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 JACOB SZETO
PORTLAND – Buried in the back of TriMet’s latest approved budget summary is a one-page document entitled “Financial Forecast Summary,” which portrays a stable financial future but fails to tell the whole story.

The forecast depicts a growing future for TriMet. Revenues climb 58 percent in 10 years, while expenditures grow by a lesser 50 percent. All the while, TriMet will be mostly running budget surpluses, adding to its coffers an average of $12 million a year.

Markedly missing from the forecast are payments to TriMet’s retiree healthcare system. These payments are short on average by $45 million a year, resulting in an accumulation of an additional $427 million in off-account debt by the end of the 10-year forecast.

Due to a lack of accounting and budgeting rules, these payments, which represent the payments needed to stay current on the agency’s past and current expenses, do not have to be budgeted. Instead, they are kept off the books and relegated to the “notes” section of the annual report, providing an option to avoid paying today’s bills.

The “notes” section provides a disclosure of what TriMet owes and a window into the consequences of not budgeting and paying for its current costs. As of 2009, TriMet has accumulated $632 million of unfunded healthcare liabilities. These liabilities increase by $45 million every year and represent a $45 million budget shortfall.

TriMet’s pension system follows a similar, although less abusive story. The financial forecast shows TriMet will continue underfunding its pension system for 8 out of 9 years when compared to its annual required contribution. Consistent underfunding has led to a total accumulation of $275 million in unfunded liabilities as of 2009, a 225 percent increase from 2001. The forecasted decade will add another $35 million.

Combining past and future shortfalls for both the retiree healthcare and pension systems, TriMet will have accumulated almost $1.4 billion in debts that are held off-account by 2019.

These delayed payments for current and past expenses will have to be paid someday and inevitably will fall on the backs of future taxpayers, essentially transferring the cost of today’s services to tomorrow’s taxpayers because they can.

In the same budget document, TriMet acknowledges the need to incorporate the costs of retiree healthcare and pension systems into its budget, stating, “Over time, TriMet will need to increase annual pension fund contributions in order to achieve 75% or higher funding….TriMet needs to take steps to partially fund a retiree-medical trust….”

But even though TriMet has acknowledged these facts, it has yet to make plans for them, much less follow through on any. It could have to do with the fact that not funding them allows TriMet to spend approximately $50 million more than it has on a yearly basis. To do otherwise would require additional budget cuts of the same magnitude.

If TriMet budgeted for these costs, it would run out of cash reserves (restricted and unrestricted) by 2011. This means that if TriMet were to pay the true cost of its current services, its forecasted expenditures would have to be reduced by just under $270 million for the next decade.

The costs of the retiree healthcare and pension systems are a direct result of labor contracts with unions. TriMet is in the midst of renegotiating its contract with Amalgamated Transit Union, of which all details have been blocked from the public view by TriMet and the Multnomah County District Attorney. Read more about the DA and TriMet blocking contract details.

TriMet’s budget is subject to the scrutiny of the Tax Supervising Conservation Commission (TSCC) on Wednesday at 8:00 am. After the TSCC meeting TriMet’s budget will be subject to another round of public scrutiny at the TriMet board meeting at 9:00 am at the same location.

See TriMet Financial Forecast

See Adjusted Forecast to see TriMet’s financial future, including its estimate including all projected costs.