Devlin Proposal May Break Budget Talk Blockade

Senator Richard Devlin proposed a plan that would cut $500 million in state spending, increase business taxes by $500 million and hike the hospital tax to pay for rising Medicaid costs.

Senator Richard Devlin proposed a plan that would cut $500 million in state spending, increase business taxes by $500 million and hike the hospital tax to pay for rising Medicaid costs.

Veteran Senate Ways and Means Co-Chair Richard Devlin may have broken the deadlock on the state’s projected $1.6 billion budget hole. He called for $500 million in new taxes matched with $500 million budget cuts, including the Public Employees Retirement System (PERS).

Devlin’s idea may not be popular with everyone – or anyone, but it offers a basis for actual negotiations on how to raise revenue and what spending to trim. Until now, the major players in the budget battle have just stared at each from opposite sides of the room.

Another $500 million in tax revenue combined with $500 million in budgets cuts doesn’t equal $1.6 billion. Much of that remaining $600 million budget shortfall is expected to come from higher hospital and provider taxes to sustain Oregon’s Medicaid program.

Around $350 million of the $1.6 billion budget hole reflects the state’s requirement in the next biennium to pay 10 percent, up from 5 percent, of the cost of Medicaid. And that’s an optimistic number. Legislation Republicans are pushing in Congress could make deeper cuts in federal support of Medicaid as early as 2020. An Oregon fiscal analysis suggests the GOP health care bill, which proposes to slash more than $800 billion in Medicaid funding over the next decade, could put Oregon in the hook for an additional $2.6 billion to sustain existing coverage and eligibility by 2023.

A thorny budget debate was predictable after an acrimonious campaign on a union-backed initiative to impose a gross receipts tax, in the form of a minimum tax, on corporations with $25 million or more in sales in Oregon. After the sound defeat of the measure, business groups basically said the price of their participation in talks to raise revenues depended on making cuts in PERS.

For Democrats, tinkering with PERS is awkward politically because of their support from public employee unions. But finding ways to cut back on PERS is legally challenging because of a series of court rulings and contract arrangements. Devlin included PERS cuts in his concept, but said at most there would be modest savings from what he described as “technical fixes.” He foresees cuts in public employee compensation, vendor payments and staff levels.

On the revenue side, a lot of ideas have been floated – from limits on mortgage interest deductions to a tax on coffee. Senate Finance and Revenue Chair Mark Hass, D-Beaverton, dismissed those ideas and said he is concentrating on a gross receipts tax patterned after one in place in Washington. Hass said it would have a broad base and a low rate. He has been working on the idea since last year.

Devlin hopes the inclusion of PERS on the cutting board will entice business groups to negotiate an acceptable tax-raising measure. At least some level of business support will be necessary to win the three-fifths majorities needed for passage in both the Oregon House and Senate.

The hospital tax discussion may have a different track. In the last two biennia, former Governor John Kitzhaber worked behind the scenes with the Oregon Health Leadership Council to negotiate funding for Medicaid as well as steps to slow increased spending on health care delivery. Those quiet consultations enabled a 4-year extension of the hospital tax to pay for Medicaid to pass in the early months of the 2015 Oregon legislative session.

Governor Brown doesn’t have the same health care chops as Kitzhaber, but the same side rail conversations are underway with hospitals and other health care providers to address the Medicaid funding dilemma, which seems likely to get worse if Congress enacts its American Health Care Act. Health care providers and insurers may be wary of cutting a deal on Medicaid when the individual health insurance market that is supported by federal subsidies also may face significant changes under the GOP-backed legislation.

Devlin expressed hope that a revenue package could be wrapped up as early as next month, even a final budget won’t pass until at the end of the legislative session this summer. That may be an optimistic hope on Devlin’s part, because of the shaky relationship between business interests and union leaders. Serious negotiations could be delayed until after the May economic and revenue forecast, which includes the numbers on which final budgets are based.

Meanwhile, almost 40,000 Oregonians landed jobs in the past 12 months, bringing down the state’s unemployment rate to 4 percent, the lowest point on record. That’s good news in the short run, but it also means the current tax revenue stream is about as good as it is going to get and could be a lot worse in the next two years.

CBO Health Plan Score Underscores Deep Medicaid Cuts

 The Congressional Budget Office released its score on the House GOP health plan pushed by House Speaker Paul Ryan to replace Obamacare and the verdict is more uninsured Americans and a federal spending reduction, especially on Medicaid coverage for low-income Americans.

 The Congressional Budget Office released its score on the House GOP health plan pushed by House Speaker Paul Ryan to replace Obamacare and the verdict is more uninsured Americans and a federal spending reduction, especially on Medicaid coverage for low-income Americans.

The just released Congressional Budget Office score on the House GOP plan to replace Obamacare provides a lot to chew on and even more for state lawmakers and GOP backers of the plan – to worry about.

The top line in the CBO score is that as many as 24 million Americans will lose health insurance coverage while the federal deficit declines $337 billion over the next decade. You have to read the fine print to find out what’s behind – and what’s ahead – a projected $1.2 trillion reduction in direct federal outlays combined with an $883 billion reduction in revenues.

"The largest savings would come reduction in outlays for Medicaid and from the elimination of the Affordable Care Act’s subsidies for non-group health insurance,” according to CBO, which estimates an $880 billion reduction in federal outlays for Medicaid. Another $673 billion in savings comes from elimination of ACA health insurance subsidies.

CBO says those reductions are offset by $361 billion in projected spending for health insurance tax credits, the loss of $210 billion from penalties paid by uninsured employees and employers, $80 billion for a new Patient and State Stability Fund grant program and a net increase of $43 billion under Medicare that would go to hospitals that serve a disproportionate share of low-income patients.

As many as 14 million more Americans would be uninsured as early as 2018, CBO says, then rise to 21 million in 2020 and 24 million in 2026, largely because of federal spending cuts on Medicaid.

Changes to Medicaid funding would result in 14 million fewer Americans served by the program by 2026, a reduction of 17 percent of those covered under current law, including the Obamacare expansion. CBO projects the biggest fiscal and enrollment changes will occur in 2020 when the “enhanced federal matching rate” for new enrollees terminates. Oregon was one of the states that agreed to expand its Medicaid eligibility. The House GOP plan contemplates giving states a per capita amount for Medicaid patients. By 2026, federal outlays to states for Medicaid will be slashed by 25 percent of what states would receive under current law.

Despite all the changes, CBO and the Joint Committee on Taxation predict the health insurance market will remain by and large stable. The CBO and JCT report notes:

"Under current law, most subsidized enrollees purchasing health insurance coverage in the nongroup market are largely insulated from increases in premiums because their out-of-pocket payments for premiums are based on a percentage of their income; the government pays the difference. The subsidies to purchase coverage combined with the penalties paid by uninsured people stemming from the individual mandate are anticipated to cause sufficient demand for insurance by people with low health care expenditures for the market to be stable.

"Under the legislation [House GOP plan], in the agencies’ view, key factors bringing about market stability include subsidies to purchase insurance, which would maintain sufficient demand for insurance by people with low health care expenditures, and grants to states from the Patient and State Stability Fund, which would reduce the costs to insurers of people with high health care expenditures. Even though the new tax credits would be structured differently from the current subsidies and would generally be less generous for those receiving subsidies under current law, the other changes would, in the agencies’ view, lower average premiums enough to attract a sufficient number of relatively healthy people to stabilize the market. 

CBO says individual health insurance market will see sharp premium increases until 2020, then lower average premiums than anticipated under the ACA. Premiums for this health insurance market, CBO says, could be 10 percent lower by 2026 than current law projections.

Secretary of Health and Human Services Tom Price disputed CBO’s projections for larger numbers of uninsured Americans under the House GOP health plan. “We believe our plan will cover more individuals at a lower cost and give them the choices that they want for the coverage that they want for themselves and for their family.” Ryan didn’t dispute the findings, but pointed out the CBO projection for lower individual health insurance premiums by 2026.

Democrats needled Republicans over tax cuts for wealthy Americans at the expense of Medicaid patients and the retention of a Medicare spending reduction that the GOP scorned in the ACA. Senate Minority Leader Chuck Schumer noted “The CBO score shows just how empty the President’s promises that everyone will be covered and costs will go down have been. This should be a looming stop sign for the Republicans’ repeal effort.” 

Quarterly Forecast Nuggets Buried in Plain Sight

Media coverage of Oregon’s quarterly economic and revenue outlook tends to focus on whether net state revenues have gone up or down since the last forecast. But that overlooks a lot of other interesting nuggets mined by the state economists who generate the report.

Media coverage of Oregon’s quarterly economic and revenue outlook tends to focus on whether net state revenues have gone up or down since the last forecast. But that overlooks a lot of other interesting nuggets mined by the state economists who generate the report.

Oregon’s quarterly economic and revenue outlook grabs headlines, usually related to whether net state revenue has gone up or down. But the outlook contains lots of interesting nuggets that generally go unreported, but are easily mined.

Here are some of those interesting nuggets generated by the Oregon Office of Economic Analysis:

  • While Oregon has a projected 2017-2019 biennial budget hole, the state also will have approximately $1.5 billion in budgetary reserves.  The two largest chunks of reserves are locked in the Rainy Day Fund and the Education Stability Fund, which are intended to fill in budget gaps during economic downturns.
  • Despite all the talk about a wall on the Mexican border, the outlook says Mexican-born Oregon residents has declined to 5,000 since 2009, down from 55,000 in both the 2000s and 1990s.
  • The outlook lists immigration migration as a risk factor to Oregon’s economy, but notes the 388,692 foreign-born Oregon residents constitute less than 10 percent of the state’s population, compared to foreign-born residency in the United States stands at 13.2 percent.
  • Federal policy is also listed as a risk factor. Risks noted included rising interest rates, tax changes, deregulation, federal lands, trade wars and the status of the Affordable Care Act or its replacement.
  • Oregon employment has continued to grow since the start of 2010. Job growth so far in 2016 is highest along I-5 from Salem south to Medford. The percent of job growth in non=metropolitan areas now has caught up with the Portland metropolitan area.
  • Monthly statewide job growth since 2011 peaked at slightly more than 6,000 in the first part of 2016. State economists predict monthly job growth will hover at or above 4,000 into 2018, then taper off in 2019 to 2,000 jobs.
  • Oregon is in the top 10 states in terms of per capita federal Medicaid grants, which in FY 2016 total $1,895, making the state more vulnerable to proposed Obamacare changes that would reduce subsidies.
  • One chart in the outlook underscores why rural parts of Oregon that are timber-dependent have continued to suffer economically. The chart shows timber harvest rates in the 1970s compared to the current decade. On federal lands, current harvests are 88 percent lower. Timber cuts on private lands are 22 percent lower. Harvests on state and local lands are up 35 percent.
  • Estate taxes are by their very nature unpredictable. From 2001 to 2015, the largest monthly spikes topped out at $20-$23 million. However, two recent months spiked to between $40-$48 million.
  • State revenues from marijuana sales during 2016 totaled $60 million, which was slightly more than the $59 million derived from snuff and $209 million from cigarettes. The comparative totals are interesting because the effective tax rate on marijuana is substantially less than on cigarette and other tobacco products.

New Fiscal Reality Tracks Trump Infrastructure Plan

President Trump is touting a major infrastructure plan, but with little direct federal spending on projects. The plan seeks to induce private developer to build highways and bridges and recap their investment through tolls and federal tax credits. There may be few investment-worthy infrastructure projects in Oregon.

President Trump is touting a major infrastructure plan, but with little direct federal spending on projects. The plan seeks to induce private developer to build highways and bridges and recap their investment through tolls and federal tax credits. There may be few investment-worthy infrastructure projects in Oregon.

President Trump has promised a $1 trillion infrastructure investment plan, but it will involve relatively little direct federal spending on roads, bridges, transit systems, dam repairs, rail upgrades and waterworks.

The Trump plan seeks to squeeze out price investment by allowing more tolling on roads and bridges, rolling back environmental regulations and providing tax credits to developers, as reported last year by CFM’s Joel Rubin.

Billed as public-private partnerships, the funding scheme envisioned by Trump’s administration will only be viable in infrastructure investments with some form of a payback. That probably limits the eligible projects to major highways and bridges that can be tolled and large water and sewer projects that can recoup investment costs through rates charged to users.

This new fiscal reality is the motivation behind the Oregon Department of Transportation’s decision to apply for one of three spots in the federal FAST Act tolling program. ODOT indicated it would look at tolls to finance improvements to reduce congestion on I-5 near the Rose Quarter or widening the I-205 Abernethy Bridge over the Willamette River.

ODOT is still in the exploration stage, according to Director Matt Garrett, who also told lawmakers last week “Timing is everything. We’re going to push hard.” If successful, ODOT would have to start at ground zero because currently it doesn’t operate any tolling facilities in the state.

Governors convening in DC before Trump’s address to a joint session of Congress acknowledged the President's plan falls short of what many hoped for to cope with long lists of aging infrastructure. But most don’t see much of a choice.

There are few concrete details of how the Trump public-private partnerships would actually work, and what it would it take to induce developers to undertake major projects. Like old-fashioned federal-state infrastructure spending, it will come down to money. Even though the Trump plan calls for relatively small amounts of direct federal spending, the tax credits that are intended to attract developer interest come at a cost, too, which Congress, with its reluctant conservative wing, may be unwilling to fund.

The profile of projects that might ultimately garner private developer interest are likely to be larger projects in more congested areas – places with a lot of captive traffic to pay tolls and big water projects with lots of built-in ratepayers.It is harder to see how private developers would be interested in transit, dam projects and high-speed trains or light rail investments.

Ironically, the project best suited for a pubic-private partnership is replacement of the I-5 Columbia River Bridge, which for the moment isn’t on the radar screen in either Oregon and Washington, though Southwest Washington lawmakers have signaled an interest in resuming conversations. In the previous Columbia River Crossing project, which faltered in 2015, tolling was looked at, but deemed untenable because commuters could use the relatively nearby I-205 Glenn Jackson Bridge.

A rush for more highway and bridge tolling may have some unintended impacts. As more fuel-efficient and hybrid energy cars have hit the nation’s roadways, federal and state gas taxes have lost ground in terms of what they generate on a miles-driven basis. That has caused many states, including Oregon, to explore shifting in whole or part to a system based on how many miles a motorist drives, not on how much gas he or she buys.

Modern conceptions of highway and bridge tolling involve electronic assessments, not toll booths. As electronic tolling becomes more common in a metropolitan area’s transportation system, there may less resistance to moving to a tax based on miles driven to replace the gas tax. While a gas tax provides an incentive for more fuel efficient vehicles, a vehicle-miles-traveled (VMT) tax in a metropolitan area encourages fewer trips and ridership on public transit.

A VMT tax has faced opposition from rural residents who per force of where they live drive longer distances to work, school, medical clinics and grocery stores. Both urban and rural motorists have expressed privacy concern about the state keeping track of their miles driven – and, by extension, where they are traveling. ODOT has worked on an electronic system that keeps track of mileage, but doesn’t track where the mileage occurs.

All this adds another layer of uncertainty to ongoing talks in Salem about a major state transportation funding package. There is bipartisan agreement on the need for a funding plan, but so far no legislative outline has emerged on what the plan might include and how it would be financed.

Funding for public transportation appears to have bipartisan support, but poses its own unique funding challenge. Under the Oregon Constitution, revenue generated from gas taxes and vehicle registration fees can only be used for highway and bridge improvements. A separate funding source would be required to pay, for example, for new buses powered by electricity or cleaner burning diesel or propane engines.

Washington Lawmakers Send Smoke Signal About Bridge Replacement

The Columbia River Crossing project went away, but not the congestion that continues to frustrate shippers and  commuters between Southwest Washington and Portland who have gained the attention of Washington lawmakers.

The Columbia River Crossing project went away, but not the congestion that continues to frustrate shippers and  commuters between Southwest Washington and Portland who have gained the attention of Washington lawmakers.

Plans to replace the aging, congested I-5 Columbia River Bridge crashed two years ago and now lawmakers from Southwest Washington are trying to send smoke signals to their Oregon legislative counterparts that there is still life in the project.

Life support might be a better description.

An ambitious project to replace the vehicle bridge and add a crossing for light rail from Portland to Vancouver faltered when the Washington legislature failed to come up with its share of funding to match federal and Oregon funding commitments. Light rail was a sticking point, but legislative attention and favor was aimed at a major project in the Seattle metropolitan area.

It didn’t help that former Southwest Washington Senator Don Benton planned the project. Benton is now working in DC as part of the Trump administration.

Qualms about light rail extending into Vancouver may still remain, but the more dominant narrative is the continued frustration of Southwest Washington commuters who endure ever longer delays because of bridge lifts and thick congestion on I-5. The Southwest Washington delegation has gotten the message.

What the delegation has managed to eke out Is legislative language coming out of the Washington Senate Transportation Committee calling the I-5 Columbia River Bridge a “project of great public importance.” That would strike commuters heading daily into Portland as classic understatement.

Senators Annette Cleveland, D-Vancouver, and Ann Rivers, R-La Center, had pushed for more. They wanted the bridge project tagged with the phrase “statewide significance,” which could help to expedite permitting for the project. Despite the downgraded wording and vague reference to mass transit and other Columbia River bridge crossing, the senators tried to put the best blush on the outcome and hoped Oregon lawmakers would take notice. They said it shows there is consensus to move forward.

Oregon officials are trying to pass a transportation funding package in the 2017 legislative session, but the starting list of projects proposed by Governor Brown didn’t include the I-5 Columbia River Bridge. Coincidentally, TriMet General Manager Neil McFarlane suggested this week several major congestion-fighting projects in the Portland area, including light rail extension to Tualatin, but his list didn’t include light rail extension to Vancouver or a new bridge.

House Speaker Tina Kotek, whose North Portland House district includes the area leading up to the bridge, was  and, according to a spokesperson, remains a strong advocate for a replacement of the existing bridge.

The Washington legislative action would authorize $350,000 to inventory and catalogue previous work on the Columbia River Crossing, which devoured millions of dollars in engineering and consulting services, and prepare a report back to the Washington legislature by December 1.

That may be enough for Oregon officials to reciprocate and agree to resume some level of bi-state exploration of a solution to what may be the worst bottleneck in the region, if not the entire Pacific Northwest. Even if discussions resume, an actual consensus project still may be years off and the necessary funding further downstream.

Early Projections for Legislative Golden Gobbler Awards

A resolution to make marionberry pie the official pie of Oregon could be an early leader in the 2017 legislative session race to win the Golden Gobbler Award. But it has competitors, with more turkey bills to come.

A resolution to make marionberry pie the official pie of Oregon could be an early leader in the 2017 legislative session race to win the Golden Gobbler Award. But it has competitors, with more turkey bills to come.

The Golden Gobbler award is something Oregon legislators sheepishly accept, even if they really weren’t trying to win it.

The award goes to the most frivolous and gratuitous bill of each legislative session. Nobody’s career is helped or hurt by winning the lighthearted award (a frozen turkey), but the legislative community gets a good laugh and free beer when it is awarded.

Oregon,  My Oregon (revised)

“Land of the Empire Builders,

“Land of the Golden West;

“Land of Majestic Mountains,

“Fairest and the best.

“Onward and upward ever,

“Forward and on, and on;

“Hail to thee, Land of Heroes,

“My Oregon.

“Land of the rose and sunshine

“Land of the summer’s breeze;

“Laden with health and vigor,

“Fresh from the Western seas.

“Blessed by the love of Freedom,

“Land of the setting sun;

“Hail to thee, Land of Promise,

“My Oregon.” 

The 2017 legislative session, still only a couple of weeks old, has some strong Golden Gobbler contenders. Second-term Rep. Sheri Malstrom, D-Beaverton, may be the frontrunner with resolutions that would declare marionberry pie as Oregon’s official pie and change some of the lyrics of the state song, “Oregon, My Oregon.”

Oregon has a state dance (square dance), state bird (Western Meadowlark) and a state mushroom (Pacific Golden Chanterelle), so it’s not unreasonable to designate a state pie, especially made from a berry that is special to Oregon. Malstrom introduced House Concurrent Resolution 19 at the request of Shari’s restaurants, which is based in her district and has won many awards for its marionberry pies. Who doesn’t like a good pie.

Tinkering with the state song may be tougher to slice. Malstrom, who is a nurse, says some lyrical updates are warranted since there has been a lot of cultural and societal evolution in the 90 years since the song was enshrined as Oregon’s own song.

Her changes, written by Amy Shapiro, include replacing the phrase in the first verse, “Conquered and held by free men” with “Land of Majestic Mountains. In the second verse, “Blest by the blood of martyrs” would be replaced with “Blessed by the love of Freedom.”  Among those who may disagree are Senate President Peter Courtney, ever the traditionalist and one who often quotes the state motto, “She flies with her own wings.”

However, Malstrom doesn’t have a clear path to claim the frozen turkey. Here are other contenders, identified by the Portland Business Journal:

  • Senate Concurrent Resolution 4 that would designate the Border collie as the state dog (Senator Bill Hansell, at request)
  • Senate Bill 76 that defines unnamed combat sports and authorizes them to be regulated by the Oregon State Athletic Commission (Governor Brown at request of the Oregon State Police)
  • House Bill 2851 that requires use of headlights on cars when windshield wipers are in use or there is fog (Rep. Paul Evans)
  • Senate Bill 688 that permits outdoor race tracks in exclusive farm use zones for radio-controlled vehicles (Senator Fred Girod and Rep. Vic Gilliam, at request)
  • Senate Bill 556 that bans driving a vehicle with a dog or dogs on the driver’s lap (Senator Bill Hansell)
  • House Bill 2875 that imposes excise tax on ground beans and ground coffee to generate tax revenue for education (House Revenue Committee)
  • House Bill 2857 that could force karaoke bars to pay royalties for performances of copyrighted musical works (House Business and Labor Committee)

There is still plenty of time in the legislative session for new turkeys to spread their feathers.

Zack Reeves is a state affairs associate who represents CFM clients in the Oregon legislature. He began working as a legislative staffer in 2011 and has developed a wide range of contacts and experience on a broad spectrum of legislation. Before politics, Zack worked as a reporter and copy editor.

Freshman Rep. ‘Sobered' by the Work, Ready for the Challenge

 Freshman Rep. Rich Vial, R-Scholls, has started to let his constituents know he is settling in now that the 2017 Oregon legislative session has convened and what issues he is working on in the early days of a session that will grow more challenging as lawmakers figure out to address a $1.8 billion budget hole. Photo Credit: Tracy Loew / Statesman Journal

 Freshman Rep. Rich Vial, R-Scholls, has started to let his constituents know he is settling in now that the 2017 Oregon legislative session has convened and what issues he is working on in the early days of a session that will grow more challenging as lawmakers figure out to address a $1.8 billion budget hole.

Photo Credit: Tracy Loew / Statesman Journal

The first few weeks of any newly convened legislative session involve a lot of learning. For freshmen lawmakers, the learning process can resemble drinking from a fire hydrant. 

Freshman Rep. Rich Vial, a Republican who represents Sherwood and the surrounding area in Washington County, told constituents in his first newsletter since the session convened that his legislative work left him “sobered.” Thousands of bills have been introduced and hundreds of voices clamor to talk about those bills with lawmakers like him everyday.

“As an attorney, my role is to advocate for either a client or a cause,” Vial told his constituents. “As a legislator, my clients are the people of House District 26. My job is to make the best decision I can to help the people I represent.”

“Making an informed decision on any topic involves collecting information from a variety of sources, including constituents, interested groups and state agencies,” Vial says. “Given the amount of information that is presented to members of the legislature each day, I find that sorting through it all in order to make a good decision is an exciting challenge. There is much to learn and much more to do, and I am humbled by the awesome responsibility of serving as your State Representative.”

His newsletter also affirms what it means to be a citizen legislator. “On Sunday night – in the middle of the Super Bowl – my family and I were called away to retrieve a newly born calf and her mother from the middle of a muddy field that had been flooded with historic amounts of rain. In honor of the [New England] Patriots'
Win, we named the new little heifer Patty.”

 Rep. Vial, an example of Oregon’s citizen legislators, attends to a newborn calf caught in the mud on his Washington County ranch during Sunday’s Super Bowl game.

 Rep. Vial, an example of Oregon’s citizen legislators, attends to a newborn calf caught in the mud on his Washington County ranch during Sunday’s Super Bowl game.

Vial’s communication to his district is typical for most legislators who use newsletters to stay in touch back home after they head to Salem.

In his February 8 newsletter, Vial features legislation he cosponsored along with Democratic Senator Elizabeth Steiner Hayward of Beaverton to raise the legal age to use tobacco products from 18 to 21 years of age. He cites statistics indicating one of every three young smokers will die of a smoking-related illness, which has an impact on the state’s Medicaid budget and worker productivity. He predicted Tobacco 21 legislation, if enacted, would cut tobacco usage 12 percent.

As the legislative session wears on and lawmakers begin to confront more challenging issues, lawmakers like Vial will keep learning and sharing what he learns and thinks with his constituents. Before long, Vial and his colleagues will be explaining to their constituents how they think Oregon should address its $1.8 billion budget hole and what the impacts would be on schools, hospitals and public safety, as well as Oregon taxpayers. Those are newsletters bound to attract a lot of readership.

Vial founded a law firm in 1986 that now employs 100 people and represents clients in six states. He has been active in Washington County on a variety of community boards. He and his wife Paula have six children and have welcomed dozens of children into their home, including seven children who lived with them permanently as refugees from Vietnam.

Oregon’s Budget Crater Remains a Political Mystery

Legislative leaders who convened the 2017 session today are calling Oregon’s $1.8 billion budget hole one of the biggest challenges in recent years, but how to meet the challenge, balance the budget, grow the economy, preserve essential services and pass a transportation funding bill remain a political puzzle.

Legislative leaders who convened the 2017 session today are calling Oregon’s $1.8 billion budget hole one of the biggest challenges in recent years, but how to meet the challenge, balance the budget, grow the economy, preserve essential services and pass a transportation funding bill remain a political puzzle.

The 2017 Oregon legislative session convened today amid a torrent of newly introduced bills and an eerie silence on how lawmakers will cope with a $1.8 billion budget hole.

Senate President Peter Courtney says he doubts whether votes exist in the Oregon Senate to raise additional revenue or pass budget with deep spending cuts. “It’s a very bad situation,” he says. House Speaker Tina Kotek called the 2017 session “one of the most challenging in quite a few years.” However, identifying problems and agreeing on solutions are very different.

Legislative Republicans have named their price for considering additional revenue – changes to the Public Employees Retirement System and “pressing down the cost curves” of state programs. When commitments are made to pursue business-friendly policies to grow the statute’s economy and cut back on state government costs, House Republican Leader Mike McLane said, "Republicans will sit down and talk about revenue reform."

Republican leaders also have signaled a reluctance to work on a transportation funding package without lowering the low-carbon fuels standard adopted in the 2015 session. “I’m hopeful that the process [to develop a transportation package] this year won’t be hijacked by the left again,” said Senate GOP Leader Ted Ferrioli.

Clouding the state’s fiscal challenge are uncertainties floating across the continent from the nation’s capital in the form of turning Medicaid into a block grant program and possibly triggering a trade war with key Oregon international trading partners.  Both could have implications on the state’s budget in the 2017-2019 biennium.

Meanwhile, the political upheaval in Washington, DC generated by the new Trump administration, especially the President's immigration executive action, has served as a convenient foil to distract attention from Oregon’s policy and financial issues.

Governor Brown has focused on maintaining access to health care through Oregon’s expanded Medicaid program, passing a transportation investment package and addressing the state’s housing crunch. Her suggestion to permit rent control is likely to stir up lively opposition.

While Brown has expressed willingness to look at ways to bring revenue and spending into better structural alignment, she hasn’t offered a process or plan to do so. The governor has urged Oregon business leaders to bring a plan to Salem. Kotek asked business leaders to sit down with others to discuss how to achieve financial alignment. That has led to pushback from business groups and the news media urging political leaders to step forward with a plan – or at least a path to a plan.

The legislature has until early July to figure out what to do on the budget. The pressure is on now to figure how to do it.

Medicaid May Turn into a Block Grant Program

Converting Medicaid from an entitlement program to block grants to states could help fulfill GOP campaign pledges to repeal Obamacare and trim federal spending, but leave bigger holes in state budgets.

Converting Medicaid from an entitlement program to block grants to states could help fulfill GOP campaign pledges to repeal Obamacare and trim federal spending, but leave bigger holes in state budgets.

The first shoe to fall on the repeal of Obamacare dropped over the weekend as surrogates of President Donald Trump said Medicaid would be converted to a block grant program. Depending on details, that could be a bombshell financial event for states such as Oregon.

The rationale for converting Medicaid to block grants is that states already run the program and block grants will give them total freedom in how to structure their programs for lower-income individuals, children, seniors and disabled people. Or as Trump adviser Kellyanne Conway put it, state block grants would ensure “those who are closest to the people in need will be administering the program.”

That glosses over some of the anticipated repercussions of the switchover. As The New York Times reports, “Since its creation in 1965 (as part of the War on Poverty). Medicaid has been an open-ended entitlement. If more people become eligible because of a recession, or if costs go up because of the use of expensive new medicines, states receive more federal money.” A bock grant puts the burden of distributing a fixed amount of money on a population that is shifting and growing.

A key feature of Obamacare was the entice states to expand eligibility of Medicaid. Thirty-two states, Including Oregon and Washington, accepted the offer. Nineteen states didn’t.  More than 20 million people gain health insurance coverage under Obamacare. Half of them were through Medicaid expansion.

Some 550,000 people in Oregon and Washington were added to the Medicaid rolls under the expansion, which the federal government subsidized 100 percent from 2014 to 2016, but prospectively will scale down after than. Declining federal funding is partially responsible for $800,000 of the projected 2017-2019 biennial Oregon budget hole. A switch to block grants could deepen the hole and force Oregon policymakers to make even uglier choices. The Ways and Means co-chairs’ no-new-revenue budget would require lopping 350,000 Oregonians off Medicaid.

While some governors like the idea of more flexibility in administering Medicaid – for example, to impose a work requirement to qualify for coverage or charge Medicaid recipients a premium, others dread the advent of block grants. In an odd sort of justice, states that didn’t expand their Medicaid eligibility and forfeited additional federal funding could be losers if the block grant amounts are set at what states receive now, including money to cover expansion. That could turn states that supported Trump into financial losers.

Some governors worry what choices states would make – willingly or at the point of a budget sword – to squeeze Medicaid coverage into a fixed federal block grant amount. Colorado Governor John Hickenlooper predicted “impossible choices” between older citizens with chronic health care problems and children with diabetes who need insulin.

Conway said state block grants were the best way to fight Medicaid fraud and abuse, but health care industry officials say it is more likely to result to destabilize even further the health care of lower-income Americans and their families.

Making Medicaid block grants the poster child for Obamacare repeal is related to congressional ability to make spending cuts in the budget reconciliation process with only 51 votes in the Senate. The GOP-controlled Congress won’t be able to replace substantive Obamacare’s substantive provisions without 60 votes in the Senate.

Congressional Republicans may view Medicaid block grants as part of a larger plan to trim spending on entitlement programs and curb federal spending.

An interesting side note, a federal judge on Monday blocked the $37 billion merger of health insurance giants Aetna and Humana on antitrust grounds. Reports indicated Aetna threatened the Obama administration to pull out of the individual health insurance market in as many as eight states unless the merger was approved. 

Study Says Obamacare Repeal to Kill Jobs

 The GOP-controlled Congress is poised to redeem its campaign pledge to repeal Obamacare, but a Commonwealth Fund study says doing so could force states to pay a huge price in lost jobs, business output and tax revenue.

 The GOP-controlled Congress is poised to redeem its campaign pledge to repeal Obamacare, but a Commonwealth Fund study says doing so could force states to pay a huge price in lost jobs, business output and tax revenue.

Repeal of financial portions of Obamacare will result in substantial job losses, increased charity care at hospitals and leave more people without health insurance, according to a nonpartisan study conducted by George Washington University for the Commonwealth Fund.

Public and private job loss in Oregon could total 45,000 as early as 2019. Forty percent of the lost jobs would be in health care, but other sectors, including construction, retail, finance and insurance, also would suffer, the study finds. Lost jobs would translate into reduced gross state product and, ultimately, in lower state and local taxes, which could top $800 million between 2019 and 2023.

The major cause of job loss, according to the researchers, would come from repeal of federal premium tax credits and federal payments to states for expanding Medicaid eligibility. Nationally, as many as 2.6 million jobs could be lost in 2019, including in states that declined to expand their Medicaid eligibility. The study projects a $1.5 trillion impact on gross state product between 2019 and 2023, with a drop in business output of $2.6 trillion and a $48 billion decline of state and local tax revenue.

These estimates don’t take into account a replacement for the portions of Obamacare that Congress repeals, which could mitigate job losses and other negative impacts.

The underlying message of the Commonwealth Fund study is to rebut the “common misconception that the health reform law has been a ‘job killer.’ This study indicates that repeal of these policies, without sound replacement policies could cause major job losses and economic dislocation in every state.”

“While health reform repeal would dramatically increase the number of uninsured and harm access to health care, particularly for low- and moderate-income Americans,” the study authors said, “this analysis demonstrates that the consequences could be broader and extend we all beyond the health care system.”

Elizabeth Hayes of the Portland Business Journal reported the study findings came as Oregon Governor Kate Brown sent a 2-page letter to House Majority Leader Kevin McCarthy defending Obamacare.

“Discontinuing federal funding or shifting costs of health care reform from the federal government to states will put pressure on our ability to fund other critical services such as public safety, education and humans services,” Brown said. “And reforms that create uncertainty for patients, hospitals and insurance carriers will destabilize our insurance market and undermine our current our recent gains.”

Brown added, “We need to correct the shortcomings of [Obamacare], not dismantle it.”

Dropping patients from Medicaid is likely to force more people to seek uncompensated care through emergency rooms, which would increase hospital charity care. Hayes notes Oregon uncompensated care at hospitals dropped from $845 million in 2013 to $315 million in 2015. Higher levels of charity care put pressure on hospitals and health insurers to shift costs to private-sector payors.

More About Six Oregon Congressional Districts

Four of Oregon’s five congressional districts are held by Democrats. If Oregon gains a sixth congressional district after the 2020 Census, it might be difficult to create a truly swing district that a Republican, Democrat or political independent could win.

Four of Oregon’s five congressional districts are held by Democrats. If Oregon gains a sixth congressional district after the 2020 Census, it might be difficult to create a truly swing district that a Republican, Democrat or political independent could win.

Before the holiday break, we asked how Oregon could be divided to accommodate a likely sixth congressional district following the 2020 Census. We noted two widely different options.

The first option, floated by attorney Marvin Fjordbeck, is to make Oregon’s congressional districts more competitive. Currently, Oregon’s 1st (Washington County and Northwest Oregon), 3rd (Portland) and 4th districts (Eugene and Southwest Oregon) are solidly Democratic. The 2nd District, which covers most of Eastern Oregon, is solidly Republican.

The 5th District, which stretches from Clackamas County to the Oregon Coast, is the closest thing to a swing district now, but has recently elected Democrats, including current Congressman Kurt Schrader.

The second option, put forward in a December 26 editorial by the Register-Guard, suggests centering the new 6th District in Clackamas County and including enough rural areas to create a district that might be competitive for a Republican candidate to win.

The challenge with both ideas is that the population growth that will give Oregon a sixth congressional district is occurring in the state’s urban areas, which are typically more Democratic in their politics. Another problematic factor is the growing number of Oregonians who are unaffiliated with a political party or registered with a minor party. In fact, there could be some pressure to create a new district that someone registered as an independent could win.

To make all six Oregon congressional districts competitive would require splintering the Portland metropolitan area into at least four and possibly five districts. That could result in some funny-shaped districts that don’t conform to the rule of “coherent communities” within a single district. It also could raise complaints from Portlanders that their influence is being diluted and from non-Portlanders that Portland influence will grow even larger as population growth continues in the city and its suburbs.

Current congressional districts reflect an earlier consensus to center one of the five districts in Portland and two others in Washington and Clackamas counties, respectively. The other two districts represent the vast remaining stretches of Eastern and Southern Oregon.

Creating a swing 6th District could involve combining Clackamas and Yamhill counties into a single district or Clackamas County with rural parts of counties running along the east side of the Willamette Valley as far down as Lane or Josephine counties.

Another possibility would be to remove Bend and fast-growing Deschutes County from the 2nd District and combine it with Salem and Marion County. That could have the unfortunate byproduct of making the already sprawling 2nd District even larger.

An intriguing option that could mirror the Eastern Oregon “community" is a coastal district stretching from Astoria to Brookings. To make that work would require adding at least one inland urban center, which might be Corvallis since Oregon State University plays a role in coastal economies.

Redistricting, of course, doesn’t occur in a political vacuum. The task in Oregon falls to the Oregon legislature. If it fails to pass a plan, the responsibility moves to the secretary of state.

If redistricting occurred in the 2017 legislative session, Democrats would control both the Oregon House and Senate by solid margins. Newly elected Secretary of State Dennis Richardson is a Republican. But redistricting won’t occur until the 2021 Oregon legislative session, following the 2020 Census and the 2020 election. There is no guarantee Democrats will still hold their grip on the legislature through the next two election cycles or that Richardson will be re-elected in the 2020 election.

Redistricting involves lots of numbers and maps. It also involves personalities. Political partisans will be aware of who is itching to run for Congress and might be drawn in – or out – of a district accordingly. Those aspirants who often get the most consideration are ones who vie hard to have a seat at the redistricting table.

Gary Conkling is president and co-founder of CFM Strategic Communications, and he leads the firm's PR practice, specializing in crisis communications. He is a former journalist, who later worked on Capitol Hill and represented a major Oregon company. But most importantly, he’s a die-hard Ducks fan. You can reach Gary at garyc@cfmpdx.com and you can follow him on Twitter at @GaryConkling.

Oregon Congressional Delegation Could Grow

One political expert says it’s a near certainty Oregon will add another congressional district after the 2020 Census and redistricting that will affect the 2022 election. Imagine along with us where a sixth congressional district would be on the map.

One political expert says it’s a near certainty Oregon will add another congressional district after the 2020 Census and redistricting that will affect the 2022 election. Imagine along with us where a sixth congressional district would be on the map.

If Oregon’s population keeps on growing, the state’s congressional delegation should grow from five to six.

Kari Chisholm of Blue Oregon makes a convincing case that a sixth Oregon congressional seat is a near certainty after the 2020 Census, which is the basis for reapportioning congressional seats among states.

Assuming current population growth trends continue over the next four years, Chisholm says Oregon’s “6th Congressional District” would rank #417, well inside the 435 seats in the U.S. House of Representatives. If reapportionment was done today, Chisholm says Oregon ranks #433.

Oregon came close to qualifying for a sixth congressional district in the last Census in 2010. However, the recession hit Oregon hard and its population growth tailed off. Oregon’s 6th congressional district ranked #442, Chisholm said.

A sponsor of lots of political punditry, Chisholm suggests it isn’t too early to imagine how a sixth congressional district in Oregon would be configured – and who it might benefit. We’ll take the bait and ask Oregon Insider readers to offer up their maps, even if they are scrawled on napkins.

There are a few rules:

  • Districts should be compact.
  • Districts should stick as closely as possible to city and county lines.
  • Districts should be drawn to recognize community interests.
  • Districts shouldn’t be drawn to isolate any particular group of people to a single district or split them up into several districts.

Send us your redistricting map and names of who you would like to see go to Congress to represent Oregon, expanding on the state’s current congressional representatives. We’ll post what you send after the first of the year.

Tax Debate Starts with Sides Far Apart

Oregon voters rejected a corporate receipts tax in Measure 97, but backers of the initiative unveiled a modified version of the tax measure that leaves the sides on Oregon’s looming budget battle as far apart as they were during the campaign over Measure 97.

Oregon voters rejected a corporate receipts tax in Measure 97, but backers of the initiative unveiled a modified version of the tax measure that leaves the sides on Oregon’s looming budget battle as far apart as they were during the campaign over Measure 97.

Combatants in the Oregon tax debate will come to the 2017 legislature in February with positions far apart after the coalition that backed voter-rejected Measure 97 fired its first shot with a modified version of its tax plan.

Business leaders at the annual Oregon Business Summit signaled a willingness last week to discuss a tax hike in return for commitments to cut spending, in particular for the Public Employees Retirement System. Union-backed Better Oregon made no mention of PERS in unveiling its tax proposal this week.

In addition to tweaking Measure 97 provisions, Better Oregon threw in a health care provider tax aimed at hospitals and other health care professionals. That increase is intended to buttress state funding for the Oregon Health Plan, Oregon’s Medicaid program, which faces its own budget challenge as federal support for expanded coverage ratchets down.

The canyon-wide divide between the two sides is not surprising and perhaps even predictable. They have been battling for the past year over Measure 97, which supporters said would raise revenue to make Oregon’s budget sustainable and opponents claimed would dampen Oregon’s economy as the tax trickled down to consumers. Neither side believed defeat of Measure 97 meant the end of the war.

The modifications proposed by Better Oregon respond to criticisms that gained traction in the most expensive ballot measure campaign in the state’s history. The gross receipts tax was reduced from 2.5 percent to 2 percent and applied to all corporate entities with more than $100 million in sales in Oregon as opposed to $25 million in sales in Measure 97. Observers said that should relieve corporations such as Powell’s Books from paying the tax directly. The new plan exempts utilities, which said the tax would win up affecting electric and natural gas rates for lower income Oregonians. Projected revenue from the new plan would be $2 billion per year other than the $3 billion expected to come under Measure 97.

The changes are unlikely to satisfy business interests, whose spokesmen expressed incredulity at the reworked tax proposal, noting Measure 97 was defeated by a lopsided 19 percent margin in the November election. Proponents charged back that significant new revenue is needed to cover the state’s commitments to quality public education, access to health care and public employee retirement.

Several health care organizations were significant contributors to the campaign to defeat Measure 97 and under the revised plan have even more at stake. The Oregon health care industry has agreed to a 5.3 percent provider tax that enables the state to qualify for federal matching funds. This carefully negotiated and legislatively approved funding scheme is connected to Oregon’s Coordinated Care Organizations, which were established to improve the quality and cut the cost of health care for low-income Oregonians. Better Oregon wants to expand the tax and who pays it to include dentists, chiropractors, managed care organizations and ambulatory service centers with the goal of raising an additional $1 billion per year.

Advocates of any tax increase face the challenge of needing at least one and probably more Republican votes to meet the three-fifths threshold for passage. Democrats don’t have a supermajority in either the House or Senate in the 2017 session.

Governor Brown, who won the election in November to fill the remainder of John Kitzhaber’s term, must face re-election in 2018 for a full four-year term. In an abrupt moment at the Oregon Business Summit, Brown told business leaders they need to bring a credible tax and spending plan to Salem. She said a plan based on PERS cuts was dead on arrival.

The incoming Trump administration could play an inadvertent role in the Oregon budget debate. Assuming the GOP-controlled Congress follows through on its pledge to repeal Obamacare and makes funding changes in the way expanded Medicaid services are supporters, Oregon’s $1.5 billion-plus budget hole could deepen.

It may take a while before both sides, which are now standing on opposite sides of a gaping divide, find a way to sit down together and talk compromise. At the moment, neither side has a lot of motivation to take the first step toward a compromise with a chance of making it through legislative hoops and the governor’s desk. Chances are good this is a discussion that could extend to the end of the 2017 session – and possibly even extend it past a July adjournment date.

Sustainable Budget Turns on Significant PERS Reforms

Oregon may never get its revenues and spending in sustainable alignment until it figures out how to manage the cost of the Public Employees Retirement System.

Oregon may never get its revenues and spending in sustainable alignment until it figures out how to manage the cost of the Public Employees Retirement System.

Oregonians cannot possibly pay enough in taxes to keep their state and local governments afloat.

Government costs are rising far faster than government revenues. Even if massive state tax increases were enacted, such as the one envisioned in Measure 97 that voters defeated last month, government spending eventually would outpace the added revenue.

One reason is that the Oregon Health Plan (OHP) will get less money from the federal government, so the state either has to pay for that insurance coverage itself or lop thousands of low-income Oregonians off the plan. That difficult choice is further complicated by not knowing how far President-elect Donald Trump will go in slashing Medicaid, which funds OHP, as he goes about undoing Obamacare.

But the greater, systemic issue is the still-uncontrolled cost of Oregon’s government pension program, PERS. Governors, legislators and voters have made significant reforms to the Public Employees Retirement System since the 1990s, but many were overturned by the Oregon Supreme Court.

PERS costs are projected to grow more than three times faster than state revenues during the next several budget cycles. Those PERS liabilities will keep growing regardless of how the Oregon economy does. And when the economy falters, that means lower income tax collections to run state government and schools … and to pay the expanding PERS bill.

No matter what anyone claims, that trend is financially unsustainable for Oregon. The state must get its expenses and its revenues in line with each other.

As one longtime government-watcher said, “The unfunded liability eats at every level of government and it reflects promises made by legislators past that haunt legislators in the present – and in the future, unless a solution is reached and sustained.”

There are reasonable, legal ways of slowing that trend without going overboard. Meanwhile, business leaders appear open to accepting some tax increases in return for those PERS reforms. That is a compromise that the state’s political leaders should embrace … and lead.

In the proposed 2017-19 state budget that Governor Kate Brown released Thursday, she calls for maintaining the current Oregon Health Plan, while adding an estimated 13,000 to 15,000 children, so that every eligible child would have health care.

But Brown’s budget keeps the status quo for PERS, paying those soaring costs and not resolving them. That drew a strong response from the Oregon Business Association, which pledged to examine “the unsustainable cost drivers in the budget.”

As governor after governor has learned, it’s the legislature that actually writes the state budget. Brown’s political strength as governor will be reflected in how much of her proposal the 2017 legislature keeps intact.

Meanwhile, the political mood for resolving Oregon’s budget dilemma is not good.  The fight over Measure 97 – backed by public-employee unions and opposed by business – left deep scars. But civil discussions – testing leaders’ ability to set aside election-year animosities – need to happen before the Legislature convenes early next year.

The 14th Oregon Leadership Summit on Monday offers a hopeful start. More than 1,000 public- and private-sector leaders from throughout the state will gather in Portland. They will talk about how to strengthen the economy. They will discuss ideas for increasing government revenue – nothing is off the table, although a traditional sales tax is unlikely and a reprise of Measure 97 would be unacceptable. And they will look at how to control government costs.

Then comes the even harder part. Oregon’s political leaders, starting with Governor Brown, must take the initiative. It is their responsibility to ensure that Oregon gets control of its expenses, including PERS.

It makes no sense that state revenues will increase by more than $1 billion during 2015-17, yet the state faces a $1.7 billion shortfall unless programs are reduced and/or taxes are raised.

Dick Hughes, a freelance journalist specializing in Oregon government and rural/urban issues, has 40 years’ experience as an Oregon journalist and was the longtime editorial page editor, writing coach and Sunday columnist for Statesman Journal Media in Salem. Contact him at TheHughesisms@Gmail.com or Twitter@DickHughes. 

Medicaid Spending Could Be Oregon Budget Lynchpin

Oregon officials a major budget hole, which could get unpredictably worse depending on what the Trump Administration and a GOP Congress comes up with to replace Obamacare and its expansion of Medicaid coverage.

Oregon officials a major budget hole, which could get unpredictably worse depending on what the Trump Administration and a GOP Congress comes up with to replace Obamacare and its expansion of Medicaid coverage.

Governor Brown unveiled her recommended budget today, with the gloomy prospect of a $1.4 billion budget shortfall to overcome. However, what may haunt her budget more than anything else is the unknown impact of decisions on health care by the incoming Donald Trump administration.

Brown can’t count on a big pot of new revenue after voter rejection of Measure 97 and she knows the Public Employees Retirement System impact on spending looms large. What she or no one knows for certain is how the anticipated repeal of Obamacare, including funding for a major Medicaid expansion, will impact state budgets.

States that expanded Medicaid eligibility under Obamacare and received federal funding to cover a big chunk of the cost already face the reality of a federal funding phase down, putting more pressure on state funding. If the Medicaid expansion subsidies under Obamacare go away, the big question is what, if anything, will replace them.

Congressional Republicans, including Congressman Tom Price, R-Georgia, who will become secretary of Health and Human Services under President Trump, have argued for block grants to states. They say block grants give states more flexibility in managing their Medicaid programs. But that doesn’t mean the block grants would be large enough to patch the budget hole left by repealing Obamacare Medicaid subsidies. The funding difference could aggravate the existing $250 million+ hole to pay for expanded Medicaid enrollment.

Obamacare repeal also would potentially eliminate the individual health exchange. Republicans are talking about replacing the Obamacare mandate with tax incentives to encourage uninsured people to take out their own health insurance. Depending on whether the provision regarding pre-existing conditions is maintained or qualified, some people – for example, people with chronic diseases such as diabetes –  could find themselves priced out of the market. That might be politically untenable and ethically suspect to leave what could be a significant cohort of people dangling in the wind without any health insurance.

While repeal or alterations of Obamacare seems like a given, when a replacement will be agreed to is less certain. That could mean the Oregon legislature – as well as legislatures across the country – could be wrapping up their budgets while Congress is still deciding on how to replace Obamacare provisions.

Whatever one thinks of Obamacare as ealth care policy, one fact is indisputable – its provisions are interdependent. Pull a string here and something unravels over there. That’s especially true regarding budgetary impacts. Brown said in her budget message she would protect funding for Medicaid patients “without reducing eligibility or the level of services required.”

While it’s true many health insurers have abandoned the individual health insurance market, it’s not a certainty they will rush back under a new plan, especially one that may not have any more market power than the Obamacare approach. 

These gives and takes have broader implications, but in the short term they pose serious problems for Oregon policymakers who must pass a balanced budget. Adding insult to injury, the federal government under a new administration may push for a cut of the Oregon settlement with Oracle over the Cover Oregon fiasco. So far, Oregon has offered used Oracle servers.

Familiar Players and Policy Choices

Cutline: Governor Brown and Oregon lawmakers face a huge budget hole and a potentially challenging political environment to find compromises on spending cuts or tax increases.

Cutline: Governor Brown and Oregon lawmakers face a huge budget hole and a potentially challenging political environment to find compromises on spending cuts or tax increases.

As the dust settles from the election, the view of the 2017 legislative session is becoming clear – and familiar.

Democrats remain in control. Experienced presiding officers, Senate Peter Courtney and Speaker Tina Kotek, will lead the legislature. Governor Kate Brown will continue to fulfill Governor Kitzhaber’s term. Fifteen freshman legislators, one in the Senate and 14 in the House, will join the ranks. Then there is a budget to balance and a transportation funding package to debate.

Familiarity, however, will not make the tasks at hand any easier.

On February 1, 2017 the legislature will begin the arduous task of balancing a budget with a predicted $1.4 billion deficit. It is a deficit made more challenging by the strain on the general fund from the statewide ballot measures Oregonians passed this November – money for veterans, technical education and outdoor school for all.

Legislators wont be able to count on additional revenue from Measure 97, the gross sales tax measure Oregonians widely rejected. To balance the 2017-19 budget, legislators must cut spending or find more revenue – or both. Courtney told reporters he isnt sure he has the votes right now for a tax increase or major budget cuts.

The search for alternative revenue opportunities is already underway, but so far with no consensus. There may not be a consensus for a while. Because Democrats lack supermajorities in the House and Senate, they will be required to find at least one Republican in each chamber to pass a revenue-raiser.  It remains to be seen whether business leaders, fresh from spending millions to defeat Measure 97, will be willing to sit down to negotiate another tax plan.

It is customary that revenue-raising goes hand in hand with other legislative actions, especially budgets, which stand to be cut. Brown asked her state agency heads to submit pro forma budgets with 10 percent cuts. She is constitutionally obliged to submit a balanced budget without using new revenues, a requirement recently observed more in the breach than reality. Her budget is due out December 1.

What could make the 2017 session different is a change in game plan in Washington, DC on Medicaid. Oregon is one of the states that expanded Medicaid eligibility and the cost is a significant part of the budget hole lawmakers face. If Congress switched to Medicaid block grants to states, that budget hole could widen.

There is a broad consensus on the need for a transportation funding package. Last session, the package was derailed over other legislation. It probably will fall to Brown to recommend a new starting place for a transportation funding package.

Transit advocates are pushing for a funding component, but that is complicated because any revenue raised taxing cars, trucks or the fuel they consume is constitutionally dedicated to the Oregon Highway Trust Fund for road and bridge improvements.

Another wild card is President-elect Donald Trump’s $1 trillion infrastructure investment plan, which CFM’s Joel Rubin has observed is noteworthy because it doesn’t involve any new federal spending on transportation. The plan relies on tax credits and investments by private contractors, which may not be very applicable to Oregon’s highways, bridges and transit systems.

While the players and policies are familiar in Salem, there could be surprising new turns that Brown and legislators will face. With Brown facing re-election in 2018 and at least two potential rivals encamped in the Capitol – Secretary of State-elect Dennis Richardson and Rep Knute Buehler – finding common ground on mountainous issues could be more challenging.

Public affairs associate Ellen Miller recently earned her MBA from Willamette’s Atkinson Graduate School of Management, with a focus on public management and policy. 

Oregon Election Results Mostly Predictable

Dennis Richardson broke a decades-long streak for Republicans as he won the open Oregon secretary of state race in a state election that was mostly predictable.

Dennis Richardson broke a decades-long streak for Republicans as he won the open Oregon secretary of state race in a state election that was mostly predictable.

Because 1.5 million Oregonians voted by mail before election day, initial results Tuesday night were conclusive, showing solid victories by Hillary Clinton for president and Governor Kate Brown for re-election. 

Results also showed Measure 97, which would have subjected large corporation to a gross receipts tax, was headed for defeat despite earlier polling showing support.

Senator Ron Wyden, Oregon’s five Members of Congress and Attorney General Ellen Rosenblum cruised to re-election.

Dennis Richardson became the first Oregon Republican in decades to capture a state constitutional office as he defeated Democrat Brad Avakian in an open race for secretary of state. Gordon Smith was the last Republican to win a statewide office when he was elected U.S. senator in 2002.

Tobias Read held a lead to become Oregon treasurer, benefitting from a strong showing by independent Chris Telfer. The combined total votes for Telfer, a former Republican legislator, and GOP candidate Jeff Gudman exceeded Read’s total.

In many ways, Measure 97 overshadowed everything else on the Oregon ballot. Its proponents said the projected $3 billion in annual new tax revenue was needed to fund K-12 schools adequately and prevent cuts in health care and senior services because of a looming budget hole in the next biennium. Opponents said the tax would stifle Oregon’s business growth and wind up raising prices for Oregon consumers.

The defeat of Measure 97 doesn’t spell the end of a tax debate, but it narrows options and rules out anything as large as the initiative proposed.

Democrats will retain control of both the House and Senate, but they lost their 36-vote supermajority in the House and may not gain one in the Senate. Democrats need a three-fifths supermajority in both chambers to pass tax measures without any Republican votes. 

One of the more popular and successful measures on local ballots imposed restrictions or sales taxes on recreational marijuana retailing. Clackamas County elected Jim Bernard as its new commission chair. Portlanders broke precedent and unseated City Commissioner Steve Novick.

Budget Fight Expected in 2017 Legislative Session

Measure 97 has been an expensive, contentious ballot measure and, win or lose, it will generate more contention in the 2017 Oregon legislature that must decide how to spend new tax money or fill the large projected budget hole.

Measure 97 has been an expensive, contentious ballot measure and, win or lose, it will generate more contention in the 2017 Oregon legislature that must decide how to spend new tax money or fill the large projected budget hole.

No matter what happens at the ballot box next week, Salem insiders expect a long and contentious 2017 Oregon legislative session revolving around budget issues. If Measure 97 is approved November 8, the debate will focus on how legislators allocate the expected $6 billion in additional tax revenues. If Measure 97 is defeated, advocates and legislators will struggle with deep budget cuts.

Passage of Measure 97 will mean higher taxes on larger businesses, generating an estimated 30 percent increase in state general fund revenues. The legislature would be politically obliged to spend a big chunk of additional funds on education, healthcare and services for seniors as promised by measure supporters. However, lawmakers are not obligated to do so and legally could spend this new funding in whatever way they deem appropriate.

Citizens can expect fireworks over just how much of the new revenue pie should be dedicated to education, healthcare and services for seniors and how much should be available for other programs. In at least one case, money will have to go to another purpose. 

Because companies such as Chevron would be subject to the Measure 97 gross receipts tax, a portion of their tax revenue would go into the Oregon Highway Trust Fund. The Oregon Constitution requires any tax revenue derived from fuel consumption to be dedicated to road and bridge construction and repair. The Legislative Revenue Office estimates as much as $300 million of Measure 97 revenues fall into this category. The new money for roads may dampen legislative interest in a transportation funding measure that would include transit.

Oregon’s seven public universities would also advocate for a piece of the budget pie. The funds allocated by the state for these institutions has dropped significantly over the past decade, resulting in rapid tuition increases. Slowing those tuition increases will be a key argument for more funding by universities and higher-ed supporters. Other areas that will seek more funding will be public safety and natural resource programs. 

An unspoken claimant for funding is Public Employees Retirement System (PERS) and its climbing unfunded liability. Higher PERS payments, estimated at around $885 million in the coming biennium, will affect most Oregon public agencies, putting pressure on existing programs and personnel levels.

If Measure 97 fails, the session would follow an entirely different and more desperate path. Across the board budget cuts of about 10 percent are expected without the additional revenue generated by Measure 97. The focus will be on where to cut funding and by how much. 

A small group of lawmakers already is looking at more modest Measure 97 alternatives, which could be in play even if the ballot measure passes. The big question would be whether business groups are willing to participate in Measure 97 replacement talks after spending millions to defeat it.

Fragments From a Fractious Political Fracas

The widow of the late Democratic Senator Alan Bates said he valued the high road over the low road in politics as she called out the Democrat seeking to succeed him for running negative advertising.

The widow of the late Democratic Senator Alan Bates said he valued the high road over the low road in politics as she called out the Democrat seeking to succeed him for running negative advertising.

With the 2016 election less than two weeks away, here are some news updates:

A re-emergent John Kitzhaber shared on Facebook his opposition to Measure 97. His revelation earned him sharp rebukes from Measure 97 backers who accused the former governor of failing to achieve a durable grand bargain that generated adequate state revenue and taxpayer equity. For his part, Kitzhaber said more revenue is needed and corporations should pay it, but Measure 97 wasn’t the way to do it…

Willamette Week’s Nigel Jaquiss reports that Oregon Democrats have cast more ballots in early voting than Republicans, reversing a historical pattern. It is tempting to speculate Republicans aren’t rushing to the polls because of reservations about the guy at the top of the GOP ballot. Democrats may suggest an early voting surge reflects enthusiasm for Hillary Clinton. Of course, it may just be a short-term anomaly….

The wife of the late Senator Alan Bates, a Democrat, chastised the Democratic candidate to succeed him for airing negative ads against her Republican opponent. Laurie Bates, in a guest column appearing the Medford Mail Tribune, cited the adage, :how you run for office reflects how you will serve in office.” She said her late husband “modeled that belief” and “would rather lose on the high ground the win on the low ground.” The Republican candidate has limited campaign contributions and refused negative advertising. That isn’t expected to help his long-shot candidacy, despite praise from Mrs. Bates….

The Oregon governor’s race between Kate Brown and Bud Pierce is either a walk-over for Brown or neck-and-neck. Take your pick based on recent polls with disparate results. Different public opinion polling methodologies can account for some variation, but these polls are, as they say, miles apart. Polling more consistently has predicted a tight race between Democrat Brad Avakian and Republican Dennis Richardson for Oregon secretary of state. Richardson has captured many top newspaper endorsements amid questions about some of Avakian’s positions, including voter registration through election day. As a result, Republicans appear to have their best shot in years to capture a statewide elected post….

Attorney General Ellen Rosenbaum is a shoe-in for re-election, but finds herself with an awkward lawsuit filed by her civil rights director alleging racial discrimination….

Pew Research reports voters are pessimistic about the ability of either Hillary Clinton or Donald Trump to heal wounds inflicted during a brass-knuckles 2016 presidential campaign or to bridge deep political divisions that have stymied the federal government over the past eight years. Two-thirds of Clinton supporters doubt political divisions will subside if she is elected, and 25 percent expect divisions to deepen. Almost half of Trump supports anticipate any change in the toxic political atmosphere in Washington, DC, which suggests the election may not end the fractious campaign.

Health Care Policy and Funding Moves Front and Center

Health care policy returned to center stage as Governor Brown pledged to protect funding for the Oregon Health Plan and Oregon’s former health care policy doctor John Kitzhaber resurfaced to urge a shift in funds from medical care to human services that influence people’s health.

Health care policy returned to center stage as Governor Brown pledged to protect funding for the Oregon Health Plan and Oregon’s former health care policy doctor John Kitzhaber resurfaced to urge a shift in funds from medical care to human services that influence people’s health.

Health care policy has assumed a higher profile in the 2016 gubernatorial election, punctuated by the public resurfacing of former Governor John Kitzhaber, Oregon’s long-time policy doctor.

In a debate with her GOP challenger Bud Pierce, Governor Kate Brown said she will protect funding for the Oregon Health Plan, which could face a budget hole next biennium of anywhere between $250 to $750 million. Pierce said he would avoid lopping anyone off the Oregon Health Plan, but deal with the budget gap by reducing services.

Meanwhile, Kitzhaber re-emerged from his self-imposed exile by calling for a shift in funding from medical services to social determinants of health, which are human services proven to help people stay healthy, but not always available or accessible to all low-income Oregonians.

What Kitzhaber proposes may already by set in action by Brown’s administration, which is preparing to ask for another Medicaid waiver and $1.3 billion in new federal funding to do just what the former governor recommended. Oregon previously received $1.9 billion in federal funds to support creation of CCOs as a way to hold down rising health care costs, which they have so far succeeded in accomplishing.

The waiver request would direct Coordinated Care Organizations (CCOs), which were created under Kitzhaber’s watch, to establish broad-based community partnerships to make certain human services more readily available and integrated with the health care system.

CCOs were established as a way to “bend the cost curve” on health care spending by eliminating inefficiencies in the health care delivery system and focusing on medical procedures with a track record of success. In many respects, part of the job of CCOs is to keep people out of the hospital or limit how long they stayed in the hospital, so an additional role of connecting patients to human services wouldn’t be that foreign.

Connecting mainstream health care to other systems, including public health, school clinics and veterans care, hasn’t been easy. Trying to make a connection with human services, which are provided by a mosaic of government and nonprofit organizations, could be an even more daunting challenge. CCOs could serve as an existing and capable center-point around which to organize medical and human services for lower income Oregonians.

Brown’s bigger challenger, if she is re-elected as expected, will be to keep her pledge to protect the Oregon Health Plan budget. Passage of Measure 97, which would add a projected $3 billion in tax revenue to the state’s general fund, could help plug the Plan’s budget shortfall, but there is no guarantee that Brown or the legislature would use Measure 97 funding for that purpose.

In fact, Brown may already be looking for other revenue sources to rescue Oregon’s expanded Medicaid coverage as federal funding under Obamacare begins to phase down. If Measure 97 fails, those revenue sources may go from possibilities to probabilities in the defense of the Oregon Health Plan. While there has been no public discussion of funding options, larger Oregon hospitals and health systems might be a tempting target. 

Health care costs have received more attention thanks to anti-Measure 97 campaign ads that claim the gross receipts tax on large corporations could increase health care prices in Oregon by as much as $100 million annually.