Representative Dennis Richardson: Budgets cuts and consequences

By State Representative
Dennis Richardson,

The shortfall for the current two-year budget that ends June 30, 2009, has grown from $142 million to $855 million in less than three months. Oregon’s March Revenue Forecast was released today and details how Oregon’s revenues have decreased sharply. On the surface, this means state government must compensate for the loss of $855 million of expected revenue in the next 4 months. In reality, the trend downward is certain to continue and the shortfall will likely exceed $1 billion between now and the May Forecast. How will Oregon cope? It will take deep cuts in state expenditures and substantial reallocation of state revenue and resources.

Proposed Cuts in State Expenditures. Nearly $300 million of proposed cuts are being considered by the Legislature. Over the past six months, all state agencies have been providing 5% cut recommendation lists from their 2007-09 budgets. Although 5% may not sound like much, remember the entire cut must be made from the remaining funds in the final 4 months of the 24 month budget. Thus, the consequences to services and programs can be extreme. For K-12 education, it could result in closing schools two, three or even four weeks early. For the aged and the physically disabled, it would mean interrupted services by cutting 10-13% of local community workers and would result in chaotic cross-department seniority bumping. For developmentally disabled youth and adults, it would mean withholding benefits and assistance from hundreds of needy DD patients. The cut recommendations also include terminating promised payments to Oregon counties at a time when local government revenues are needed desperately.

Reallocation of State Revenues & Resources. In addition to the proposed cuts in spending, the current considerations include capturing and reallocating more than $70 million from other pools of money. For instance, the counties would not receive their share of $2 million of Video Lottery funds. Nearly $2 million in license plate fees paid by car owners to benefit the Cultural Trust would be diverted to the General Fund. Nearly $4 million of 911 Call Center funding””most of which benefits counties””would also be diverted, and this could result in the loss of substantial amounts of federal match funding. A very serious breach of trust, in my opinion, is the proposal to take $6.5 million of the Dammasch Housing Trust Fund (50% of the trust value). This trust fund was established to provide housing for mentally ill patients from the sale proceeds of the Dammasch State Hospital property. Although the state is spending substantial amounts of money to design and build a new state mental hospital, it has no right to unilaterally break its agreement to hold the Dammasch funds “in trust” solely for the purpose of providing housing for those who suffer from mental illness. Any other trustee who decided to “reallocate” $6.5 million of trust fund money would go to jail.

Recommendations. There is no question that the ’07-09 budget shortfall is real and is severe. There is no question about the need for both cuts and reallocations. The real question comes in deciding where to make the cuts and from which pools to take the reallocations. I believe we should reconsider the list of cuts and remove those that directly affect counties, cities, and programs for needy citizens. In addition, DD families and the families of mentally ill patients should be reassured that the State of Oregon honors its promises. Finally, the Legislature should remember that for small agencies and programs the timing of cuts is crucial. Think of it this way, if you were told you were going to lose $5,000 of income in the next 4 months, it could be devastating. If you were given 24 months to absorb the loss, it would be much easier to deal with it. So it is with small agencies and programs. The Legislature should give them notice of the cuts and apply the cuts to their 2009-11 budgets. It is too harsh to take a meat ax to their budgets in the final 4 months.

So where does the money come from to replace the losses of the proposed cuts and proposed reallocations discussed above? One source would be to take the money from large state agency ending balances. For instance, the Public Employees Benefit Board (PEBB) administers health benefits for more than 46,000 state employees and their families. PEBB will have a $131 million ending balance (unspent money) at the end of the 2007-09 biennium. PEBB’s proposed budget for the next biennium is $143 million, and at the end of 2011, it expects to have an ending balance of $133 million. Since PEBB’s money comes primarily from state agencies paying their share of health benefit assessments, the Legislature easily could reallocate $100 million of the accumulated excess money sitting in the PEBB account, and still leave a beginning balance of $31 million in their 2009-11 budget to ensure PEBB could meet any unforeseen contingencies.

By using funds sitting in the ending balances of state agencies to back-fill selected portions of the current budget shortfall, no days of school will need to be cancelled, no services will be lost by our most needy citizens, and no promises will be broken to the families of our DD and mentally ill patients. In so doing, the integrity of Oregon’s services (and reputation) will be preserved, and everyone’s attention can be focused on the more difficult challenge of balancing the 2009-11 Oregon State Budget.


Dennis Richardson
State Representative