal to invest in Oregon’s education system by overhauling and modernizing the state’s outdated business tax structure.
The plan, called the Education Investment Initiative, will yield just over $1 billion per year, with at least 75% of the money dedicated directly to education.
The proposal would eliminate Oregon’s corporate income tax, replacing it with a new Commercial Activity Tax of just under 1% on a business’s total Oregon sales. This rate would only apply to companies with more than $5 million in Oregon sales. Smaller firms would pay just $250. The proposal also includes $200 million in tax reductions for low- and middle-income households.
How does this differ from Measure 97? This proposal:
Dedicates a minimum of 75% to education
Eliminates and replaces the current corporate tax structure
Provides $200 million in tax relief for low- and middle-income households
And was carefully crafted by revenue experts to protect against unintended consequences
I believe this would be the balanced approach we need to finally allow us to invest in our schools and critical services. The conversation is certainly continuing here in Salem and everything is subject to change. I intend to be a constructive part of that discussion.
On Monday, I sat down with Governor Brown to discuss our priorities for schools, the economy, revenue, and our environment. I’d be happy to sit down with you as well. Please continue to email, call, or visit me in Salem. We’re in all of this together!
Rep. David Gomberg
email: Rep.DavidGomberg@oregonlegislature.gov I phone: 503-986-1410
address: 900 Court St NE, H-371, Salem, OR, 97301