Six ways the governor may cut the budget

Governor Kulongoski provides six step plan to reduce deficits in 2011-13 budget
Governor and Reset Cabinet update report based on December forecast; Outlines six steps to reduce $3.5 billion deficit by two-thirds in the upcoming 2011-13 biennium.
By Governor Ted Kulongoski Office

(Salem) – Governor Ted Kulongoski was joined by the members of his Reset Cabinet to release an updated Reset Report based on the most recent December revenue forecast, which projects a deeper deficit than when the Cabinet released their original report in June. Last month, state economists forecasted a $3.5 billion shortfall – or a 20 percent shortfall – for the upcoming 2011-13 biennium. The updated report details six steps, including several new policy options, which can be taken most immediately to reduce this deficit by two-thirds and continue to narrow the deficit in later years…

The six steps outlined in the report include:

1) Carry forward interim budget reductions enacted in 2010; 2) Keep state employee compensation in step with all working Oregonians; 3) Keep school employees’ compensation in step with that of state employees; 4) Modify retiree benefits to keep PERS cost affordable; 5) Hold the line on spending for service and supplies; 6) Implement full Reset Report recommendations from June.

If all steps are adopted by the 2011 legislature and the Governor-elect, the immediate shortfall will be reduced by two-thirds, or by $2.2 billion – turning a $3.5 billion shortfall to a 1.3 billion shortfall. These actions will close the deficit by nearly 13 percent, turning a nearly 20 percent shortfall to a 7 percent shortfall.

“We can no longer continue to budget through a short-term lens and the need to reset state government is all the more compelling,” said the Governor. “This updated report provides the next best steps to reducing deficits immediately, balancing the budget and creating stability for the future.”

The six steps outlined in this report builds on the 38 recommendations made by the Reset Cabinet in June to control costs, implement efficiencies and change the way state government delivers services. The report also provides detailed estimates of savings from those recommendations that the Cabinet believes are feasible for adoption in 2011-13.

In addition to updating the original recommendations, the Cabinet also included several new policy recommendations in the areas of employee compensation, K-12 and public safety.

Employee Compensation

Terminate the PERS Individual Account Program (IAP) and the state’s payment of the six percent employee contribution to that program. The state can no longer afford to maintain two retirement programs. It is obligated to maintain the pension program and guarantee its benefits, but it is not obligated to continue the IAP. By terminating the IAP, the state will save more than the cost of the PERS rate increase attributable to current employees.

Adopt value-based benefits. The Public Employees Benefit Board should establish a lower-cost, value-based benefits plan. The state could then peg its contributions for employee health benefits to the cost of that plan. The benefits, costs and contributions to such a plan should be comparable to those offered by large public and private employers in Oregon and comparable states.

Add a public member to PEBB. To ensure that the Public Employees Benefit Board is not subject to labor-management deadlocks, the legislature should add a tie-breaking public member to the board.

K-12 Funding

Establish a state-defined maintenance of effort requirement, keyed to minimum hours of instructions, which school districts must meet to receive their full share of state funding. Future funding from the State School Fund be conditioned on each district’s compliance with the minimum school year requirement set by the state Board of Education, with no further approval of waivers from this requirement and penalties for non-compliance in the form of proportionate reductions in state support for districts that fail to comply.

Public Safety

Establish a task force on sentencing guidelines involving all three branches of state government. The Governor supports the creation of a task force representing all three branches of state government (executive, judicial and legislative) to develop proposals for more flexible sentencing guidelines for Oregon’s criminal justice system.

“No Governor before me has had to hand off a more difficult fiscal challenge to his successor, but I am able to do so with a roadmap that identifies some next best steps that meet that challenge more than half way,” Governor Kulongoski said. “I realize that in this economy and with looming deficits that optimism can feel forced. I truly believe in the people of Oregon, our resilience and spirit to get through this difficult time and make some very difficult decisions today that will create a more stable and hopeful future for our children.”

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