Solving the Tobacco and Provider Tax Cash Flow Problem


The Governor of Oregon has an entire department of economists and financial analysts who assist in preparing the Governor’s Recommended Budget. By Oregon statute, 291.216(2) the Governor proposes to the legislature a balanced budget for each biennium. To be a “balanced’ budget, there must be at least enough money in the revenue column to pay the expenses in the expenditure column. It is now clear our current Governor has violated his statutory duty by sending to the Legislature in 2003 and 2005 budgets that were at least $77 million out-of-balance from the day they were recommended. In the Capitol, this inherent short-fall has become known as the “Tobacco and Provider Tax Cash Flow Problem.”

The issue is confusing and nearly impossible to find from reading budget documents, but the “Problem” is this:

In the 2003-05 biennium Governor Kulongoski recommended and the legislature passed and the Governor signed a DHS budget that assumed $77 million of revenues from tobacco taxes and health care provider taxes that would not be received during the biennium. At the outset it was known those tax obligations would be incurred during the final quarter of 2005, but would not be collected until months after the biennium had ended. In short, notwithstanding the requirement for a balanced budget both the 2003-05 and 2005-07 budgets were approved knowing DHS would not have enough revenue to pay for its final three months of expenses.

Because of the complexity of the DHS budget, the 2003-05 “Problem” did not surface until the Spring of 2005. At that time, DHS came to the legislature with a request to “borrow” enough money to keep its doors open during the final three months of the biennium. The loan was for $77 million and DHS promised to pay it back from the tobacco and provider tax reviews and federal sources of money that would be collected for DHS after the 2003-05 biennium ended. As you will recall from a prior newsletter when it came time to pay back the loan, for various reasons DHS only had $22 million to pay on the $77 million loan. About half of the $55 million shortfall was justifiable and the other half resulted from DHS “miscalculations.” Although DHS assures us that by its recent efforts to reorganize operations, accounting and revenue tracking systems, such miscalculations will not reoccur, the underlying “Tobacco and Provider ! Tax Cash Flow Problem” remains.

During our recent DHS Review Task Force hearing the DHS Deputy Director of Finance did an admirable job of explaining the many improvements being made in DHS operations, accounting and revenue tracking. When pressed to disclose the anticipated “Tobacco and Provider Tax Cash Flow Problem” for the current biennium, he ultimately provided the figure of $78 million. Thus, the next DHS final quarter shortfall will exceed the last one by more than a million dollars, and another loan from the legislature will be required to fill the hole. Such a large, reoccurring shortfall, should not be allowed to continue. It is bad financial policy and it violates the fiduciary requirement that the Governor send to the legislature a Balanced Budget. When all is said and done, the solution to the “Problem” is to face it head-on and budget for actual revenues and actual expenditures, and stop this façade that ignores such a large reoccurring budget shortfall.

To avoid continuing this biennial budget bane, the Governor must either increase DHS’s budget by $78 million in the next biennium or split the shortfall amount over two or three biennial budgets. The reality is that a well run state should not continue to budget expenditures on a cash basis while collecting revenues on an accrual basis. The people of Oregon deserve better, and the next Governor’s Recommended Budget should openly and honestly deal with and solve the “Tobacco and Provider Tax Cash Flow Problem.” Since an election is coming and since the Governor with his staff of economists and financial analysts recommends Oregon’s biennial budget to the legislature, it is up to Oregon voters to get a commitment from each Gubernatorial candidate to solve this $78 million “Problem” and implement a truly balanced budget.

Sincerely,

Dennis Richardson
State Representative
Speaker Pro Tempore

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Posted by at 07:46 | Posted in Measure 37 | 4 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Rep. Richardson,

    You just pulled something we wouldn’t let a “student” get away with. However, you were far superior in the “define the problem” area of the necessary analysis. So the missing piece is: What are YOUR suggested solutions?

    Not very comfortable, we know, but merely recommending the Governor propose a truly balanced budget is inadequate. How do you suggest the Legislature, the budget allocators, uphold their similar constitutional obligations? The Governor neither raises budgets, nor slashes them. The Legislatures does that.

    Therefore: How would you raise the DHS budget, should it be determined that is the appropriate manner of action? How would the increase be played against other demonstrable priorities? How would desired outcomes be defined/benchmarked/measured/timelined? Who is responsible?

    Similarly, if it is determined that a reduction of the DHS budget is called for (one time or staged), how would the decrease(s) be played against other demonstrable priorities? How would desired outcomes be defined/benchmarked/measured/timelined? Who is responsible?

    Republicans can clean up this state, but we need to focus on guiding principles, organizational competency and outcome-oriented best practices.

    You have our best wishes, Representative Richardson. God speed and kick ass.

  • It is of no surprise to me that type of thing is happening in Oregon, we have a history of not being able to manage money. I am amazed by the fact that it seems every story that talks about budget shortfalls or miscalculations seems to involve DHS. Not to mention the many legal and ethical charges that have been made against them in recent years.

    To satisfy Mr. Redcoats post, here is my solution, abolish DHS. In the corporate world when a department continues to cause financial pain and unduly burdens the corporation one of two things happens, either that department is massively overhauled or it gets eliminated and its responsibility gets moved elsewhere either inside or outside the company to allow for greater efficiency. I am more than confident that the state could easily find 77 million dollars in its budget if we took the time to stop being held hostage by “feel good” politics. We see time and time again the state toss money in the trash through wasteful spending, and frankly it needs to end. When people criticize republicans for wanting government to be run like a business, I take it as a compliment. When a business has a failed financial policy it takes the burden on itself and does not push it off to others.

  • jeff

    “At the outset it was known those tax obligations would be incurred during the final quarter of 2005, but would not be collected until months after the biennium had ended. In short, notwithstanding the requirement for a balanced budget both the 2003-05 and 2005-07 budgets were approved knowing DHS would not have enough revenue to pay for its final three months of expenses.”

    And why did the legislature not look at this at the time and go, “oh good, that means that we won’t have to budget $77m for you during the next biennium.” As for finding enough cash to shore up DHS… well, first start by eliminating all travel budgets.

  • Steven Plunk

    Rep. Richardson should be commended for looking deep into this mess. I’ve looked at a good number of government budgets and financial statements only to find them lacking in useful information. More of our spending needs to be looked at this way.

    I also appreciate the way in which he has presented the information for readers to learn about the issue (without taking credit).

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