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From Governing’s Oregon
Oregon may be the only state in the nation to have had its fiscal woes memorialized in a daily comic strip. For two full weeks in 2003, cartoonist Garry Trudeau ridiculed the state in his “Doonesbury” comic for its almost unbelievable budgetary mess. 
“Mess” is the right word. Underlying the problems that have left the state facing shortfalls year after year — just to continue funding services at current levels — is a dysfunctional tax system. In Oregon, where personal and corporate income taxes make up more than 90 percent of the state’s revenues, the economic downturn at the start of this decade hit the treasury with unusual force. “We’re the number-one state in terms of dependence on a single source,” says Budget Director Daron Hill. “When the economy turns down, we get hit very severely.” Other income-tax-reliant states have been able to soften the blow of these shortfalls with some kind of rainy-day-fund mechanism. Unfortunately, Oregon has never developed such a strategy to protect its general fund-based services. Even the state’s Education Stability Fund, which was billed as a rainy-day mechanism for K-12 spending, turned out to be a rather grand misnomer. “It was set up and then immediately tapped,” says Chuck Sheketoff, executive director of the Oregon Center for Public Policy. “It has to be the most incorrectly named program in the country, because it has never provided any stability for education.”
These issues have been only exacerbated by ballot-box initiatives that make sensible budgeting very difficult. Most notably, the state’s “Kicker Law” dictates that when Oregon experiences higher-than-expected revenue growth, the surplus must be divvied up and sent back to taxpayers — even if pressing governmental needs are being left unmet. Oregon’s citizens can subject any tax increases to a referendum. As a result, in the budgetary session during which the 2003-05 budget was debated, legislators wrestled for a record-setting 227 days to come up with an $800 million tax increase to keep services operating. But voters turned it down, mandating slashing cuts in education, public safety, human services and the already beleaguered Oregon Health Plan. Just beyond the horizon lie even more potential woes. In 2003, to help prop up the state’s deeply indebted public-employee pension system, legislators trimmed benefits for more than 300,000 current and retired state workers, in order to save the state $8 billion over 24 years. Employee unions have sued to overturn the changes. If the state Supreme Court sides with the unions, the shortfalls will grow. But even if the court sides with the state, a fair amount of damage has already been done to workforce morale as a result of the benefit reduction. “With the unsettling of the retirement system, we have sort of a double-whammy,” says Human Resources Administrator Sue Wilson. “Baby boomers have fled [state government] not knowing what would happen.” On the positive side, state officials are doing what they can to make sure Oregon gets the most for the little money it has. Facing this year’s projected billion-dollar shortfall, Governor Ted Kulongoski restructured his budget to center on six strategic principles. Agencies were required to submit budgets that outlined all their programs and showed how they fit into the administration’s priorities. Before fiscal chaos began to envelop it, Oregon actually had something of a reputation as a managerial innovator. The health care system, built around a priority ranking of covered medical conditions, was a nationally admired experiment in the early 1990s. And Oregon was ahead of virtually all other states in establishing Oregon Benchmarks, a set of high-level outcomes to monitor progress toward the goals in the state’s strategic plan, Oregon Shines. The state uses the benchmarks to generate data for the legislature to use in making longer-term policy. But while the benchmarks are 15 years old now, they have yet to fully establish their utility. The good news is that in 2001, the state developed “key performance measures,” which link to the benchmarks but are intended to track agency functions. During the 2003 budget session, the legislature began a process of ratifying the key performance measures to ensure consistency in language and format. Note: This corrects the characterization of the Oregon Benchmarks program from the version of this article that appears in Governing.
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