Oregon's fiscal crisis: A budget built on illusions
Published: Saturday, April 30, 2011, 9:00 AM
By Andrew Miller Like business managers everywhere, I've had to make critical and painful adjustments in the last three years to restructure my company to compete in the global economy. My company is smarter today than it was in 2007. Other top business managers I know say they've done the same thing.
But the private sector cannot completely retool itself to meet the competing demands of a deep recession and global competition unless those efforts are matched by the rest of society, especially the government.
So far, Oregon government has done the opposite. How could Oregon's budget have grown by 50 percent over the last four years while the American economy was essentially flat? Maybe that's why there's a deep division today -- between companies struggling to grow again after absorbing losses and downsizing, and our public sector, frozen on a course of continued growth and spending. Why has only the private sector been forced to restructure?
In life, we only make painful changes when we're forced to. The budget squeeze most Oregonians have felt for the past three years may finally be reaching the public sector. But change won't be achieved without a hard look at the numbers, without tough negotiation and without some real sacrifices.
In an attempt to solve Oregon's predicament, Gov. John Kitzhaber put forth a budget proposal that reflects our current revenue ($14.7 billion) and challenged the Legislature to balance the books and get state government back on track. The co-chairmen of the Joint Ways & Means Committee ironed out a budget architecture that uses Kitzhaber's revenue premise, funds education first and leaves an ending balance of $460 million in case our future revenue numbers fall short.
After education gets its funding and the ending balance is accounted for, the other agencies have been told there's $8.4 billion left to divvy up. The problem is that the co-chairmen based their budget on Kitzhaber's revenue numbers and cost-savings assumptions. Those assumptions are a vital part of his plan. In fact, without them state agencies will completely blow their budgets apart.
What are the governor's cost assumptions? They include nearly $360 million in public employee concessions, nearly $240 million for a complete overhaul of the health care system and approximately $300 million in health care provider cuts, just to name a few.
These assumptions are unrealistic, unlikely to materialize and will leave a gaping billion-dollar hole in the budget. That's right -- a nearly $1 billion crater that turns this "balanced" budget on its head.
Why? Because the enormous cuts to health care won't fly, negotiations with public employee unions are unlikely to yield significant cost savings, our revenue numbers don't look promising and on and on.
The assumptions are illusions. Worse, our political leaders know it. But they're gambling Oregon's economic stability on their hopes of better times in 2012. If their dreams come true, the economic and revenue tides will save them from difficult spending cuts, and they can refloat the old boat of excessive, unsustainable government spending.
But it's not going to happen. And when the cost-saving measures that appear in the governor's budget don't materialize, departments will face steep, unplanned cuts beyond those already in place. And no doubt politicians will be back at the capitol, hat in hand, demanding tax increases to plug the holes.
After the personal sacrifices they've made in their homes and businesses, Oregonians deserve better. They deserve a solid plan for their tax dollars. But we won't get that if legislators insist on passing a budget with inadequate cost assumptions and if they're more concerned about finding the side door out of Salem.
When the cost-savings assumptions don't materialize, Democrats and Republicans need to have a prioritized list of other potential reforms and cuts that can take their place immediately.
The private sector is struggling to do its part, to create jobs and opportunity for Oregonians. It's time for legislators and our governor to match those efforts with a realistic budget that promotes growth and economic stability.
Andrew Miller is president and CEO of Portland-based Stimson Lumber Company.
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