Successful Budget Talks Must Include Expenses
Over the weekend, The Joint Committee on Ways and Means held the first two of seven town hall meetings on the 2017 State budget. As is the nature of public meetings on government budgets, the testimony was one-sided with a parade of speakers testifying in behalf of programs that benefit them or people they represent.
The town halls are a routine part of the budget process, but they provide an incomplete picture. Even with Oregon’s economy outperforming most state economies and projected revenue at a record level - $1.2 billion more than in 2015-17 bienniums - the State does not have enough money to maintain current service levels.
Other than some passing references in comments by Legislators before testimony started, there was little mention of out-of-control costs. With revenues up, the primary reason for the budget gap is rapid growth in the cost of government, and most of the increase can be traced to two factors – pension and health care costs. Even if the Legislature finds a politically achievable way to increase revenues, many of the programs and services that advocates testified in behalf of Friday and Saturday - from education funding to social service programs - still would be fighting for leftovers after the government covered ever-higher pension and health care costs.
The pension problem will get worse if the Legislature does not take action. Some elected leaders who are reluctant to discuss pension reform have blamed the current funding dilemma on the 2008 financial collapse. Without question, that did not help. But a longer-term look, which is the way investment returns should be measured, shows that the state pension system has fared as well as reasonably can be expected with its investments. Since 1970, Public Employee Retirement Systems’ (PERS) annual investment returns have averaged 10.3%. But during the best years, the PERS board passed a significant portion of earnings beyond the pension guarantee on to PERS participants instead of building up reserves. Meanwhile, during bad years such as 2008, PERS was obligated to meet its guaranteed return - which has been as high as 8% and currently is 7.5%. Many investment advisers consider that guarantee to be high. The California pension plan recently announced plans to lower its rate to 7%.
Oregon’s generosity toward public employees doesn’t end with pensions. They have generous health insurance plans. In fact, if Oregon taxpayers’ contributions to government employee health plan premiums were at the U.S. average, the State could save hundreds of millions of dollars per budget cycle to invest in schools and other services. But benefits for public employees aren’t the State’s biggest health care cost challenge. The state is losing a portion of federal funds that helped it expand the number of people covered by Medicaid. And with Republicans in control of both Congress and the White House, the possibility of further federal funding cuts looms.
There are no quick fixes to offset these rising costs. The Oregon Business Plan has long advocated a three-pronged approach to stabilizing Oregon’s fiscal structure:
To make progress toward a budget that will support economic growth and meet service needs, Legislators will have to take this type of holistic approach.
To see a list of remain budget town hall meetings, click here.
For information on testifying, click here.
The first Budget Town Hall drew a large crowd, many of whom watched testimony on video screens in overflow rooms at the State Capitol.