The State of Oregon budgets on a two-year “biennial” basis. The current State Budget for 2011-13 ends on June 30th. The primary purpose for the current Legislative Session is to draft, vote on and pass the 2013-15 State Budget, which will begin July 1st. In fact, although thousands of bills will be heard in Senate and House committees, the one constitutionally required action in this State Legislative Session is to pass a balanced budget for the next biennium.
I will be reporting on the status of the budget drafting process and the consequences of decisions being considered throughout this Session; this newsletter will review the initial steps and process for creating the 2013-15 Oregon State Budget.
1. The Governor’s Budget. The first step toward creating a State Budget is for the Governor to release what historically has been referred to as the Governor’s Recommended Budget (GRB), and is currently being referred to as the Governor’s Balanced Budget. This usually occurs in December, one month before the Legislative Session begins. The Governor through Michael Jordan, the Director of the Department of Administrative Services (DAS), in consultation with interested legislators and staff members, have initiated a change in the way the Governor’s budget was created. In the past, the Governor’s budget focused primarily on how much more money would be needed to maintain the current level of government services during the upcoming biennium. This was done by contrasting the legislatively adopted budget with the increases in funding requested by agencies for the following biennium. In short, current service level budgeting was an automatic process without serious consideration being given to whether or not the continuing expenditures were effective or economical. There is a better way to budget.
To obtain data for the Governor’s 2013-15 budget, DAS worked to change the process from automatically maintaining the current service level to creating a Long Term Outcomes Based Budget. Implementing a change in focus from “How much more money is enough?” to “What are Oregon citizens buying with the money allocated?”, is not an easy transition. Throughout 2012, DAS leaders met with committees and state agency leaders to discuss the purposes of state government, how programs advocated by each agency were needed to accomplish those goals and how much money will be requested from the legislature to fund those agencies and programs during the 2013-15 biennium.
If such a budgeting transition is to take root, the process must avoid being politicized. Instead of protecting the status quo, the focus should be on whether or not the agency or program is achieving the State’s specific long-term goals. Analyzing with a cost/benefit standard will reveal the effectiveness of every agency and program. Realistically, it will take years to refine the outcome-based budgeting process and to overcome the bureaucratic resistance to change. We applaud the effort.
2. Determine the Co-Chairs Budget. After receiving the Governor’s budget, the Legislative Fiscal Office analyzes it to discover just how “balanced” it is. Budgets are created by making assumptions or “educated guesses” about what the variables and costs will be over the next two years.
Changing a budget’s “assumptions” can substantially change the budget’s bottom line. For instance, 138 long-term developmentally disabled clients in December 2010 each cost the State $382,344 annually, and the 700 psychiatric patients in the State Mental Hospital system each cost as much as $345,000 per year for their 24/7 care. In addition, there are hundreds of thousands of Oregon “clients” on Medicaid and social programs, each of whom represent thousands of dollars in anticipated costs that must be included in the State Budget. Thus, a mistake or miscalculation that underestimates caseloads can be budget-busters during the following biennium. When this happens, an agency must come to the legislature for a “rebalance” to align actual caseload numbers with those assumed in its original budget.
After fully analyzing the assumptions in the Governor’s budget, Ken Rocco, the Director of the Legislative Fiscal Office (LFO) and a cadre of LFO fiscal analysts review the State’s budget information with the Co-Chairs of the Full Ways and Means Committee, one from the Senate, (Senator Richard Devlin, D-Tualatin), and one from the House of Representatives (Representative Peter Buckley, D-Ashland), to begin the process of creating the 2013-15 Co-Chairs’ Budget. With the assistance of the LFO Director and staff, the Co-Chairs of the Full Ways and Means Committee are ready to consider the following:
1. Identify the Data Points:
a. Revenue issues that must be addressed in current (2011-13) budget.
b. Make adjustments and “Rebalance” current budget, as necessary.
c. Determine Beginning Balance for next biennium’s State Budget (2013-15), if any.
d. Identify and chart trends in recent Forecasts.
e. Receive and analyze the February 15th Revenue Forecast and determine the
anticipated Gross Revenues for 2013-15.
f. Determine Ending Balance for 2013-15—a percentage of the February Revenue
Forecast that is reserved and provides a cushion in case the 2013-15 Revenue
Forecast is overly-optimistic or an economic recession reduces the revenue.
h. Determine whether economic projections are positive and warrant a direct allocation
to the Rainy Day Fund in anticipation of the next recession. Currently, if there
is any remaining funds in the Ending Balance at the end of a biennium, up to 1% of
the State Budget will transfer to the Rainy Day Fund, and any excess goes to the
Beginning Balance for the next biennium.
[Note: Only after the above steps have been completed, can the actual
net amount available for budgeting purposes be calculated.]
i. Review percentages of net revenue Forecast amounts that historically were allocated
among the six budget sub-committees.
j. Review list of budgets assigned to each of the six sub-committees.
k. Determine anticipated “holes” in 2013-15 Budget that must be filled.
2. Determine anticipated policy issues that could impact 2013-15 State Budget:
a. PERS Costs and projections for future biennia and budget accordingly.
b. Health Care Transformation costs in 2013-15 and beyond.
c. Education and Early Learning Initiatives.
d. Department of Corrections costs and proposals for Sentencing Reform.
e. Tax Expenditure policy changes and revenue consequences.
f. Coordinate policy committee goals with budget committee realities.
3. Analyze State’s Debt Status (Service costs/capacity/requests/long-term costs).
After the Co-Chairs complete these complicated tasks, they craft and release their “Co-Chairs Budget.” The Co-Chairs Budget also makes many assumptions, including how much of the net State Revenue will be allocated to each of the six Sub-Committees. The Ways and Means Sub-Committees then spend the next three months reviewing budget documents, conducting public hearings, testing the Co-Chairs’ assumptions and making recommendations to the Co-Chairs on funding allocations for each of a hundred budgets assigned to the six Sub-Committees. Only then, when all the budget bills have been passed, will Oregon have its 2013-15 State Budget and the Legislature can adjourn.
In 2011 and 2012 the legislative budget process functioned efficiently and amicably with Republican and Democratic Co-Chairs working together to craft bipartisan budgets. All of the various budget bills received substantial numbers of votes from legislators of both parties. In this 2013 Legislative Session, only Democrats are serving as the Co-Chairs. Time will tell whether the spirit of bipartisan cooperation that existed during the challenging economic period that existed in 2011 and 2012 will prevail now that one party has obtained the power of the majority.
[cross posted from: Oregon Budget Creation Process Begins for 2013-15.]