Oregon policymakers

Oregon’s Fiscal Discipline Positions It for Inevitable Recession

Economist Bill Conerly gives Oregon some love in a Forbes article that praises state policymakers for the fiscal discipline to create a Rainy Day Fund that now has grown to a size that should protect the state budget during an average-size downturn.

Economist Bill Conerly gives Oregon some love in a Forbes article that praises state policymakers for the fiscal discipline to create a Rainy Day Fund that now has grown to a size that should protect the state budget during an average-size downturn.

The economy is still growing, but someday it will stop. Economist Bill Conerly says Oregon state government, despite its liberal bent, is better prepared to meet the fiscal challenges of a recession than most states, including traditionally conservative ones.

“Oregon has built up its rainy-day funds to 9.7 percent of current expenditures, compared to an expected decline in a typical recession of 10 percent,” Conerly wrote in an article published last week by Forbes. “Further growth will occur next year, barring an immediate recession. That will cover the revenue shortfall of an average recession, but still leave difficult decisions about spending more on social services as people lose jobs.”

In the article, Conerly cites his personal experience advising Oregon policymakers following the crippling recession in the early 1980s. “State revenue fell so much in 1982 that the Governor [Atiyeh] had to call four special sessions of the legislature in one two-year budget period, plus two more special sessions the next biennium,” he said. That led to formation of the Governor’s Council of Economic Advisers.

As a member of the Council, initially appointed by Atiyeh, a Republican, and subsequently retained by five Democratic governors, Conerly said it became painfully obvious that revenue forecasts aren’t always accurate.

Oregon’s fiscal situation is complicated by the state’s heavy reliance on personal and corporate income tax revenues, which can balloon in good times and tank in bad times. “The state’s revenues swing wildly with fluctuations in corporate profits, capital gains and the earnings of small business owners, commissioned sales people and corporate executives on bonus plans,” Conerly explained. 

To compensate for sharp fluctuations in tax revenues, Conerly and his Council colleagues suggested creating a rainy-day fund.

“Building up a rainy day-fund means choosing not to spend available money,” Conerly wrote. “It’s difficult for any of us in our family budgeting, it’s difficult for politicians who gain votes by funding projects desired by constituencies, and it’s especially difficult for liberals, who believe in a larger role for government in healthcare and social services along with more funding for government schools. Though difficult, building up a rainy-day fund can be done.”

And it can be done, noted Conerly, a self-described free-market economist, in a “state with liberal political leadership that had the will to build a substantial reserve despite their desire to expand government spending.”

The secret, he said, is “to have that discipline, as Oregon and other states have demonstrated.”

 

Oregon Health Plan Goes from Secure to Shaky

 Congressional inaction to continue funding for the Children’s Health Insurance Program is just the latest financial challenge facing Oregon policymakers and putting Oregon’s health plans on shakier ground.

 Congressional inaction to continue funding for the Children’s Health Insurance Program is just the latest financial challenge facing Oregon policymakers and putting Oregon’s health plans on shakier ground.

When the 2017 Oregon legislature adjourned in early July, the state’s health care exchanges and Medicaid program seemed secure for at least another biennium. A lot has changed since then, and the stakes continue to grow.

The funding package to sustain the Oregon Health Plan faces a likely referral vote in January. Congress allowed federal funding for the Children’s Health Insurance Plan (CHIP) to lapse as it debated, but failed to repeal and replace the Affordable Care Act. The Trump administration continues to threaten actions to undermine the Affordable Care Act.

No matter how you spin the situation, Oregon could feel a financial pinch as early as mid-November when its funding runs out for health insurance for thousands of children in the state. The legislature won’t convene until February, so a potential gap in coverage could lead to a reduction in benefits and new enrollments.

Oregon Senator Ron Wyden is working with Senate Finance Chair Orrin Hatch on a bipartisan funding plan for CHIP, but House GOP leaders want to tie continued funding to spending cuts for Medicare, community clinics and grace periods for Affordable Care Act payments.

Oregon policymakers could have an even bigger problem on their hands if voters reject the $320 million funding package that includes a health insurance tax and a new hospital tax. While the majority of the $320 million will shore up the state’s Medicaid program, it also would fund a reinsurance pool that limits individual insurers’ financial exposure for high-cost patients.

The Oregon Reinsurance Program calmed Oregon’s market and paved the way for 6 percent lower insurance premiums. The shaky status of the reinsurance program could affect Oregon’s pending application for a waiver from the Centers of Medicare and Medicaid to administer its programs flexibly. If Oregon’s funding package is rejected, the waiver request could be in jeopardy – along with lower insurance premiums.

According to the Portland Business Journal, Alaska requested a similar waiver, which was approved. However, waiver applications by other states have been rejected or withdrawn. The Washington Post reported Trump intervened to block a waiver request from Iowa, which was seeking ways to increase competition and bring down premiums. Oklahoma withdrew its application after CMS inaction. Minnesota was granted a waiver, but CMS reportedly cut a low-income enrollee program.

The longer-term view isn’t any better. The US House has approved a budget resolution that will be used as the vehicle to move a major federal tax cut and that calls for massive cuts over the next decade to Medicare and Medicaid.