Three Down – Only 26 to Go

As legislators headed home Friday to gear up for a second week in Salem, it was difficult for anyone accurately to describe the activities of the first three days because things moved much faster than normal at the Capitol — especially for opening days of a legislative session.

There was a crush of business as committees posted hearings on a large number of bills that probably will go nowhere. It prompted a lot of scurrying around, as lobbyists tried to figure what had a chance of passage and what didn't.

Three major "reforms" proposed by Governor Kitzhaber — education, health care and early learning — began moving down paths toward probable approval later this month. If you were betting, you would say the governor would win, but not without push-back by some Republicans who believe change is moving too fast for anyone to accommodate.

A so-called "budget deal" announced on the second day of the session last Thursday produced a bit of buzz, plus a couple headlines, but no one was sure about the real scope or impact of the deal. It turned out to be a "budget re-balance" plan, which means it represented an attempt by Joint Ways and Means Committee leaders to solve internal problems in the budget that had emerged in the last six months since adjournment last June.

The re-balance plan didn't address the current shortfall in state tax revenue, which has been pegged at about $305 million. Nor did the plan address any new revenue shortfall, which could be announced Wednesday when the state economist releases the latest revenue forecast at a joint meeting of the House and Senate Revenue Committees. It also prompted criticism of the Ways and Means co-chairs who took some of a recent Phillip Morris tobacco tax court-ordered payment — about $56 million — and applied most of it to the general budget deficit, not, as proposed, to funding for crime victims. Such is the stuff of Ways and Means.  Money ostensibly for one purpose is swept for another purpose.

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Will Oregon's Economic Slump End?

Oregon, like the rest of the country, is stuck with a stubbornly slow economic growth rate, said state economists during August's revenue forecast, and it's behind the national curve for recovery. But there are some bright spots that hint at an end to the slump.

Growing slowly

Oregon's unemployment rate by region, July 2011 (Office of Economic Analysis)Oregon experienced its third straight quarter of job growth, the longest growth streak since 2007. The bad news is the rate of growth is tiny – just 0.7 percent in the second quarter. Normal job growth is almost twice that rate.

The bad economy has caught up with the public sector, which employs around 18 percent of Oregon's workforce. According to the Office of Economic Analysis, budget shortfalls in the last few years are now converting to layoffs, especially in local government and education. That's  put a drag on overall job growth in the near term.

The other major factor affecting job growth is the continuing failure of the housing market, according to economists.

Other economic factors help to paint a bleak picture. In the first half of 2011, estimated GDP growth was 0.8 percent.  Personal income growth in June was only 0.1 percent and consumer spending fell 0.2 percent.  Chief Economist Mark McMullen told legislators Oregon's economy could suffer as consumer pessimism from the East Coast moves westward.

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Lawmakers Anticipate Busy February Session

Anticipating a busy 2012 session, lawmakers will hold three more sets of "legislative committee days" before February to tee up issues as they nervously await two more revenue forecasts that could determine whether budget-cutting will be a focus of their attention.

Here are three examples of what we already know will be on the agenda:

Ways and Means leaders Sen. Richard Devlin, D-Tualatin, and Rep. Dennis Richardson, R-Central Point, may need to make budget adjustments in February.STATE REVENUE: Taking stock of a volatile state budget is an obvious reason for annual sessions. This time, the stakes will be very high as the state struggles to emerge from a stubborn recession.

August's forecast, released two weeks ago, showed state tax revenue declined by almost $200 million from projections at the end of the legislative session last June. While new State Economist Mike McMullen did not predict an "echo recession," he noted a loss of consumer confidence following congressional wrangling over the federal deficit.

The $200 million drop in revenue can be managed with the reserve legislators wrote into the budget, but deeper declines could mean more cuts.

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Budget Issues Still Dominate After Session Adjourns

Balancing the budget was the dominant challenge in the 2011 legislative session. It still is an issue today as one Ways and Means leader underlines potentially shaky assumptions that underlie the state's balanced budget for the next two years.

Rep. Dennis Richardson had a hand in crafting the state budget but sees flaws in it.Rep. Dennis Richardson, R-Central Point, as House co-chair of the Joint Ways and Means Committee, was in the back room as budget decisions were made during the session. His recent newsletter says: "To reach a compromise between the Republicans and Democrats of both the House and Senate, so that a budget could be passed, we chose the road of 'assumptions.'"
Richardson rates five of them as risky:

• Assuming that $239 million of savings will be identified by the Oregon Health Authority’s health transformation initiative.

• Assuming that $51 million of savings will be identified by the Department of Human Services’ long-term care transformational initiative.

• Assuming that $28 million will be saved by the Department of Corrections in “unspecified reductions."

• Assuming that $19 million will be “loaned” from the Common School Fund to the Senior Property Tax Deferral program; the loan will need to be paid back before the end of the 2011-13 biennium, yet there is no source of revenue identified from which to fund the pay-back;

• Assuming that $310 million from the ending balance will be allocated in the February 2012 session to avoid 7 per cent of additional cuts in agency and program budgets.  

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Push to Adjourn Follows Weekend Off

Legislators came close to adjourning late last week, but decided to take the weekend off and return today for the final push.
   
Standing in the way is an agreement on the Corrections Department and a way to fill a $20 million budget hole.

Here's the way one legislator, Rep. Dennis Richardson, R-Central Point, put it in a newsletter to his constituents:

"Two weeks ago, I expected we would have adjourned this legislative session by last Friday, June17th. Last Friday I expected we would be adjourned by Wednesday, June 22nd. Last Wednesday I expected we would be adjourned by today, Friday, June 24th. Today I have no idea how long this session will continue. Constitutionally, it must adjourn by July 10th, the final date allowed for the session without a 2/3 vote.

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Health Care Transformation Looms Large in Session End-Game

Now that lawmakers, the governor and interest groups have cut a deal on education bills, including the governor's proposal for a super-board, the Education Investment Board, one of the major issues left to resolve this week goes by a high-sounding name — health care transformation.

Embodied in House Bill 3650, it is a proposal envisioned first by Governor John Kitzhaber to change how health care services are delivered to low-income Oregonians under the joint state-federal Medicaid program. It calls for new delivery organizations, Coordinated Care Organizations (CCOs), which would be created by local initiative around the state, replacing "managed care organizations" that for years have functioned much like insurance companies for Medicaid.

The idea, according to Kitzhaber, is "to create a more coordinated system that focuses on prevention, wellness, and community-based management of chronic conditions, making it easier for all Oregonians to access effective, high-quality, low-cost services."

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Foster Care Caseloads Could Decrease

A bill that holds great potential to reduce the number of children who are in foster care in Oregon so they can remain in their families may have gotten less attention than it deserves in the Oregon legislature's rush to adjourn.

Senate Bill 964 would require the Department of Human Services and its county partners to implement "strengthening, preserving and reunifying families programs to provide family preservation and reunification child welfare services."
   
In testimony before the Ways and Means Human Services Subcommittee last month, Lynne Saxton, executive director of ChristieCare, said, "According to industry data, there are 8,689 children in foster care in Oregon today. For every 10,000 kids in the state, 100 are in foster care. The national average is 57 and the average in Tennessee is 45."

"Stop and think about this statistic for a moment," she added. "It is nothing if not sobering."

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Tax Credits in the Spotlight

The legislature is considering how much money to allocate to tax credits for manufacturing and installing energy conservation equipment.One of the questions still lingering this session is what tax credits will survive in a time of extreme budget austerity.

Of the existing tax credits, about $40 million worth are set to expire in 2012. Legislators would have to renew tax credits this session if they wish to keep them available.

Ways and Means budget writers have set aside about $10 million in the budget for tax credits, and a Joint Committee on Tax Credits is charged with sifting through the tax credits up for renewal and choosing whether to keep, reduce or let them expire.

When the joint tax credits committee was announced, it sparked a philosophical debate: are tax credits part of revenue policy or spending policy? At the Capitol, that makes a difference because tax issues are considered in the Revenue Committee, and budget issues are considered in the Ways and Means Committee. By creating a new committee, legislators didn't have to answer that question, though the best answer is that tax credits are part of both, and that's what the new committee enables.

Business Energy Tax Credit

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Budget Areas Compete for Priority as Session Ends

Opinion writers for The Oregonian over the weekend tried to make a case for higher education or K-12 education getting short shrift in this legislative session and, in one case, a writer argued against more money for the state's prison system to save dollars for other education.

What's missing from this editorial picture?  Human services, that's what.

For the last several legislative sessions, human services, including health care for low income Oregonians, has tended to be the "balancer" – the last major general fund budget developed by legislators and one that takes the last cuts when other budgets already have been put to bed.

This session is no different.

Legislators have turned to two tax sources – taxes on hospitals and taxes on those who pay insurance premiums – as a way fund human services.  They have tended to treat the money as just another source of general funds.  In the past, hospitals and the state have used the hospital tax as a way to generate "state funds," then gain federal matching dollars under the Medicaid program in Washington, D.C.  The money came home and hospitals, in the aggregate, were made whole for their tax "investment."  This session, the hospital taxes, which can be increased by administrative action, will be used to fund programs other than Medicaid reimbursement increases for hospitals, which today are paid about 70 cents on the dollar of their costs for treating low income Oregonians.

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Standing in the Way of Adjournment

As legislators continue to push for adjournment, which could come as early as June 17 or 18, several issues stand in the way.

• GENERAL FUND BUDGETS:  So far, only one major general fund budget – the K-12 schools budget – has cleared the legislature. And, even there, House Democrats are pushing for more school funding out of the Education Stability Fund to cushion the blow of teacher layoffs and school closures.  Budgets for human services, higher education and public safety should begin moving through Ways and Means subcommittees this week to meet the  leadership-imposed deadline of June 7 to act on all state budgets.

• HEALTH CARE FUNDING CONTROVERSIES:  The health care budget has been particularly controversial. Four legislators – Senator Al Bates, D-Ashland, Senator Betsy Johnson, D-Scappoose, Rep. Tina Kotek, D-Portland, and Rep. Tim Freeman, R-Roseburg – have been negotiating with leaders of the Oregon Association of Hospitals and Health Systems (OAHHS) to increase the hospital tax, reducing deeper cuts in the state's Medicaid budget. They agreed to impose a tax increase, which can be implemented without legislative action by the Oregon Health Authority.

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