Can Oregon make the best of a better budget?
The test of the lessons learned over the last several decades will be whether we settle for better or reach for the best with a better-than-expected budget outlook.
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Tim served as Chief of Staff for Gov. Kulongoski. A former union leader, he lives near Independence and oversees a specialty apple orchard.
Oregon’s lawmakers are wrestling with the best of all possible problems to solve. They have more money to work with now than at any time since the 1990s. What’s to be done?
It’s rare for the state’s budget writers to find that they can continue to pay for everything they’re already doing, plus inflation, plus population growth, plus the “roll up” costs for programs that were only partially funded in the last budget. But, thanks to President Biden’s American Rescue Plan, they can check all of those boxes this year and still have more than a billion dollars left over.
The last time anything like this happened was in 2007. Thanks to a rebounding economy on the revenue side and savings from PERS reform on the spending side, then-Gov. Ted Kulongoski had $260 million left over, which he directed to a School Improvement Fund for K-12. But that money ran out before any improvements were evident. In hindsight, it would have been better to set aside that extra money to buffer the effects of the recession that followed.
We have to go back to 1999 to find anything like what lawmakers are enjoying now. Back then, the state budget grew by 15% and brought us closer to the funding levels of the Quality Education Model for K-12 than any spending plan before or since. Then the economy collapsed, and the exuberance of that moment was followed by the ridicule of early school closures in the Doonesbury cartoon strip.
Good times tend to be treated as catch-up times by state lawmakers. After years of having to disappoint advocates and lobbyists, they’re happy to be able to pour more money into favored programs. “Full funding” becomes the goal, and the thought that we may be getting out over our skis is easily dismissed when it feels like we’re just regaining our stride.
So, what should we think about this latest, once-in-a-decade moment of fiscal opportunity? Can this time be different? Or are we likely to over-commit and be forced default on progress when the next recession undercuts the new normal?
I think this time can be different.
For one, we now have record levels of reserves, as I observed in my post last December. With a robust Rainy Day Fund and a substantial Education Stability Fund, we are well prepared for all but the most extreme economic exigencies.
Further, we’re no longer feeding the PERS beast. The legislation enacted in 2019 has stabilized contribution rates for most public employers. School districts will even see a reduction in their required contributions of $60 million over the next two years. That’s the equivalent of 300 teachers statewide.
Finally, knock on wood, it does not appear that another recession is in the offing. The economy is recovering, jobs are coming back. The state economist predicts state revenue gains will average 6.6% annually over the next six years. If inflation remains low, we’ll reap fiscal dividends greater than those of the late 1990s.
Yes, a surplus is a nice problem to have – and a shame to waste. That’s our challenge now. Doing more with more is not as easy as it sounds. New imperatives, like combating climate change and overcoming homelessness, must still contend with the goal of “fully funding” old programs. And pouring more money into old systems is no guarantee of success.
Oregon had one of the best funded unemployment insurance programs in the nation, but it lagged almost all other states in its ability to handle the expansion of pandemic-related jobless benefits. At the end of the day, getting stuff done is what matters regardless of the size of one’s budget.
Still, there are reasons to be optimistic that we’ll do better this time. Lessons learned and innovations undertaken during the past several boom-and-bust decades have put us in a strong position to make the most of this moment of opportunity.
One example of where we have shown that we can both innovate and execute is health care. The reforms pioneered by Gov. John Kitzhaber have put us in the pole position for support and assistance from the Biden administration, as we seek to control costs and expand coverage beyond what has been achieved with the Affordable Care Act. And Oregon’s union-led innovations in home care make us well-positioned to lead the way in building a new caregiving economy with Medicaid and Medicare funding.
As to lessons learned, well, this time legislators are talking about putting half of that extra billion dollars aside for the future. Good for them. But rather than creating a new economic reserve, I’d like to see something like a climate resilience reserve. I fear that the best laid plans of government budget writers today are more likely to be undone by the known unknowns of climate change than by the ebb and flow of economic tides.
Finally, we have unique advantages for a small state. Thanks to Sen. Ron Wyden (now chair of the Senate Finance Committee) and Rep. Peter DeFazio (chair of the House Committee on Transportation and Infrastructure), we can be at the head of the line for federal investment from an administration that has begun to expand its partnerships with the states to achieve its policy goals.
In the early years of the Obama administration, the hunt was on for shovel-ready building projects. In this first year of the Biden administration, the search is underway for innovative social programs. In that regard, we should play to our strengths, like health care, double down on early childhood initiatives, and revisit the pre-school-to-graduate-school model for education that Kitzhaber constructed and Gov. Kate Brown later abandoned.
Year two of the Biden agenda will likely focus on infrastructure and climate change, where we have assets (lots of land for solar and wind projects and lots of ocean for wave energy development), but have yet to move from ambitious goals to achievable plans. That’s an area of the budget that awaits better policy solutions, but one where we’d be smart to marshal resources for what we know will claim a larger share of future state spending. Depending on what is forthcoming from the Feds, this may be less of a taxing question than an exercise in setting smart priorities and maximizing our natural advantages.
Unlike a decade ago, when we were recovering from recession with our reserves depleted and a one-time infusion of federal funds on the wane, this time we’re better armored with strong reserves and able to look forward to more federal funding to reward our efforts.
With these advantages, we’re almost certain to do better in the years ahead. But, the test of the lessons learned over the last several decades will be whether we settle for better or reach for the best.
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