By Taylor W. Anderson • The Bulletin

SALEM — Gov. Kate Brown today released her proposed budget that bridges a $1.8 billion budget deficit through a series of tax hikes and by asking lawmakers to give state agencies about $1 billion less than what they say they need to meet rising costs.

Still, the proposal would lead to state spending that at $20.6 billion would be about 9 percent above what lawmakers agreed to spend in the current, two-year budget that ends July 1, 2017.

The biggest cuts come to the Department of Human Services, which includes the Oregon Health Authority, the state’s health services agency. Brown suggested the Legislature adopt a budget that’s about $944 million shy of what state economists say human services needs to offer the same level of service in 2017-19 as the current two-year budget.

Agencies covering public safety, including the Department of Justice, Oregon State Police, district attorneys and the Oregon Youth Authority, will also take a sizable hit, with Brown suggesting the state spend $300 million less than what economists say is needed to meet current services.

While unveiling her first-ever proposed budget as governor, Brown said her budget shows her commitment for prioritizing schools and low-income residents.

“My budget recognizes that we must continue investing in education to improve our high school graduation rates,” Brown said. “We must continue expanding health care coverage until every Oregonian is covered.”

The need for cuts or tax hikes comes after a tornado of rising costs from inflation, a higher bill for expansion of Medicaid for low-income residents, pay raises for state employees and a big payment to help cover the state’s public pension system liabilities.

Three ballot measures passed in the Nov. 8 election related to veterans services and education funding also moved the needle further toward a deficit.

The budget release marks the end to months of work in Brown’s office to identify potential savings in state government while waiting to see if voters approved Ballot Measure 97, a tax hike that would have given the state $6 billion more to spend.

Brown had agencies prepare three budgets: one assuming Measure 97 passed, one assuming it didn’t, and one that included a patchwork of taxes and fee increases that would soften the blow and help fund services.

The budget Brown unveiled Thursday in her office in Salem was option No. 3.

Brown proposed increasing a series of so-called sin taxes and fees on tobacco and alcohol, and eliminating a tax law, bringing in $177 million more in personal income taxes, for a total of $256 million. She’s also looking for $379 million in taxes on hospitals and $151 million on insurance companies.

Raising taxes would require Republican support in the House and Senate, and the party’s leaders suggested they weren’t sympathetic to the idea.

“My hope is that before we consider asking our community employers and working families to make up for the lack of financial discipline in Salem, Governor Brown and legislative Democrats will commit to having an honest conversation about our state’s unsustainable rate of spending,” House Republican Leader Mike McLane, of Powell Butte, said in a statement.

Oregon governors are legally obligated to release a balanced budget, or one that doesn’t create a budget deficit. Brown’s budget indicates what she’d do without substantial tax hikes, but has little real impact on the budget legislators will create in the coming seven months.

Lawmakers could decide to increase taxes to boost spending in different areas, or use Brown’s budget as an outline.

They will also have more insight into actual revenue available in 2017-19 and whether the state will get over $1 billion in federal money for Oregon’s Medicaid program, which could help lessen the cuts to the human services budget.

Brown has been actively working with the federal government on securing the federal money, known as a waiver, for Oregon’s health care system. She spoke two weeks ago with the Andy Slavitt, acting administrator of the Centers for Medicaid and Medicare Services, but said Thursday she still didn’t know whether CMS would give Oregon the money.

While answering questions after releasing her budget, Brown welcomed any group to come to the table and discuss tax reform, but she indicated she wasn’t leading the discussion around tax increases.


Brown proposed putting $7.938 billion on the State School Fund, which funds K-12 education. That’s a level that’s nearly what state economists said was needed from the general fund and state lottery revenues to meet increased costs.

That level would represent 66 percent of the state’s general fund and lottery revenues and is the largest ever proposed for K-12 education.

Still, Jim Green, executive director of the Oregon School Boards Association, and other education groups said the proposal is short of what they’d like to see spent on K-12 education.

OSBA and its members, including members of school districts around the state, say they want to lead a discussion in the Legislature about reforming Oregon’s tax system and increasing education investment.

“We need solutions. We need a fair and equitable system of revenue reform to pay for schools,” said Green, who added the proposal is $500 million short of what he’d like to see. “OSBA is going to be focused in coming months to bring together education partners, legislators and the governor’s office around this vital issue. Our children and our future are at stake.”

Brown’s budget includes $20 million in general obligation bonds for Oregon State University-Cascades in Bend, which was among a crowded pool of requests from the state’s colleges and universities for capital construction funding.

OSU-Cascades is hoping lawmakers will agree to pay $69.5 million request to move into the next phase of developing Oregon’s newest university for site reclamation, a second academic building and a student success center.

Brown also wants to eliminate a $10 million cap on the Oregon Promise program, which allows some high school graduates to attend in-state community colleges for $50, and instead spend $39.7 million on the program.

But the proposal meanwhile would drop general fund spending on community colleges by 2 percent from the current budget.

Housing, economic development and natural resources

In 2015, lawmakers agreed to allow the state to issue $40 million in bonds to fund affordable housing units. That was substantially lower than what Brown and other housing advocates wanted at the time, and Brown wants lawmakers to agree to another $60 million for the state-owned units in the next budget cycle.

She’s also asking for $300 million in bonding to help with loans for first-time homebuyers and “historically disadvantaged populations.”

Economic development is one of just three areas in the state budget where Brown proposed meeting current service levels.

Brown’s budget included high-ticket proposed investments in housing and capital construction she proposes paying for with bonds.

Among them, Brown wants to issue $160 million on general obligation bonds for retrofitting schools and another $40 million for emergency service buildings so they’re prepared to withstand a major earthquake off the coast.

Brown is looking to increase spending on a program that increases logging on federal forest through what are known as forest collaboratives. The program is viewed as a job-creator in rural and Central Oregon, and the governor said it has led to more jobs in both forest restoration and logging. Brown has proposed spending $4.4 million on the program.

The budget would cut the state Department of Forestry by 16 percent. But she’d like lawmakers to spend $429 million on natural resources programs, $75 million more than current service.

— Reporter: 406-589-4347,