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Devlin Says Most New Money in Budget Forecast Already Spoken For

The Oregon Senate’s top budget writer told The Lund Report that much of the $463 million in new revenues for the next budget should go into a reserve fund for 2017-2019, while 40 percent is being dedicated for schools. DHS and OHA will be fully funded, but new programs will need a sustainability check, although savings from CCOs should bolster social services.
May 15, 2015

The Oregon economic forecast eased pressure on the budgets for health and human services, but other developments, such as the Supreme Court decision striking down public employee pension cuts, should force state lawmakers to be cautious in crafting the 2015-2017 budget, and fall short of the robust new investments proposed this winter by former Gov. John Kitzhaber.

“It’s too soon to draw any final conclusions from it,” Sen. Richard Devlin, D-Tualatin, the Senate budget chair, told The Lund Report. “It basically at first sight has people thinking that there’s a lot more money on the table” -- which Devlin warned was really not the case.

The forecast, released Thursday morning, predicts a $473 million surplus in the current biennium, which will be sent to individual income taxpayers as a “kicker” when they file their 2015 taxes next spring. But it also showers state coffers for the next biennium with $463 million in additional funding.

Devlin noted that lawmakers already agreed to dedicate 40 percent of any new funding to the state school fund, which works out to about $105 million. He said they’re still left with a $67 million hole from what they first proposed in February, although the budget details were “changing by the hour.”

The 2017-2019 budget made Devlin especially cautious, given the increased need for state funding for Medicaid under the Affordable Care Act. Even if economic studies show that the Medicaid investments will more than pay for themselves with increased state revenues, budget writers will still have to provide for a small investment currently picked up by the federal government.

“We should be putting a significant portion into reserves for the next biennium,” Devlin said. Once the schools and the reserve funds are covered, the entire state general fund will have about $125 million in new funding from the recent forecast to spend on all other services, including social services, public safety and possible new investments in education.

Social service advocates preferred Kitzhaber’s budget to the one presented by Devlin and Rep. Peter Buckley, D-Ashland, the House budget chairman, and have been lobbying for “$142 million” to be restored to the budgets of the Oregon Health Authority and the Department of Human Services.

Devlin took issue with that number, and insisted the legislators’ budget sustained funding for those agencies. The discrepancy, he said, is merely the difference between Kitzhaber’s budget, which had a host of new goodies, and theirs, which pared these new initiatives until they could see that they would be sustainable. “We were able to meet most of the needs of DHS and OHA,” he said.

Hold Line on CCO Budgets

Regardless, Sen. Alan Bates, D-Medford, who chairs the human services budget subcommittee, told The Lund Report that prudent administration by the state’s 16 coordinated care organizations had allowed budget makers to cut that $140 million discrepancy in half.

Bates said the CCO savings mean that the organizations’ funding will remain flat for the foreseeable future, freeing up $70 million to bolster social programs at the Department of Human Services.

“The CCOs have done a great job in holding down costs. They’re doing such a great job, better than we ever expected,” Bates said.

Those new CCO funding levels are being challenged, however, by Portland-area CCO FamilyCare, which plans to take the Oregon Health Authority to court in Marion County, alleging that those “rates are rife with problems and fundamentally unsound from an actuarial perspective.”

The poor handling of the new contracts led the Senate to pass Senate Bill 833 last month at the behest of FamilyCare and Willamette Valley Community Health to require the state to give at least 30 days’ notice before a contract may be amended and a contract must be signed.

The CCOs have reduced emergency department utilization, steered patients into primary care and also invested in better chronic disease management. In part because of those savings, which also improved care, the 16 CCOs saw a $180 million profit in the first nine months of 2014.

DHS has struggled with caseloads that are still higher than expected. One of the most surprising areas is a sharp uptick in the number of people between 50 and 65 now on disability.

Bates theorized that the economic depression that had plagued the nation after the 2008 stock market crash sent many vulnerable people over the brink. Put out of work, their health declined, and while unemployed, they applied for federal disability payments. This, in turn, caused an increase in the number of people eligible for state services.

“You lose your job, you lose your house, families break up,” Bates said, which has also led to an increase in social support for children. Cash assistance for women and children has gone down since the economic rebound, but it’s still way above pre-recession levels.

Upstream Investments

Doug Riggs, a lobbyist for children’s social service programs, is among those highlighting the discrepancy between the Kitzhaber and legislative budget proposals as a gap of $142 million.

“The real concern now is that we’re being told that the PERS decision has eliminated funding for any increases,” Riggs said. “We need to keep in mind that investing in children’s health, mental health and housing are cost-savers over the long-term.”

He said that budget cuts to youth programs during the recession have produced bitter fruits, and the generation of Oregonians coming of age have paid the price. “That was a contributing factor to astronomical absenteeism rates and falling graduation rates.”

The Oregon Law Center’s John Mullin, a longtime member of the Human Services Coalition of Oregon, said the coalition’s focus was on maintaining service levels for DHS and the Oregon Health Authority, including full funding for the Oregon Health Plan expansion, while adding a  few other items on Kitzhaber’s list.

Chief among these are a reinvestment of savings as caseloads fall for the Temporary Assistance for Needy Families program, which provides cash for struggling single moms; $100 million for affordable housing and increased investments in community mental health programs.

The human services coalition is also closely watching the Legislature to remain faithful to a promise to reinvest money from a restructuring of the senior medical tax break into services for needy seniors.

Bates said getting more money for the cash assistance program and child day care may be difficult lifts, and his top social service budget priorities for increased funding were programs for people with developmental disabilities, child welfare and seniors, particularly geriatric mental health services.

“The PERS decision is going to affect us to 2030,” Bates said. “This is the only shot we had at that. We will have to go forward with what we have.”

Corporations Pay No Taxes

State Treasurer Ted Wheeler has proposed legislation that could save some of the $500 million in fees currently paid to Wall Street firms by taking the work in-house through a new Oregon Investment Department, but that idea has been opposed by perhaps the state’s most powerful politician, Senate President Peter Courtney, D-Salem. Senate Bill 134 has not yet had a hearing in the Senate Rules Committee. Devlin is the bill’s chief sponsor.

Our Oregon, a coalition of public employee unions and liberal public advocacy groups, supports some of Wheeler’s concept and has had its own idea about bolstering the state budget that doesn’t come at the expense of retirees: fix the corporate income tax and demand that hundreds of Oregon’s largest corporations start paying taxes.

Our Oregon spokeswoman Melanni Rosales explained that not only does Oregon have the lowest corporate minimum income tax -- $150 -- but many Oregon corporations have been able to manipulate the system to avoid paying income taxes.

“We've essentially decimated the state in order to try and get a balanced budget, year in and year out,” Rosales told The Lund Report. “Until corporations start paying some semblance of their fair share, Oregon will never have the schools and services we deserve.”

It seems unlikely that the Legislature will make major reforms to the corporate tax system this biennium since the Oregon Constitution requires a supermajority for any tax measures, but in Oregon, ballot measures are always a possibility if the Legislature fails to act.