Oregon has a spending problem
State budget challenges are nothing new to Oregon. It seems we have spent the last two decades or more trying to balance budgets and ensure sufficient revenue to fund schools and other important public services.
We are at it again this year, as the state Legislature tries to figure out how to deal with a $1.6 billion budget shortfall. The easy answer is simply "get more money." But, as is so often the case, the easy answer isn't necessarily the right or complete choice. Yes, we may need more money to fund outcomes we all want, like improved high school graduation rates and college affordability. But we also need to make sure the state is getting the right value for the money taxpayers are already investing in state services.
Since 2011, Oregon revenues have grown almost 40 percent, a pace unmatched by almost any other state. That increase is the result of economic growth in Oregon as our economy roared back from the recession. Our first order of business must be to foster more growth because, at the end of the day, building a strong economy, with quality jobs for Oregonians, is the best way to grow public revenues.
But even with that growth we have budget problems because government costs are growing faster than the new revenues. Analysis done for the Brighter Oregon coalition, the advocacy arm of the Oregon Business Plan, shows that Oregon suffers from a structural budget deficit. Revenue is increasing year over year, but certain costs, including some related to employee compensation, are growing at such rapid rates they undermine not only the state budget but also the budgets of local governments and school districts across Oregon. Left unchecked, this problem will plague Oregonians for a decade or more.
A prime example of a program with runaway costs is the Public Employee Retirement System (PERS). Although that system was revamped in 2003, legacies of the old system continue to plague government coffers. Today, PERS costs amount to 18 percent of payroll for public entities, and that is expected to grow to 30 percent of payroll by 2021.
PERS costs plague state budgets, but they are also passed through to local governments. Portland Public Schools, for example, has reported a $16 million shortfall for next school year. Of that, $8.5 million can be attributed to increases in the district's PERS-related costs, or enough to pay for 85 additional teachers.
The PERS story is familiar, but it is not the only one. The Eugene Register Guard recently took an extensive look at public employee health care benefits and found that they are far more costly than benefits offered in other states, including Washington and California.
In fact, Oregon's public employee health care benefits cost as much as 150 percent of the national average for similar programs. If the costs were at the national average, the savings would be $700 million for the next two-year budget cycle. $700 million, almost half of the state's projected budget deficit, or enough to pay for 3,500 additional teachers per year in the two-year budget cycle or 14 additional school days per year.
The Brighter Oregon coalition is asking state leaders to look at these costs and others to see if there is a way to slow the expense growth so that more money can be devoted to the outcomes Oregonians want, like better high school graduation rates. We are advocating for a balanced approach; everyone must share the responsibility of addressing the state's fiscal challenge.
Yes, we think cost growth must be slowed, and that will require representatives of public employees to consider changes to compensation and benefit systems. On our side, business needs to be willing to talk about how it will be part of the solution, including being ready to talk seriously about new revenue for targeted outcomes.
Yes, I am talking about new taxes. The Brighter Oregon coalition has told state leaders we are ready to go to the table to talk about new taxes, including taxes paid by business, when and if we have assurance that the runaway costs impacting the state budget are brought under control. When we talk about shared responsibility, we know that includes us.
We have spent too many years in Oregon worrying about budget challenges. It is time to fix this problem once and for all, and that will take all of us working together. I am proud that the business community has stepped up to create a conversation, and I am confident that we can make the progress Oregonians want.