Budgeting on a Wing and Prayer
February 04, 2009
Author: CFM Staff
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Oregon lawmakers are weighing ever bleaker options to patch an $800 million hole in the current biennial budget and trim spending demands next biennium as layoffs continue to mount, state tax revenues drop and anxieties build over a federal stimulus package.
Legislative leaders announced this week a measured approach to budgeting that buys time to see what finally emerges from the federal stimulus package, which is facing stronger than expected resistance in the U.S. Senate. Oregon ultimately expects to receive around $1 billion to bolster Medicaid, unemployment insurance and food stamps, which could soften the blow of General Fund budget cuts. But a lot depends on when the federal money arrives – and what strings are attached on how it can be spent.
Potential budget cuts, which Governor Kulongoski asked state agencies to submit last fall, have been published, galvanizing fears in the Capitol. Possibilities include recessing K-12 schools a month early and closing eight minimum security state prisons, releasing 3,400 inmates. The Joint Ways and Means Committee is expected to hold hearings later this month to consider budget cuts.
K-12 advocates are pressing Kulongoski and Democratic legislative leaders to dip into state reserve funds, which total about $700 million, to avoid school cuts. However, the governor and legislative leaders have resisted the idea, noting the economy is getting worse and that money may be needed later to stave off an even greater revenue loss. K-12 advocates also have suggested borrowing from the state Common School Fund to preserve existing K-12 spending levels. That idea also hasn't picked up much political steam so far.
Federal stimulus money will be coming for public schools to address deferred maintenance and sustain programs for students from lower-income families. Again, state lawmakers want to wait and watch to see how that money can be used and distributed.
A key date will be February 20, when the next quarterly economic forecast is released. Most observers believe that forecast will project another decline in state tax revenue, deepening the budget hole lawmakers have to fill. That's part of the reason House Democratic leaders rushed through a measure this week to disconnect from any changes in the federal tax code contained in the stimulus package. House Bill 2157 passed on the House floor on a party-line vote and now goes to the Senate.
After lawmakers agree on a plan to rebalance the current biennial budget, they will be immediately thrown into the stormy waters of developing a 2009-2011 budget, where the pressure point will be on raising more revenue through an increased corporate minimum tax and a possibly controversial proposal to raise health care provider and insurance taxation. Political resistance to the health care tax seems to be growing, which has spurred brainstorming on alternative ways to generate money to qualify for up to $1 billion in federal Medicaid matching dollars.
Chopping $800 million out of state budgets in the last five months of this biennium, which ends June 30, is the kind of assignment that could make the new co-chairs of the Joint Ways and Means Committee wish they never took the job.
Hopes continue to dim that the economy will turn around any time soon. Macy's department stores added to the litany of bad news this week by announcing 7,000 job cuts and General Motors offered a buyout to all of its hourly employees. The weak economy led to the third straight month of income declines, giving jitters to all consumers who reduced spending for the sixth consecutive month in December by 1 percent.
According to the Commerce Department, U.S. consumer spending in 2008 rose just 3.6 percent, the smallest increase since 1961. Incomes rose by 3.7 percent, the weakest gain since 2003.
Construction spending fell 1.4 percent in December, reflecting weakness in both residential and commercial building. A respected manufacturing index rose to 35.6 in January, pulling up from an all-time low of 32.9 in December.
The brightest ray of sunshine came in a report showing house sales increased, largely as a result of deep price discounts. The stock market also showed positive response to news that the Obama administration will unveil its strategy next week to remove so-called "toxic mortgage securities" from the balance sheets of U.S. financial institutions, which could thaw frozen credit markets.
Flash Note: The sudden exit of Tom Daschle this week fueled speculation about a replacement nominee for secretary of Health and Human Services in the Obama administration. One name that popped up was former Oregon Governor John Kitzhaber, who earlier had signaled an interest in the job that will play a pivotal role in the federal debate over health care reform.
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