Legislature, News, Salem

Oregon Legislature proposes tight budget as COVID cash runs out

This story originally appeared in the Oregon Capital Chronicle and is republished here under a CC BY-NC-ND 4.0 license. Read more stories at oregoncapitalchronicle.com.

Legislative budget writers plan to trim many state agency budgets while increasing overall spending in the next two years. 

Co-chairs of the legislative budget-writing committee on Thursday shared the broad strokes of their $31.6 billion spending plan for the two years beginning July 1. It starts with 2.5% reductions to current agency spending, cuts that would primarily be achieved by not filling vacancies. 

The planned cuts come as lawmakers and Gov. Tina Kotek envision spending hundreds of millions more to address the state’s most pressing issues, including a housing shortage, a dearth of public defenders that has left Oregonians without their constitutional right to representation in criminal cases and a rollback of Medicaid benefits expanded earlier in the pandemic that could leave up to 300,000 Oregonians uninsured. 

It’s larger than the $29.3 billion the state spent in the current budget cycle, but it still represents a haircut for state agencies who will be asked to hold positions vacant. One key factor making budgeting decisions harder this year: The billions of dollars in federal COVID funding that helped grow state programs and provide one-time boosts for schools and housing isn’t available. 

“We no longer have that federal fund buffer, so things will be a little tighter,” said Rep. Tawna Sanchez, D-Portland and one co-chair of the Joint Ways and Means Committee.

Like a $32.1 billion plan Kotek proposed in January, the plan Sanchez and the other budget-writing  co-chair, Sen. Elizabeth Steiner, D-Portland, unveiled calls for increasing school funding and prioritizing education, housing and human services.

Unlike the governor’s plan, which called for diverting hundreds of millions of dollars intended for the state’s reserves to meet those goals, the legislative proposal would maintain a 1% distribution to the state’s rainy day fund of close to $300 million. 

The framework includes almost $200 million in early spending on a $217 million housing package that Kotek is expected to sign soon and a $210 million set of incentives for semiconductors and advanced manufacturing that’s working its way through the Legislature. Some of the money for those packages will come from the current budget. 

Beyond that, the plan anticipates spending $325.6 million toward top state priorities, including managing Medicaid eligibility and preserving basic health and dental coverage for low-income adults who risk losing Medicaid coverage. Public defense services, literacy programs, housing and behavioral health and reproductive health are also included in that $325.6 million pot – but the state doesn’t have enough money to meet those needs, according to the framework.

The state’s next economic forecast in May could follow recent trends of showing higher-than-expected revenue, meaning lawmakers will have more flexibility to increase spending on priorities or decrease cuts. 

But if that doesn’t happen, Steiner said they’ll face tough decisions when crafting the full budget. They may have to dip into the money allocated for reserves, make additional cuts to state agencies or limit new spending. 

“This is my fifth year doing this, and it’s going to be the hardest,” Steiner said. “People have become accustomed to having lots and lots and lots of resources. The combination of the uncertain economy and inflation are putting us in a very different place than we were two or four years ago.” 

Need to scale back

The proposal released Thursday is a high-level look at state finances, with many details left to negotiate. Sanchez and Steiner shared it with other lawmakers shortly before releasing it to the public with a clear message for the 88 other legislators: There won’t be enough money for everything they want to do. 

“There really isn’t a whole lot of room for a whole lot,” Sanchez said. “We did deprioritize new things. We’re not going to move into new things really right now because we don’t know where we’re going to be. We don’t know what the May forecast is going to look like.”

The proposal calls for increasing the State School Fund, which covers most of the state’s K-12 budget, from $9.5 billion to $9.9 billion. That’s the same increase as Kotek’s proposal, though lower than the $10.3 billion education groups say is necessary to maintain current service levels for students. 

Education advocates widely panned the legislative proposal, saying it doesn’t do enough to fund K-12 education and universities. Jim Green, executive director of the Oregon School Boards Association, said in a statement that districts project widespread cuts in programs and staff.

“We appreciate that legislators are trying to address budget pressures,” he said. “But schools are facing a crisis in serving students’ increasing social and emotional needs, as well as workforce shortages.”

University leaders, meanwhile, noted that Oregon spends less per student than most other states. Nagi Naganathan, president of the Oregon Institute of Technology and chair of the Oregon Council of Presidents, said students need more support after the stresses of the pandemic.

“Our students, both current and future, have been hit hard by the pandemic,” he said. “They require more wraparound and behavioral health services, stronger academic advising, greater financial aid, and more support than ever on their path toward a degree.”

The legislative proposal calls for most state agencies to keep a certain number of vacant positions open to save costs, though it also calls for about $120 million in recruitment and retention benefits to keep corrections workers and behavioral health caregivers on the job. 

“Those are areas where we have experienced particularly acute staff shortages,” Steiner said. 

The framework also includes $330 million for state employee raises expected to result from future collective bargaining agreements. 

The human services budget includes nearly $109 million to comply with a federal court order that requires the Oregon State Hospital to treat and release patients back to their communities on a  set schedule, and for related needs. That order applies to patients who face criminal charges and need treatment so they can aid in the defense of their case. 

The initial plan doesn’t include state-issued general obligation bonds, which lawmakers continue to negotiate. Kotek has called for issuing about $770 billion in bonds to build new affordable homes for renters and homeowners, while universities seek bond funding for campus construction projects.

Bonds also could come into play for Oregon’s portion of the Interstate 5 bridge replacement between Portland and Vancouver, Washington: Oregon’s northern neighbor expects the state to match Washington’s $1 billion commitment to the bridge, which could cost as much as $7.5 billion. 

In a statement, Kotek praised the chairs’ “thoughtful approach” to developing a budget proposal.

“We share a mission-focused vision: rather than scores of new programs, we need to prioritize investments that will deliver meaningful results on housing and homelessness, behavioral health, and education,” she said. “As the budget process moves forward, I urge the Legislature to exhaust every possible funding option in order to make the visible and measurable progress that Oregonians are demanding on these issues of statewide concern.”

-Ben Botkin contributed reporting

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