BY SARAH ROSS

SALEM- With just over a week to go before the August 26 revenue forecast, State Economist Tom Potiowsky and Governor Ted Kulongoski let slip that the $577 million budget shortfall projected back in May likely will be increasing by an additional $200 to $500 million.

“Given the information available, we estimate that the general fund revenue forecast will be down between $200 and $500 million,” wrote Potiowsky in a memo sent to Gov. Kulongoski on August 11. “We stress this is a likely outcome and the final numbers could be outside the range.”

Kulongoski followed up by sending his own letter to the Legislative leadership, Senate President Peter Courtney, D-Salem, and Speaker of the House Dave Hunt, D-Clackamas, explaining the situation.

“After nine negative forecasts over the past 27 months, it will be prudent to expect and to plan for continuing challenges ahead of us,” wrote Kulongoski.

Eileen Norcross, Senior Research Fellow at the Mercatus Center, said that most states are having the same problems as Oregon in terms of growing deficits.

“They have had some sustained increases in spending in the 1990s and into the 2000s,” said Norcross.

The drivers of spending, she said, are increases in Medicaid enrollment, education spending, and deferred public sector pension payments.

In his letter to Courtney and Hunt, Kulongoski wrote, “I am hoping we can come to an agreement on how to resolve the deficit if the forecast materializes as expected, so we can bring the state budget back into balance for the biennium.”

“With nine months remaining in this biennium, we still have time to implement reductions; but if we wait much longer, that opportunity may not be available,” he wrote.

Norcross noted that in spite of receiving federal stimulus funds, most states are still facing these large deficits.

“Basically states have now received stimulus funds and, in spite of that, these gaps continue,” she said. “It doesn’t look like these revenues will recover for a couple of more years. They’re projecting of revenues not recovering, in some cases, until 2015.”

Some states, Norcross said, have been using several “short term fixes” like issuing debts, deferring pension payments, “one shot” revenue sources, and fund transfers to fill these budget gaps.

She added that until the revenues recover, states are left with few options, including raising taxes, cutting spending, and taking a deeper look at the cost drivers and considering reforms of those cost drivers.

Kulongoksi said in his letter that he remains opposed to using reserve funds and using federal Medicaid resources to increase current spending levels.

Kulongoski made no mention of calling a special session, but Republicans jumped at the chance to call for one in light of the added shortfall.

“There is no doubt that the out-of-control appetite for spending has created this mess, but our most important services should be protected in spite of those decisions,” said Sen. Bruce Starr, R-Hillsboro, in a press release sent Tuesday. “I hope Democrats have the courage to do the right thing this time and call us into special session. We were elected to do a job that includes balancing the budget.”

BY SARAH ROSS

SALEM- As expected, the Legislative Emergency Board voted to restore $17.1 million in state funding to the Oregon Department of Human Services on Thursday.

In a press release sent out Thursday afternoon, Senate President Courtney, D-Salem, said, “We know it is absolutely the right thing to do to keep serving those who need help the most-especially our senior citizens and children with disabilities.”

He continued by saying that the Legislature’s priorities will “continue to be protecting Oregon’s most vulnerable and avoiding higher costs down the road.”

Senior Republican on the Emergency Board, Sen. Jackie Winters, R-Salem, said she was glad to support the funding of the programs but was concerned about the future.

“Seniors and people with disabilities are the most vulnerable in our society. Today’s actions will help for awhile but we need long term solutions to deal with these issues,” said Winters in a press release sent out by the Senate Republican office.

The programs saved by Emergency Board’s actions include the Oregon Project Independence which provides in home assistance to seniors, Medicaid In-Home Care programs, Community Mental Health programs for those covered by Medicaid, and the Developmental Disabilities Family Support Program which provides financial assistance to families raising developmentally disabled children.

Before the Board voted on providing the funding, Rep. Vicki Berger, R-Salem, cautioned the members by saying, “At some point, and maybe not today but next session, we’re going to have to take a hard look at what we didn’t give up to save these and ask ourselves the really hard questions: What are we going to have to give up in the future to save these base-level services to Oregonians?”

“These things will be back to haunt us for sure because the life boat is not getting bigger, and the needs are,” Berger added.

Most of these programs now will be covered for funding through the remainder of the 2009-2011 biennium, and the others will be covered through March 2011, giving the Board time to see what more can be done to provide funding for them.

Granting these funds, which had been cut during Governor Ted Kulongoski’s allotment process to balance the state budget, allowed the DHS to retain $14 million they had received in federal funding. If they had not received the Emergency Board’s funds, they would have become ineligible to get the promised federal funds.

“These programs rise to the point that if we do not take action, many of these programs will end up paying far more,” said Rep. Peter Buckley, D-Ashland, confirming that there will need to be action in the future, taking into account the reality of next year’s revenue forecasts.

The Emergency Board is a twenty-member, bipartisan committee which operates during the interim session to change agency budgets when the Legislature is not in session; and it has access to a legislatively appropriated emergency fund.

BY SARAH ROSS

PORTLAND- The group which hosted a national budget discussion last weekend released their preliminary findings Wednesday, showing the American public is sick of partisanship in policymaking.

Portland was one of 19 cities that took part in a national discussion created to talk about the country’s financial and budgetary problems and potential solutions.

The local event, which drew nearly 430 members of the public, took place on June 26 at Portland’s Convention Center. It took AmericaSpeaks, a D.C.-based nonpartisan think tank, four days to calculate preliminary findings from the suggestions and priorities for every city that participated in the national discussion.

In their findings, the group found that 89% of participants nationwide expressed their dissatisfaction with the “tone and quality of political discussion” in America today. Among the most common views expressed was the dislike of partisanship in government.

“Abandon the failed politics of partisanship,” was one of the common opinions expressed during the event. “You can’t demonize each other and expect us to trust you.”

In the written testimony released about the preliminary findings, Carolyn Lukensmeyer, President of AmericaSpeaks, wrote that participants in the event showed that the American public cares about America’s fiscal problems, can understand the hardships associated with fixing those problems, and is able to offer guidance on policy to policy makers.

“They offered a plea to policy makers to set aside partisan differences and get on with the work of addressing our most pressing problems,” wrote Lukensmeyer.

Local sponsors for the event included 1,000 Friends of Oregon, the Portland Business Alliance, the Bus Project, the Oregon 912 Project, Portland Community College, Rebuild Oregon, and Oregon Politico’s parent organization, the Cascade Policy Institute, among others.

Steve Buckstein, Founder of the Cascade Policy Institute, said the event was especially important because “if we don’t get the nation’s fiscal house in order, our local troubles will pale in comparison to what’s headed our way from Washington, D.C.”

“The concept of divergent voices coming together and just trying to find common ground is something we’ve been supportive of and tried to work in the way we approach dealing with issues,” responded Eric Stachon, Communications Director for 1,000 Friends of Oregon.

Richard Burke, Grassroots Coordinator for Americans for Prosperity, was hired by the AmericaSpeaks group to recruit “fiscally conservative” participants into the Portland discussion. He said he thought the discussion was effective in raising the profile of the budget and national spending.

“The question of our national debt, I think, will be one of the defining issues for the next fifty or even one hundred years for this country,” said Burke. “It’s an issue that has been on the back burner too long. An issue we pay too little attention to. And one that we need to raise the profile of.”

Stachon added that he was “impressed by the turnout” and thought it was effective in making participants feel their opinions had value.

Burke noted that despite the makeup of the event, which he characterized as being mostly left leaning, a majority of participants supported less spending on health care and non-defense spending.

Both Stachon and Burke thought future events like the one hosted by AmericaSpeaks are beneficial for the public and policy makers. Burke added that because of the importance of the issues, there can’t be enough discussions like this.

Final results from the event are expected to be released in the coming weeks.

BY JACOB SZETO

PORTLAND – TriMet approved an $858 million budget for their 2011 fiscal year Wednesday morning.

The budget includes $417 million for operations and debt service and $114 million for rail construction.  The total budget was reduced by $20 million from previous projections due to drops in anticipated revenue.

TriMet had a $27 million budget gap.  Federal stimulus money filled $7.25 million of the gap and the rest came from administrative cuts, salary and hiring freezes with a reduction of 120 staff, service reductions and fare increases.

Board of director, Steve Clark asked if the current or future budget provided funding for unfunded labor liabilities.  Fred Hansen, General Manager of TriMet, told the board that the pension plans were being funded, but that the larger of the two plans is a “bit over 50 percent funded.”  He also stated that the $632 million postemployment benefit liability is completely unfunded.

Hansen’s statements on the unfunded liabilities were followed by a comment from board member Lynn Lehrbach that he was “very concerned about the condition that the pension fund is in.”

The board also passed a series of resolutions including authorizing an application to the Federal Transit Authority for funds for the SW Moody Street and streetcar reconstruction project and two intergovernmental agreements for the construction of the Milwaukie light rail project.

One motion proposed by Lehrbach to place a six month moratorium on the purchase of properties to make way for the Milwaukie light rail project out of concern that financing might not be secured for the project, did not pass.

Clackamas County Fire Chief, Ed Kirchhofer testified on the planned Milwaukie light rail stating that there was a “current lack of a regional strategy,” and an “overreliance” on the use of urban renewal districts and tax increment financing.

Clackamas County Sherriff, Craig Roberts followed Kirchhofer and stated that the creation of an urban renewal district to help pay for new rail will “deprive” them of additional deputies while simultaneously creating an increased need for service, and would be a “mistake” for public safety.

Activist Steve Schopp, testified that from experience in Tualatin, the Clackamas County urban renewal plan to finance the Milwaukie rail plan “will not happen.”  He also spoke to job losses described as being 600 displaced by 60 businesses from the rail takeover.

John Charles, President of Cascade Policy Institute, OP’s parent organization, called for an independent third-party review board for the Milwaukie light rail project similar to the one for the Columbia River Crossing.   John Charles also noted TriMet’s “unsustainable” fringe benefits calling it “institutional suicide” to continue operating in such a manner noting that at least a billion dollars of liabilities are off book in their 10 year financial forecast.

BY SARAH ROSS

SALEM- Gov. Ted Kulongoski’s final approval over agency budget cuts has reverted Oregon’s General Fund spending to approximately 2007 levels. Oregon’s General Fund budget accounts for about 22 percent of the entire Oregon state budget.

Despite cuts to the General Fund, the state’s total budget has increased by over $11 billion since the last biennium.

Gov. Kulongoski approved cuts made Tuesday by state agencies to reduce Oregon’s budget by $577 million, in order to close the unexpected budget deficit announced last month.

Kulongoski used his “allotment authority” to make across the board cuts for every agency rather than calling the Legislature into a special session to make specific reductions. The cuts that go into effect starting on July 1^st will represent a 9 percent cut for the remaining year of the 2009-2011 budget.

“With  limited options to balance the budget, and growing uncertainty about federal assistance, the longer we wait to implement these reductions, the deeper the cuts will have to be to bring the budget into balance,” said Kulongoski in Tuesday’s press release.

The governor stressed the need to “operate with the reality of today,” explaining that the state doesn’t have the revenue to support the services that were approved in the legislature’s budget.

Responding to concerns of prison closures and the release of criminals due to the cuts for the Oregon Department of Corrections, Kulongoski restated his intentions of asking the legislature’s Emergency Board Committee to grant the Department the necessary funds to keep prisons open.

Senate President Peter Courtney and Speaker of the House Dave Hunt issued statements soon after the governor’s announcement.

Courtney called news of the cuts “sobering,” but reinforced the Legislature’s commitment to “soften the blow from the most severe cuts.”

“Each step of the way, we’ll be thinking of everyday Oregonians and the challenges they’re facing in their own lives,” said Courtney.

Hunt echoed similar sentiments saying the legislature will continue on the same course it’s been on in the past few weeks. This includes figuring out the worst of the cuts, lobbying for additional federal funding, and preparing cuts to the agencies that the governor doesn’t have control over, such as the legislature.

With the $577 million reduction, the legislatively approved budget for the 2009-2011 biennium will be reduced from $14.2 billion to about $13.7 billion.

Ken Rocco, Legislative Fiscal Officer for the Legislative Budget Office, noted that while the General Fund budget is smaller than it was in 2007-2009, when it was $14.4 billion, it is still bigger than it was prior to that biennium.

The 2005-2007 biennial General Fund budget totaled $12.4 billion (which is $1.3 billion less than this year’s adjusted budget). Prior to that, the budget in 2003-2005 was $11 billion and in 2001-2003 was $10.5 billion.

The state’s total budget this biennium is $59.6 billion. It was $48.3 billion in 2007-2009.

An Oregon Politico analysis into how this biennium’s General Fund budget compares to the others shows increases in “Other Education” and Human services.  Rocco said these increases came about from additional student assistance grants and “caseload growth” for the human services department due to the recession.

Rocco also mentioned that the cuts made by the governor will only be to the general fund and are actually only 4.6 percent of the biennial budget. They are reflected as 9 percent cuts because those agencies that have already spent their budgets for  the first half of the current biennium will need to cut 9 percent from the next year to meet the 4.6 percent cut for the full biennium.

The governor’s largest reductions are coming in education and human services. The Department of Education will lose $258,945,297 while the Department of Human Services has to reduce its budget by $158,260,778.

Schools will face the brunt of the Department of Education’s loss with many of them reducing school days or laying off staff in order to meet their reduction goals while honoring union contracts.

As for human services, most of their cuts will come from food stamps, mental health services, the State Hospital, and “managed care organizations.”

And although the general budget mentioned above is being cut, the “Other funds” budget which constitutes just over 50% of the state’s total budget has continued to grow each biennium, including this one. This budget consists of funds used by agencies for services and are usually paid for with taxes and fees. This budget was approved at $29.9 billion in the current biennium which is up from $23.8 billion in 2007-2009, $21.8 billion in 2005-2007, and $18.09 billion in 2003-2005.

BY SARAH ROSS

SALEM- With Hearing Room F’s speaker phone tuned into legislators across the state who were unable to attend Tuesday’s Emergency Board meeting, the Committee voted to grant $64,762,227 to the Oregon University System (OUS).

The Emergency Board Committee is a standing committee of the legislature that meets in the interim to give emergency funds to agencies who request additional funding.

The OUS asked for just over $29 million to accommodate growth in enrollments at its schools, $11 million to help with “higher levels of externally funded research,” and $23 million to offset some of the cuts coming from the governor’s allotment process.

Specifically, the Committee voted to give the OUS $44 million for the items requested and then transfer an additional $20 million from the Capital Improvement Program Area, which is used to improve the area surrounding the Capitol but not for Capitol maintenance. This $20 million, the Legislative Fiscal Office said, is “not predicted to be needed this biennium.”

According to the Legislative Fiscal Office, the $64 million, plus increased student enrollment and higher tuition rates, will help the OUS end up with about the same ending balance before the budget cuts.

Sen. Doug Whitsett, R-Klamath Falls, asked the Legislative Fiscal Office if the OUS was in danger of losing funding from the federal stimulus program that had helped balance the state’s budget in February.

The Legislative Fiscal Office responded by saying that post secondary institutions could lose federal stimulus funding since the governor’s lower allotment would push the Universities below their 2006 level of expenditures.

The 19 members that make up the committee then voted unanimously to grant the OUS’s request for a fund increase.

BY JACOB SZETO

PORTLAND – At a Metro work group session last week, TriMet representatives outlined their current and future budget situation, telling the Metro Council that their budget picture is “bleak” and that near-term restoration of transportation cuts is unlikely.

TriMet has continued to cut services over the last two budget cycles due to budget shortfalls. Last year’s shortfall was $31 million. This year $27 million will need to be cut from the budget.

To balance the budget, TriMet plans a five-percent administrative cut, salary and hiring freezes with a reduction of 120 staff, service reductions, fare increases and a $7.25 million federal stimulus backfill.

Over the last few years, total TriMet services have been cut about 15 percent, primarily in bus services. During the same period TriMet’s revenues have continued to grow, with 2008 operating revenues of $395 million and budgeted operating revenues for 2010 reaching $454 million, a 15 percent increase.

TriMet employee compensation has increased along with revenue. In 2008, total employee compensation was $221 million. The $244 million budgeted for this year is an 11 percent increase.

In the meeting, TriMet’s executive director of communications, Carolyn Young, described TriMet’s healthcare benefits package as “generous.” When questioned by Robert Liberty, Metro Council District 6, Young stated that they had a plan to meet the obligations created by the healthcare benefits.

However, an examination of TriMet’s latest financial forecast by Oregon Politico shows that these debts will continue to build at a rapid pace for the next decade. Oregon Politico’s analysis showed that TriMet will accumulate approximately $45 million in retiree healthcare debt annually, creating an unbalanced and unsustainable budget for at least the next ten years.

By 2019, TriMet will have accumulated $427 million in healthcare debt in addition to the $632 million already accumulated, bringing the total unpaid healthcare expenses to $1.6 billion.

Currently TriMet is involved in labor negotiations with its transit union. This contract will determine salary increases, cost of living adjustments, healthcare benefits and retirement benefits.

BY SARAH ROSS

Governor Ted Kulongoski

SALEM- After the legislature used stimulus dollars and other federal aid to balance the budget in February’s special session, Governor Ted Kulongoski is now turning to Congress again to fill remaining gaps.

Kulongoski wrote a letter to the state’s Congressional delegation urging the passage of two bills in Congress that would extend expiring medical assistance and bring more aid for educational jobs.

“But these cost-saving measures [budget cuts and salary freezes]will fall far short of covering the $560 million shortfall Oregon faces right now,” Kulongoski wrote. “With little left in our budget reserves, federal dollars will continue to be critical in our efforts to fund schools and serve the increasing numbers of Oregonians relying on the state for health care and other human services.”

Following the discovery of the State’s $577 million shortfall in the 2009-2011 biennium, Kulongoski asked each state agency to send him their plans for cutting 9% from each of their budgets for the time remaining in this biennium. These plans were returned to the Governor on Wednesday.

“Today’s plans represent the next step in this difficult process,” said Kulongoski. “There are no good answers and no easy solutions to the current shortfall. With a shortfall of this magnitude, we are limited in our options to balance the budget – and the longer we wait, the more painful and deep the cuts.”

Kulongoski is expected to finalize cuts in the budget for agencies toward the end of June when the Department of Administrative Services will “work with agencies to ‘unschedule’ funds in accordance with the 9 percent reductions.”

Speaker of the House Dave Hunt, D-Clackamas, released a statement saying the budget cut process will begin Wednesday and continue during the Legislative Emergency Board meeting on June 15. The June meeting will be used for legislators to meet with the Legislative Fiscal Office to go over the budget cuts and their expected impacts.

“The road ahead is tough. But just as we managed to fill a $4 billion budget hole in 2009, we’ll find a balanced path through this latest challenge,” said Speaker Hunt. “And we’ll do our best to continue creating jobs and protecting core services as we meet our constitutional obligation for a balanced budget.”

House Minority Leader Bruce Hanna, R-Roseburg, issued a response saying that balancing the budget will require “difficult and perhaps even unpopular choices.”

The Governor himself acknowledged that there will be layoffs and cuts in services to get the budget balanced again.

Instead of bringing the Legislature into a special session to rebalance the budget, the Governor decided to use his “allotment authority” to lower state spending. In addition to asking for a 9% cut across the board on agency spending, he also extended pay freezes for management and non-union government workers.

Still, House Republicans are not convinced by the Governor’s plan to act alone in fixing the budget.

“The Legislature can’t afford to wait for ‘further analysis’ or yet another taxpayer-funded bailout from the federal government,” complained Rep. Hanna. “We should immediately convene into special session, make the tough decisions, and re-prioritize spending to protect the most essential programs in education, public safety and human services from devastating cuts.”

The biggest cuts presented in these plans came from the Department of Education, with over $258 million in cuts, and the Department of Human Services, with over $158 million. These cuts would be so large because these are also the two biggest state agencies.

BY RACHEL CHEESEMAN

SALEM – The $562 million dollar budget shortfall was a heavy blow dealt to agencies across the state, but it was not the last.

An accounting error resulted in an overestimation of projected revenue from tobacco taxes and resulted in an additional $15 million shortfall in the general fund, explained Mazen Malik, a senior economist for the legislative revenue office, raising the final number to $577 million.

Tobacco taxes were calculated to bring in 22 percent of sales from tobacco products, when they actually bring in only 22 cents per pack of cigarettes. This error changed the revenue from tobacco taxes from $480.9 million to $396.4 million, a difference of about $84.5 million and an overestimation of about 21 percent. In addition to the general fund, revenue from tobacco taxes goes toward smoking cessation programs and advertisements, public transportation and the Oregon Health Plan.

Economists were quick to catch the error. Agencies were notified the day after the original forecast, Wednesday, May 27.

Patrick Cooney of the Oregon Department of Transportation said ODOT receives only 2 cents per pack in tobacco tax revenues, so the effect of the miscalculation was “very minimal.”

This shortfall will be added to the current deficit, and agencies statewide will have to factor this in as they attempt to rebalance their budgets.

While this will increase across-the-board budget cuts needed to balance the budget by only two-tenths of a percent, from 9.1 to 9.3 percent, it does increase the current budget deficit by 2.6 percent. Certain agencies that rely heavily on general fund money, like the “big three” departments of Education, Human Services and Public Safety, will have to find ways to further trim their budgets.

The Department of Education will have to cut approximately an additional $6.6 million from its budget, after already being asked to cut $252 million. This will result in cutting another $6 million from the money appropriated by the state for kindergarten through twelfth grade education.

The Department of Human Services will have to cut an additional $4 million from their budget, after cutting $158 million.

The Department of State Police will have to cut another $260,000, and the Department of Corrections another $2 million. At $84.46 to house one inmate per day, that translates to the cost of housing 65 inmates for one year.

Jeanine Hohn, communications manager for the Department of Corrections, said that the additional $2 million was a “drop in the bucket” compared to the $52 million they now will have to cut.

“Obviously, the agency is going to have a challenging time making any kind of cuts,” Hohn said. “We will work closely with the governor’s office and legislative leadership to have the least amount of impact on our correctional system as possible, if that is possible. “

Ann Snyder of the Oregon Youth Authority explained that her agency might take one of several steps to reduce spending in the agency by the necessary $11.9 million, originally forecasted at $11.5 million.

“Some of the options would be we hold additional vacancies, we delay program implementation, we reduce services somehow,” said Snyder. “It means an additional $400,000.”

BY SARAH ROSS

SALEM- The Senate Republican Office announced Wednesday that they are seeking a vote among legislators to call the body into a special session.

GOP officials are asking for the session to deal with Tuesday’s news that the current biennium is facing a gap of over $560 million between what the Legislature budgeted and what the state economist projected revenues to be for this year.

Bend Republican Senator Chris Telfer had this to say in Wednesday’s press release: “Callous over-spending by the majority party has created this massive shortfall, and some reductions are an unfortunate necessity.”

However, Sen. Telfer and GOP leaders have spoken out against Governor Ted Kulongoski’s plan to allocate the budget himself and make 9% cuts across the board for state departments and agencies.

“These cuts should happen carefully and precisely reflecting the priorities of Oregonians, protecting the most vulnerable and investments in K-12 classrooms. That means the legislature must come into session and do what it was elected to do,” stated Sen. Telfer.

The Senate Republican Office has reported that ballots to initiate a special session will be sent to the state’s Representatives and Senators as soon as the Legislative Administrator deems it “practical.”

If a majority of the members in both chambers vote to have a special session, then the Legislature will be required to have one.

Gov. Kulongoski said in a press conference Tuesday that this time of year, with the partisanship acquired during an election cycle, would not be conducive to making good policy decisions.