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Cost-Containment Budget Principles

May 15, 2017

NFIB: Budget savings, hiring freezes, Spending control

By Anthony K. Smith
Also featured in Salem Business Journal

The 2017 Oregon legislative session is now more than halfway there to reaching its constitutional adjournment deadline of July 10. The “first chamber deadline” for bills to move out of committee passed April 18 – and with it a vast number of bills met their demise, some before ever being heard in committee, others failing to move forward for a lack of support from a majority of committee members.

Many measures are moving forward and on their way to becoming law, mostly non-controversial bills that have broad bipartisan support and have been in the works since the legislature adjourned back in 2016 (or before). Yet some are quite contentious – and if those proposals make it to the floor for what could end up as a series of highly partisan votes, many in and around the Capitol worry about what that could mean for the Legislature’s work that is still in progress – the work they are required to do, like balancing the state budget, and the work that they have set out to tackle this year, like passing a major transportation funding package.

The legislative vetting of the big-ticket items, however, has only just begun. We know from the last revenue forecast that in the coming biennium, Oregon will be $1.6 billion short of what state government says it needs to maintain current service levels. Often de-emphasized in this conversation is the fact that Oregon is on pace to bring in well over $1 billion in new revenue in the next two years, meaning that the shortfall is a result of the rapidly growing costs of state government. When the next revenue forecast comes out later this month, budget writers will be able to roll up their sleeves and start working with the actual numbers.

Members of the Joint Committee on Ways and Means (the Legislature’s budget committee) have been anything but idle recently. Just days after releasing a detailed list of possible cuts, five members of the budget committee presented a cost-containment plan that included temporary and long-term actions that the Legislature should consider to “curb future budget growth.”

At least one of these proposals has already gone into effect. The day before the committee members released their memo, Gov. Kate Brown announced a hiring freeze on new state workers by executive order. Her plan calls for a two-month freeze while the five-member budget committee memo calls for a two-year freeze. Senate Republicans called for the same longer-term approach just hours before the executive order was announced, citing potential budget savings of up to $790 million per biennium, about half the $1.6 billion shortfall figure, based on an initial analysis from the Legislative Fiscal Office (LFO).

Other notable elements of the cost-containment memo include limiting state government full-time equivalent positions to 1 percent of the population instead of the current limit of 1.5 percent of the population, specific proposals to reduce Public Employee Retirement System (PERS) costs – a major driver of the current shortfall — and improving the management and containment of health-care costs for public employees.

Arguably the most promising part of the memo was the section titled “Cost-Containment Budget Principles” which contained a list of recommendations for budget writers to consider as they set out to do the work of the people. Among these were: “Do not create programs and start them at the end of the biennium,” “Do not create new programs or funds that have no money to support them,” and “Require analysis of ongoing costs rather than initial costs for all new programs.”

This is all very good advice, but it’s somewhat troubling that a small group of legislators finds it necessary to remind their colleagues of these basic principles. Forgetting any of them, even briefly, would likely drive those of us in the private-sector out of business quickly. Undoubtedly, this is a key reason why the business community has been so skeptical about participating in “new revenue” conversations, like tax increases on businesses, before the Legislature takes a serious approach to cost-containment.

This skepticism is justified – and the onus is on the Legislature to demonstrate its earnestness.

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