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Oregon Health Authority Prepares For Potential 20% Budget Cut

The agency is bracing for the next two-year budget, which will be determined by lawmakers next year.
The Oregon Health Authority in Salem. | OREGON HEALTH AUTHORITY
August 25, 2020

The Oregon Health Authority is drawing up scenarios that would detail what a 20% cut would look like in the next budget.

The budget exercise does not mean that lawmakers would slice that much from the agency’s $2.7 billion-dollar general fund budget but it does signal that the agency expects more cuts. State economists project a revenue shortfall of about $4 billion in the next biennium, and Oregon is still trying to dig out of an economic nosedive after businesses shuttered and hospitals temporarily halted elective surgeries to slow the spread of COVID-19. 

That budget cut scenarios apply to the 2021-2023 budget, which lawmakers will set in next year’s spring session. 

The authority is mapping out the equivalent of a 20% reduction in two scenarios. One entails a 10% budget reduction for the agency’s budget request for 2021-2023,  which is due Sept. 1. That first 10% is a routine part of the state’s budget reduction process. 

The second scenario cuts the authority’s budget by 20%  “in response to the impact and uncertainty that the COVID-19 pandemic has had on the state budget,” said authority spokesman Robb Cowie.  

The Chief Financial Office at the Department of Administrative Services  requested that additional exercise, which follows a separate timeline, Cowie said in an email. The authority has a mid-September deadline to get its scenario to the Department of Administrative Services. 

This  work is unfolding throughout the agency’s divisions. But not all programs need to cut at the same 20% rate to reach the target, Cowie said. Some programs may face deeper cuts than others when the authority completes its proposals.

“The proposals OHA staff are developing represent difficult choices, based on the serious possible financial constraints the state might face going into the next biennium, but they’re only a range of options – they are not final decisions,” Cowie said. “We know cuts of this magnitude would have a profound impact on the health of Oregonians, especially when the COVID-19 pandemic continues to spread.”

Cowie said he was unable to provide a dollar equivalent for a 20% cut because the numbers are still in the works. Health authority budgets have complex financial structures, with multiple sources of federal and state revenues. For example, a cut to state funding for Medicaid also means that the state would lose additional federal matching funding. 

But the scope of the potential cuts is deep. In 2019, Oregon lawmakers approved a $23 billion budget in 2019 for the current two-year cycle, which ends June. More than half of that is federal matching dollars, primarily for Medicaid. Meanwhile, the state budgeted $2.7 billion in general fund dollars. A 20% cut in state dollars alone represents more than half a billion.

In a prior budget exercise, when the Oregon Health Authority drew up scenarios for a potential 17% cut earlier this year for the rest of this budget cycle -- its projected loss was $370 million when factoring in lost federal matching dollars. For example, Medicaid, a $6-billion-a-year program, would have lost $64 million, or $233 million total when factoring in federal dollars. Lawmakers preserved Medicaid funding in the August special session The work marks an early step in budget negotiations and decisions, which are made by the Legislature but need approval by Gov. Kate Brown to pass. Other factors that will weigh  into the debate include the state’s next economic forecast in September, any federal aid that comes to Oregon and the state’s overall budget picture, including reserves, in the next budget session. 

But no one is banking on an easy ride. 

“Given the state’s revenue decline and anticipated budget shortfall, we will likely need to look at agency reductions above 10% for the 2021-23 budget,” Liz Merah, spokeswoman for Brown’s office, said Monday. 

Merah said state financial analysts are working with agencies on options.  Brown will release a budget proposal on Dec. 1. 

In the meantime, the authority is reaching out to consumers and advocates to get feedback about scenarios before it finalizes its report. The authority has scheduled two sessions on Wednesday and Thursday for behavioral health consumers with behavioral health director Steve Allen.

“We recognize the devastating impact that cuts of this magnitude would create, and we want to reassure you all that we are not being asked to make any cuts this time, but only to provide an example of what a 20% reduction would look like,” Brandy Hemsley, director of the authority’s Office of Consumer Activities, wrote in a Friday email to consumer and peer groups.

Advocates recognize the work is preliminary but are keeping close tabs on the process. The initial figure concerns  Kevin Fitts, a mental health advocate and executive director of the Oregon Mental Health Consumers Association, a small policy group. 

“If we weaken the community safety net anymore, more people are going to be backing up at the door for hospitalization because they will collapse or deteriorate,” Fitts said. 

Heather Jefferis, executive director of the Oregon Council for Behavioral Health, said cuts to behavioral health would "explode costs" in interventions for people in desperate straits, such as emergency rooms and services and the criminal justice system.

"As the services provided by this sector are already thin and heavily focused on the most urgent needs, what will remain after cuts will become even less available and narrowly focused on the most urgent needs," Jefferis said.

The prospect of a 20% cut also alarmed Rep. Rob Nosse, D-Portland and co-chair of the joint budget panel’s human services committee.   

“That sounds like a budget scenario where I quit,” Nosse said in an interview. “That doesn't sound like any fun at all."

Earlier this year, Brown ordered agencies to draw up plans for a 17% cut in their budgets  for the rest of the current biennium, which ends June 30. In the end, lawmakers only trimmed 2.7% off the state’s human services budget -- which includes the health authority -- during a one-day special session earlier this month. 

For local government agencies, the state budget is a critical piece of providing services. 

The League of Oregon Cities released its legislative priorities for 2021 on Monday. The league wants the Legislature to maintain the state’s investment in crisis intervention services, which include emergency access to care, rental aid for mental health clients and specialized training for law enforcement. 

The league’s other priorities  also reflect the severity of the pandemic. They include economic recovery and infrastructure investments, funding for affordable housing and homelessness services and water utility and rate assistance for people on city utilities. 

Jim McCauley, the league’s legislative director, said a key goal for the session will be to preserve shared revenue for cities, regardless of the source. Examples include cigarette tax revenues, marijuna tax revenues, liquor revenues and gasoline tax revenues for highways.

Cities don’t want the state to change funding formulas in a way that diverts money away from local communities. 

Gina Nikkel, executive director of the Association of Oregon Counties, said the group will meet in mid-September to discuss the issue, along with other state policies, before the next session. 

You can reach Ben Botkin at [email protected] or via Twitter @BenBotkin1.