Oregon state budget (2011-2013)

Note: This article was last updated in 2013. Click here for more recent information on state budgets and finances.

To address the gap created by state revenue estimates that were $300 million less than anticipated, legislative leaders from both parties reached a compromise budget rebalancing plan that avoided closing a prison in Salem and making $13 million in cuts to providers of in-home care to seniors and the disabled. The plan did not tap reserves or raise taxes. It also eliminated middle management positions. The governor opposed the middle management cuts, but his spokesman said that he would sign the budget once it received full legislative approval. As part of the plan, some of the state's settlement with mortgage lenders over foreclosure practices would be retained to offset future revenue shortfalls or unanticipated spending.

The compromise was reached after lawmakers announced on February 1, 2012 a budget rebalancing plan that would avoid cuts to K-12 education and programs for seniors and the disabled, while creating a cushion in case the state suffered continued declines in revenues. On February 16, 2012, Gov. John Kitzhaber recommended amendments to that budget, including using reserves to avert the closure of Santiam Correctional Institution in Salem, block a further shift of inmates to other temporary beds, and ease or cancel some smaller cuts in education and human services. The Governor's full memo detailing his suggested amendments can be accessed here.

On December 13, 2011, Gov. Kitzhaber responded to lower than anticipated revenues by enacting a hiring freeze and capping enrollment in some safety-net programs, including Oregon Health Plan's "Standard" program, which serves those who do not qualify for Medicaid. Legislative leaders requested the action and would take up budget issues when they reconvened in February 2012.

Budget as originally passed

Oregon faced a $3.5 billion gap between projected revenue and the estimated cost of sustaining operations for two more years. The legislature bridged the gap and crafted a $14.7 billion two-year budget that left schools, social safety net programs and just about every other government service far short of their desired levels. The budget did not raise taxes. The budget left more than $460 million of projected revenue unspent. The $460 million ending balance meant that cuts were not necessary when revenues in August 2011 dropped $200 million.

Gov. John Kitzhaber's settlement with state labor unions amounted to $42 million more than he had planned on paying in salary increases. The governor initially said that he would accept only a 6 percent increase in total compensation, amounting to $184 million from the general fund, and the legislature based the budget on that, but the Governor negotiated an overall increase of 7.4, percent, or $224 million, according the legislative fiscal officer. Kitzhaber did negotiate with unions that, for the first time, workers would pay five percent of their health premium costs.

State officials said in September 2011 that they could not quantify how much money gets paid out for contracts, but conservative estimates placed the figure at $100 million.

Gov. Kitzhaber sought a shift from managed-care systems to coordinated-care organizations in order to save $240 million. To do so, the House approved House Bill 3650 by a vote of 59-1.

Federal funds made up 24.9 percent of the $54 billion state budget. The total funds budget for 2011-2013 was lower than the 2009-2011 legislatively approved budget largely due to the 18.6 percent decline in federal funds.

Legislative proposed budget

The two-year budget was projected to total approximately $14.6 billion. K-12 schools were expected to receive around $5.7 billion, accounting for 39 percent of the total budget. Spending on human services and Medicaid was expected to be 26 percent of the budget at $3.73 billion and public safety would receive $2.41 billion, constituting nearly 16 percent of the total.

Governor's proposed budget

On February 1, 2011, Governor John Kitzhaber submitted his proposed $14.8 billion general fund budget, which was an additional $1.2 billion in expected revenue over fiscal years 2010-2011. The governor's budget generally allocated to each agency the dollar amount it had in the prior budget, and then spread the additional revenue funds among his top priorities, such as education. Gov. Kitzhaber asked the legislature to craft a budget based on the February 15 revenue forecast, instead of waiting until the forecast in May.

In his proposed budget the governor said that state employee and school district unions needed to choose between jobs and layoffs. Employees would preserve more jobs, maybe their own, if they accepted changes in compensation — paying some of their pension and more of their health-care costs.

Kitzhaber also said in his proposed budget that he wanted the legislature to grant him authority to craft a unified state education budget encompassing pre-kindergarten, K-12, and community colleges. A memo by the Department of Administrative Services, which oversees budget and management for the governor, and the Legislative Fiscal Office, which analyzes budget issues for lawmakers, stated the assumption that labor costs would go up by 13.4 percent in the two-year cycle. The memo based that finding on the following:

• An end to unpaid furloughs by state employees, who were scheduled to take 10 to 14 days off for savings during the budget cycle.
• A resumption of step increases, based on longevity
• Cost-of-living increases estimated at 2.5 percent in the first year (2011-2012) and two percent in the second year (2012-2013).
• Increases of nine percent annually in health-insurance premiums for the 2011 and 2012 calendar years.
• An increase of six percentage points in the state contribution to the Public Employees Retirement System.
• A continuation of payments on $2 billion of pension-obligation bonds, which voters approved in 2003 as part of a legislative overhaul of the public-pension system.

State Treasurer Ted Wheeler cautioned that adding more debt could result in a downgrading of the state's credit rating, resulting in millions of dollars more in interest when it issues more bonds. Wheeler said, "Once you decide you're not going to be fiscally disciplined, where does it stop?"

Governor Kulongoski and an advisory panel recommended that $500 million in savings could come from restraining growth in employee and retiree compensation. The panel also recommended $1.7 billion in cuts, all in an effort to start to close a gap of $3.5 billion between projected tax collections and current services and aid to schools in the next biennial budget.

Governor-elect Kitzhaber, who took office on January 20, 2011, was required to submit his budget proposal by February 1, 2011. Kitzhaber presented some budget ideas after the election, including his desire to develop budgets over a 10-year span, instead of the current two-year period. He also appointed a handful of leaders from business, education, health care and other sectors to chair transition teams that would point out areas ripe for changes or cuts.