The release of an eye-catching list of possible budget cuts signals the start of the Oregon Legislature's end game: negotiations about taxes and budgets.

The newly passed American Rescue Plan will send $2.6 billion into state coffers. Lawmakers say that's more than enough to stave off budget cuts — and should allow them to proactively address ongoing crises.

Bradley W. Parks / OPB

Worries over a potential funding gap in Oregon’s next two-year budget turned into a different sort of problem on March 11.

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On that date, President Joe Biden signed the $1.9 trillion American Rescue Plan, which included huge payments to state and local governments. With the stroke of his pen, Oregon budget officials went from fretting over how to paper over a possible budget hole, to figuring out how best to spend some $2.6 billion suddenly headed to state coffers.

“We were looking at using significant reserves to balance the budget,” said state Rep. Dan Rayfield, D-Corvallis, who co-chairs the legislative budget committee. Now, he said, Oregon is “not just merely marching in time with these ongoing pandemic and wildfire crises… we’re able to actually proactively look at investments.”

A first draft of that work was released on Wednesday, as the Legislature’s chief budget writers unveiled a nearly $28 billion spending plan for the next two years.

Their plan would increase funding for K-12 schools, fully fund higher education, include no cuts for the state’s Medicaid system despite growing caseloads and provide for new treatment services mandated by 2020′s ballot measure 110.

Beyond that, lawmakers say they now have money to address the ongoing needs brought on by COVID-19 and last year’s wildfires, while leaving the state’s budget reserves untouched, and socking away up to $520 million in federal money for future budget needs.

Another $522 million would be spent on expected costs above and beyond those included in agencies’ “current service levels,” with more than half of that coming in the form of increased health care costs. Lawmakers would send another $250 million into the legislative emergency fund. And all of that could be accomplished, they say, without eliminating any current tax breaks.

All in all, the framework presents a far sunnier outlook than lawmakers once expected. When the pandemic hit a year ago, state economists predicted huge hits to state tax revenues that could have meant dire belt-tightening when the Legislature crafted a 2021-23 budget.

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But the state has been continuously met with positive budgetary news ever since. With each new quarterly forecast, economists have reported better-than-expected revenues. Oregon is now expecting to bring in more in tax revenue for the 2019-21 budget cycle than it had been prior to the pandemic.

Legislative budget writers aren’t only bestowing funding, however. Included in the budget framework is a request that most corners of the state budget come up with proposals for a 1% cut from current service levels “to help cover other priorities” carved out in the budget.

The high-level budget document amounts to a starting point as the Legislature begins the laborious process of crafting a budget in earnest. One question lawmakers and Gov. Kate Brown will be asking as the budget takes shape: How much money the state should keep in reserve, and how much should be spent more aggressively addressing the state’s woes.

“An argument could be made: ‘Hey we should invest all that money right now,’” Rayfield said. “Another argument could be made: ‘Wait a second, let’s slow down a little bit, invest in the most critical services now and save a little bit so we don’t have benefits cliff.”

The budget proposal to save a full 20% of the $2.6 billion in federal money coming to the state could easily change as legislators learn more about Oregon’s needs, he said.

One other consideration: Lawmakers don’t know exactly what kind of leeway they have to spend the federal money.

“Our framework addresses unprecedented challenges as we await further federal guidance with respect to the American Rescue Plan money designated for Oregon,” Sen. Betsy Johnson, D-Scappoose said in a statement. “Our document is sufficiently flexible to respond during budget negotiations. However, it also prudently anticipates potential challenges for the 2023-25 budget.”

With the arrival of federal money, lawmakers are now likely able to avoid some issues that could have generated special controversy during the budget-writing process. Among them, the specter of delaying funding for new drug treatment and other services mandated by ballot measure 110.

Along with decriminalizing small amounts of street drugs, the measure passed by voters last year also redirected a large chunk of the state’s cannabis tax revenue away from schools, police, and other causes, and toward stepped-up services.

In her proposed budget released last year, Brown suggested delaying that money by a year. It now appears the measure will be fully funded in the upcoming budget cycle.

Brown, who has line-item veto authority over budget bills, issued a 10-point plan on Tuesday that signals her expectations for spending. The document contains few specific spending proposals, instead setting out goals like “supporting resilient rural communities,” “getting small business back on its feet” and “safely reopening Oregon’s economy.”

“It’s the start to this investment conversation that we’ve got to have,” Rayfield said. “How are we going to best invest in Oregonians to address the pandemic?”

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