Rep. Richardson's Newsletter
 

March 7, 2013

2013-15 Democratic Co-Chairs’ vs.
Republican Leadership Budgets

When the Oregon House of Representatives was tied with 30 Democrats and 30 Republicans, national recognition was given to the Legislature’s success after adopting a co-governance model for the 2011 and 2012 sessions. The budget compromises reached during a time of huge disparities between revenue and expenditures resulted largely from having Democratic and Republican Co-Chairs (chief budget drafters) meet together daily with Legislative Fiscal analysts, discuss alternative approaches to solving budget issues, and compromise when necessary to reach bipartisan budgetary agreements. In the current 2013 Legislative session, such bipartisan commitment to compromise is missing, and the “majority party rules” mentality has returned to the Oregon House of Representatives. The result is the Democratic Co-Chairs’ Budget, which was created with only Democrats at the Co-Chairs’ table.

As you may recall, the process for creating the Oregon State Budget was described in a newsletter last month. (Click here.) It explains that after a legislative session begins the Co-Chairs of the Joint Senate-House Committee on Ways & Means set the guidelines for three months of Sub-committee hearings that gather information for balancing the next two-year State Budget.

Without Republican presence at the Co-Chairs’ table, the Co-Chairs’ Budget only reflects one party’s approach to creating the State Budget for 2013-15. In response, House and Senate Republican leaders created the Republican Leadership Budget as an alternative to the Democratic Co-Chairs Budget. By contrasting the Democratic Co-Chairs’ and Republican Leadership Budgets we can see two distinctively different approaches to crafting the State Budget, and we can reach our own conclusions about how these two divergent political philosophies will affect both the State’s Budget and Oregon’s economic future.

On March 4, 2013, the Co-Chairs of the Full Ways and Means Committee (Senator Richard Devlin, D-Tualatin and Representative Peter Buckley, D-Ashland), released their 2013-15 Democratic Co-Chairs’ Budget.

Two hours later, the 2013-15 Republican Leadership Budget was also released. For those interested in watching the YouTube of the press conference explaining the differences between the two budgets, click here.

Similarities

In determining the available revenue for 2013-15, both budget proposals use the same March 2013 revenue forecast for 2013-15 and both assume a Beginning Balance of approximately $245 million. This Beginning Balance is carried forward from the current budget’s Ending Balance. Thus, both budgets assume from the Forecast that there will be approximately $1.7 billion more revenue in the next biennium than we spent in the current one. Think about it. The current two-year budget was built on 10% more revenue than we had in 2009-11, and the forecast for 2013-15 is for 10% more revenue than the State had in 2011-13. In addition, both budget proposals include a 14% increase in K-12 budget to $6.55 billion, plus PERS savings. That’s where the similarities end.

Differences

The Democratic Co-Chairs Budget. To balance the 2013-15 State Budget, the Democratic Co-Chairs Budget will require the following “assumed new resources”:

1. $1.7 billion of ADDITIONAL REVENUE—a 10% increase over 2011-13;

2. $150-200 million of UNSPECIFIED CUTS to programs and agency budgets;

3. $275 million of TAX INCREASES on Oregon businesses and families obtained by
discontinuing an unspecified number of business tax incentives and tax credits;

4. $350 million of PERS DEBT PAYMENT DEFERRAL.

5. $455 million of PERS REFORMS resulting from partially limiting the PERS retiree’s annual Cost Of Living Allowances (COLA’s) and eliminating the tax assistance payments to retirees who have moved out-of-state and no longer pay Oregon income taxes. Since $455 million represents less than ½ of the $906 million of just the 2013-15 PERS rate increases, this level of reform merely lowers the INCREASE in PERS costs than would otherwise occur. In its March 6, 2013 editorial the Oregonian Editorial Board refers to the Democratic Co-Chairs’ PERS reform effort as “watered-down” and “timid”. (Click here)

In addition to the Democratic Co-Chairs’ “PERS-Lite” reforms, the Co-Chairs are proposing to save $350 million by asking the PERS Board to reverse a rate-setting decision and lower 2013-15 PERS employer rates by 1.9%. Instead of “fixing PERS,” the Co-Chairs’ have chosen to “kick some obligations down the road” by delaying $350 million of PERS debt payments at least until the next biennium (2015-17). Since the $350 million is due and payable in 2013-15, the Co-Chairs essentially are asking to borrow the $350 million PERS payment from the PERS Fund, then give it back with a promise that future Legislatures will pay the extra interest this delaying tactic will add to the PERS debt.

Assuming with a stretch of the imagination that delaying $350 million of debt payments qualifies as “PERS reform or savings,” the Co-Chairs proposed PERS package could increase their $6.55 billion K-12 Education budget by $200 million to $6.75 billion.

The Republican Leadership Budget. With the $1.7 billion increase in 2013-15 revenue, the Republican Leadership Budget adjusts for approximately 6% in inflation and population increases and balances without tax increases, without undisclosed reductions and without borrowing from the PERS Fund. The Republicans will live within forecast revenue and “assume” the legislature will:

1. REIN IN unsustainable growth in government,

2. REALIGN SPENDING PRIORITIES with an emphasis on K-12 Education,

3. RESERVE RAINY DAY FUND AND ENDING BALANCE dollars to stabilize expenditures
during the next recession.

--Rein in unsustainable growth in State government. Regardless of how much money legislators want to spend on human service and health care programs, Oregon’s constitutional requirement to maintain a balanced budget requires priorities and choices to be made. For several years now the top priority for spending has been on social programs, unfortunately, at the expense of quality education and most everything else. Since 2005-07 the General Fund (GF) Human Services budgets have increased 40%, while the K-12 budgets have increased by only 7.7%. (Click here)

Another way to look at the allocation of resources is to follow the General Fund money.

This chart shows the increasing percentage of the GF budget allocated to Human Services. If Human Services’ portion of the GF budget has grown, what budget has lost its percentage of GF revenue?

--Reform spending priorities with an emphasis on K-12 Education. For the answer to which area of the budget has been losing ground to the escalating costs of human services and health care, consider the following chart on K-12 Education as a percentage of General Fund spending.

Education has steadily lost General Fund support over the past several biennia. As a result of lower priority GF funding for K-12 education and ever-increasing PERS payments for our school districts, Oregon’s K-12 schools have lost thousands of trained and dedicated teachers, increased the number of students per classroom and have reduced the number of days in a school year. The Republican Leadership Budget stops this unproductive trend by recommitting to the goal of a quality education for all Oregon students and making school funding and educational outcomes the top priority for the 2013-15 budget and beyond (the red bar in the chart above).

--Reserve funds to stabilize expenditures during the next recession. Prudent budgeting principles require us to set aside and save revenue during years when revenue increases surpass the percentages of inflation and population increase. In the 2011-13 and 2013-15 combined biennia, GF/LF revenue increases by $3 billion (22%). To maintain a balanced approach, the Republican Leadership Budget allocates $100 million directly to the Rainy Day Fund. In addition, the Republican Leadership Budget reserves a $300 million Ending Balance, which will also be available to cover budgetary contingencies during 2013-15. At the end of 2013-15 $165 million is automatically transferred to the Rainy Day Fund and the balance becomes the “seed money” or Beginning Balance for the biennium that follows it. When these reserves are added to the balances in the Rainy Day Fund and Educational Stability Fund, nearly $1 billion in Reserves could be available at the end of 2013-15 for contingences, such as the next economic recession.

The PERS Reform Component of the Republican Leadership Budget.

I explained in my last newsletter the extent of the PERS crisis. Suffice it to say that PERS employers, such as the State, have been forced to spend an additional $1.1 billion in the current 2011-13 budget and are currently assessed to pay an additional $906 billion in 2013-15 and another $678 billion in 2015-17. These payments are “off the top” and must be paid from money that otherwise could have been used in Oregon classrooms and other critical government programs.

The Republican Leadership Budget assumes the savings of approximately $1.8-$2.0 billion proposed in the Oregon School Board Association’s PERS reform recommendations contained in Senate Bill 754. Using the assumption that K-12 schools pay about 1/3 of the statewide PERS costs, the Republican Leadership Budget would boost the K-12 General Fund/Lottery Fund budget up from $6.55 billion to $7.15 billion. This additional $600 million in PERS savings could lengthen the school year by 27 days statewide for one year; it could hire more than 3,000 teachers for two years, and it could greatly reduce the number of students in Oregon’s classrooms.

This bar graph summarizes the level of commitment to PERS Reform included in the Republican Leadership Budget, The Governor’s Recommended Budget, and the Democratic Co-Chairs Budget.

Conclusion

The stark contrast between the Democratic Co-Chairs’ Budget and the Republican Leadership Budget is immediately apparent.

The Democratic Co-Chairs’ Budget fails to live within the 10%, $1.7 billion 2013-15 revenue increase, and it requires substantial cuts in agency budgets, tax increases and delaying PERS debt payments. It contains $455 million in PERS reforms that represents only ½ of the 2013-15 PERS cost increases, and it promises $200 million in PERS savings to K-12 in the next biennium.

On the other hand, the Republican Leadership Budget uses sound business principles. It is balanced within available resources, allocates $100 million to reserves, adjusts for population and inflation increases, and reins in and realigns spending. The Republican Leadership Budget incorporates nearly $2 billion in PERS reforms that will greatly decrease the PERS unfunded liability and generate approximately $600 million in PERS savings for K-12 education. In short, the Republican Leadership Budget endorses balanced and comprehensive PERS reforms that will provide a comfortable retirement for Oregon’s public sector workers while substantially lessening PERS costs for schools, for the State and for local government employers, both now and in the future.

Sincerely,

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