Oregon state government needs to look hard for every possible cost-saving efficiency, to ease the pain of cuts to cover a $720 million revenue shortfall for the 2001-03 biennium, state Sen. Bev Clarno, R-Redmond, said Saturday.
Upcoming negotiations on how to balance the budget are “going to be a painful, painful process,” said the former House speaker. “I’ve been in five special sessions. Some were excellent. Some were bloodthirsty. It’s not something I relish, cutting programs. When you consider that K-12 (schools) and human resources make up 90 percent of the budget, it just makes you sick. Anything you do is going to hurt.”
But Clarno said she’s “not going to accept” the proposed 25 percent, $1.8 million slash of funding for the new Oregon State University-Cascades Campus in Bend, the state’s first four-year branch campus.
“I’m going to be shoulder to shoulder with the other two” local lawmakers, Rep. Ben Westlund, R-Tumalo, and Rep. Tim Knopp, R-Bend, in opposing such a severe cut. “There are major schools (elsewhere in the state) that are 30 to 40 miles apart. It’s about fairness. It’s not about money this time.”
Clarno, who is on the Senate’s budget rebalancing committee, said she’ll be in Salem Dec. 10-14 for negotiations on how to proceed. “After that, I’ll know better when we can get to some sort of agreement,” paving the way for a special session that she doesn’t expect until at least February. “I think it’ll take all of January” to reach a deal, Clarno added.
“It’s going to be a painful, painful process,” she said. “A lot of these (lawmakers) have never had to cut anything. A lot of people know how to spend money, but they don’t know how to take it away.”
Clarno won’t back tax/revenue increases, instead looks for cost savings
“I’m not supporting any revenue increases,” Clarno said. Instead, she will stress ideas she’s floated before. “It’s time to shed a lot of things we don’t need to be doing. The government shouldn’t be printing or running a state motor pool. Agencies should be renting private cars when necessary.”
One cost-cutting focus for Clarno will be the Oregon Health Plan, which she said has come very costly loopholes. She learned more about them recently at the first meeting of the Senate’s Health Care Costs and Trends Committee.
“I was just appalled,” she said. “People can come in here from other states, live with Aunt Mabel and get on the Oregon Health Plan. They can get a prescription, have it sent to Aunt Mabel’s and send it on to Texas or wherever they live.”
“We’ve not only got to control costs, but we’d like to have people wait six months” before they can get on the plan, she said. “Every time you give something away, somebody’s going to take advantage of it. I was also amazed to hear that 30 percent of babies born in Oregon are born on the Oregon Health Plan.”
Still, she said, “We’ve got to have the Oregon Health Plan, or we go back to the old welfare-Medicaid, which isn’t any cheaper. We just need tighter reins on who can get in and how it’s spent.”
For example, she said, “the benefits and deductibles are far richer” than many companies and their employees can afford, offering things like dental and vision that many workers must pay additionally for. “That’s an enormous cost,” Clarno said.
Shortfall grows larger than many expected
Nobody said it would be pretty – and it sure wasn’t – as state economists on Friday pegged the state’s revised 2001-03 budget shortfall at $720 million, or 6.3 percent of the total, due to an obviously slowing economy.
That sets the stage for Gov. John Kitzhaber and state lawmakers to craft, quite painfully, a package of budget-balancing cuts that would be presented to a special legislative session in early 2002 – amid early warnings from many Republican legislators to not even consider raising taxes to help cover the gap.
“Although present conditions suggest that this recession is deeper than the last recession in 1990-91, the extent of the downturn is much milder than the 1980-82 recession,” according to the long-awaited (and feared) Dec. 1 revenue forecast, issued by state Economist Tom Potiowsky and his colleagues at Oregon’s Office of Economic Analysis (http://www.oea.das.state.or.us/) .
“Economic expectations changed markedly since the September forecast,” the report stated. “The slowdown in Oregon’s economy is now expected to be deeper and last longer than previously forecasted. Consequently, expected revenues for the biennium also decreased.
The new estimate for total general fund resources for the 2001-03 biennium is $10.74 billion, about $720.1 million less than the forecast at the end of the 2001 Legislature. It’s also about $412 million lower than the September revenue forecast.
Kitzhaber said the new forecast “demonstrates what many Oregonians know first-hand: that our economy has slowed significantly and that, consequently, the state will collect less revenue than originally anticipated.”
Kitzhaber: `Rebalanced budget should reflect Oregonians’ priorities’
“Oregon has faced this challenge before and mastered it,” the governor said. “Together, we shall face it again, and find a way to weather this economic storm while maintaining the most important services for Oregonians.”
The governor said he’s working with legislative leaders from “both parties and both chambers to produce a proposed rebalanced budget.” And he applauded the Legislature for forming committees and calling public hearings to address the shortfall.
“I will continue to reiterate my belief that we cannot simply cut budgets across the board,” Kitzhaber said. “Budgets are an exercise in setting priorities, and this rebalanced budget should reflect Oregonians’ priorities.”
“The first step in this process,” the governor said, “will be to develop a budget that fully implements the size of the cuts necessary. Only after we understand what services must be cut, and how deeply, can we have any meaningful discussion of new revenue and its role, if any, in cushioning the blow of these budget cuts.”
One of the other key players in the ongoing negotiations and up coming debate is state Westlund, co-chairman of the budget-writing Joint Ways and Means committee.
“It could have been better. It could have been worse,” Westlund said Friday. The shortfall number, which reflects a need to trim the budget 6.3 percent, is “larger than I was anticipating. I was guesstimating in the $600 million range.”
Westlund: `It isn’t going to be fun (or) pretty’ – but we’ll do our job
Still, the lawmaker said, “I don’t care if it’s $100 million or $700 million or a billion dollars. It is the Legislature’s responsibility to come in and re-craft a legislative budget. That’s what we are elected to do. This is part of the job.”
“Nobody likes it. It isn’t going to be fun. It isn’t going to be pretty, and it’s going to be particularly painful for those Oregonians who depend on what I call `immediate services,’” Westlund said. “That’s everything from K-12 (schools), spending state dollars on children, to folks in nursing homes, assisted living facilities, drug and alcohol treatment programs. Public safety is affected because we’re not going to have as many dollars.”
Still, Westlund is fairly optimistic a deal on balancing the budget can be hammered out in time for a short special session early in the new year. He puts the odds at “good to excellent” of reaching that agreement by year’s end.
One big question, for Central Oregon, is what the biggest cuts made to a state budget in 20 years or so will do to the fledgling Oregon State University-Cascades Campus, which only opened this fall. The state Board of Higher Education has proposed pulling $1.8 million from the $7 million branch campus allocation for the biennium – virtually all of its unexpended funding, which could have a devastating impact on its programs.
Westlund said, “In my personal opinion, speaking as an advocate for the branch, the best that the Cascades Campus can hope for is that they bear their fair share of the burden, and no more than that.”
But the legislator said, “There’s also an impact long-term, big-picture, and the Cascades Campus is part of that equation, as is the Oregon Health Plan. But you also have long-term, economic development, quality of life issues. What’s a college degree worth, in terms of its income-earning potential and its quality of life potential?”
Knopp: `They are going to have to roll over me with a tank to take the branch campus away’
Senate President Gene Derfler, R-Salem, rankled many fellow Republicans with one of the three committees he formed to bridge the funding gap – not the one to consider budget cuts, or the one focusing on job creation, but the third, on possible tax increases. Derfler emphasized that he doesn’t support raising taxes, but said all options need to be discussed.
Knopp took a predictable stand Friday on the matter: “I will not go along with raising taxes.” But he also differed with his Bend-area colleague on the likelihood of an early deal and short session.
“I think it’s going to be difficult to come to an agreement that will provide for a short session,” Knopp said. “I think we’ll have more than a one-day session. I think when you get 91 minds working on a problem, I think it’s going to be pretty difficult to get 31 (a majority of House members), 16 (a Senate majority) and one (the governor) on the same page. I think it’ll take us some time, but I think we’ll get the job done.”
On the Cascades Campus issue, Knopp said, “I personally am not going to vote for anything other than us taking our fair share of the reductions. I’m willing to give up a little bit of money, but the main issue is fairness. So they are going to have to roll over me with a tank to take the branch campus away – and I’m pretty good at dodging tanks.”
Knopp agreed with Kitzhaber that a straight across-the-board cut won’t work, noting that many programs have federal matching funds that would multiply the impact.
“I think something along the lines of a modified across the board” cut will happen, Knopp said. “Most programs will take a 5 to 8 percent reduction. It will be a significant impact for many programs.” Knopp also said he’s among 17 members appointed to the House Special Committee on Budget and Prioritization, which will meet in Salem Dec. 10-14 to work through the numbers.
As for the future, Knopp said, “I think you are going to see (the revenue picture) get worse before it gets better,” including a bigger shortfall in the next revenue forecast, due out in March.
Employment will decline again in ’02, state economists say
Some other highlights – or lowlights, if you will – from the new state economic and revenue forecast:
“The events of Sept. 11 compound the problems for an already weak economy,” the report said. “Growth will continue to be slow in 2002 before reaching above 2 percent growth in 2003.” The state economists also forecast employment to drop this year and in 2002, before a 2.3 percent rise in 2003.
Job growth dropped 3.4 percent in the third quarter, figured at an annual rate, following a 3.5 percent decline in the second quarter. The job losses, “spread across almost all industrial sectors,” are more severe than in the 1990-91 recession. Job growth fell 1.4 percent in the second quarter, measured year to year – the worst showing since the first quarter of 1983.
Manufacturing employment is expected to fall 3.5 percent this year, and not see a “mild recovery” until the fourth quarter of next year. Lumber and wood products jobs are projected to be down almost 5 percent for the year, and “the economic slowdown finally caught up to construction, … expected to decline by 2.9 percent in 2001 and … 6.1 percent in 2002,” before a 2.7 percent rebound in 2003.
Wholesale and retail job growth is “relatively weak” this year, dropping 0.8 percent, followed by an 0.3 percent decline next year. The service sector is expected to keep growing – barely – with annual growth of 0.5 percent this year, 0.8 percent in 2002 and 3.1 percent the year after that.
The major risks facing the state’s economy are obvious: the war on terrorism and its related disruptions in travel and consumer confidence leads the list. A further “sharp and major stock market correction … would further slow already dampened consumer spending,” while rising energy costs could force more firms to slow production and lay off workers. Meanwhile, The recovery for the semiconductor, software and communications industries “will be much slower than anticipated,” the state economists say.