BY JACOB SZETO

PORTLAND – TriMet approved an $858 million budget for their 2011 fiscal year Wednesday morning.

The budget includes $417 million for operations and debt service and $114 million for rail construction. The total budget was reduced by $20 million from previous projections due to drops in anticipated revenue.

TriMet had a $27 million budget gap. Federal stimulus money filled $7.25 million of the gap and the rest came from administrative cuts, salary and hiring freezes with a reduction of 120 staff, service reductions and fair increases.

Board of director, Steve Clark asked if the current or future budget provided funding for unfunded labor liabilities. Fred Hansen, General Manager of TriMet, told the board that the pension plans were being funded, but that the larger of the two plans is a “bit over 50 percent funded.” He also stated that the $632 million postemployment benefit liability is completely unfunded.

Hansen’s statements on the unfunded liabilities were followed by a comment from board member Lynn Lehrbach that he was “very concerned about the condition that the pension fund is in.”

The board also passed a series of resolutions including authorizing an application to the Federal Transit Authority for funds for the SW Moody Street and streetcar reconstruction project and two intergovernmental agreements for the construction of the Milwaukee light rail project.

One motion proposed by Lehrbach to place a six month moratorium on the purchase of properties to make way for the Milwaukee light rail project out of concern that financing might not be secured for the project, did not pass.

Clackamas County Fire Chief, Ed Kirchhofer testified on the planned Milwaukee light rail stating that there was a “current lack of a regional strategy,” and an “overreliance” on the use of urban renewal districts and tax increment financing.

Clackamas County Sherriff, Craig Roberts followed Kirchhofer and stated that the creation of an urban renewal district to help pay for new rail will “deprive” them of additional deputies while simultaneously creating an increased need for service, and would be a “mistake” for public safety.

Activist Steve Schopp, testified that from experience in Tualatin, the Clackamas County urban renewal plan to finance the Milwaukee rail plan “will not happen.” He also spoke to job losses described as being 600 displaced by 60 businesses from the rail takeover.

John Charles, President of Cascade Policy Institute, OP’s parent organization, called for an independent third-party review board for the Milwaukee light rail project similar to the one for the Columbia River Crossing. John Charles also noted TriMet’s “unsustainable” fringe benefits calling it “institutional suicide” to continue operating in such a manner noting that at least a billion dollars of liabilities are off book in their 10 year financial forecast.

BY SARAH ROSS

SALEM- Gov. Ted Kulongoski’s final approval over agency budget cuts has reverted Oregon’s General Fund spending to approximately 2007 levels. Oregon’s General Fund budget accounts for about 22 percent of the entire Oregon state budget.

Despite cuts to the General Fund, the state’s total budget has increased by over $11 billion since the last biennium.

Gov. Kulongoski approved cuts made Tuesday by state agencies to reduce Oregon’s budget by $577 million, in order to close the unexpected budget deficit announced last month.

Kulongoski used his “allotment authority” to make across the board cuts for every agency rather than calling the Legislature into a special session to make specific reductions. The cuts that go into effect starting on July 1^st will represent a 9 percent cut for the remaining year of the 2009-2011 budget.

“With limited options to balance the budget, and growing uncertainty about federal assistance, the longer we wait to implement these reductions, the deeper the cuts will have to be to bring the budget into balance,” said Kulongoski in Tuesday’s press release.

The governor stressed the need to “operate with the reality of today,” explaining that the state doesn’t have the revenue to support the services that were approved in the legislature’s budget.

Responding to concerns of prison closures and the release of criminals due to the cuts for the Oregon Department of Corrections, Kulongoski restated his intentions of asking the legislature’s Emergency Board Committee to grant the Department the necessary funds to keep prisons open.

Senate President Peter Courtney and Speaker of the House Dave Hunt issued statements soon after the governor’s announcement.

Courtney called news of the cuts “sobering,” but reinforced the Legislature’s commitment to “soften the blow from the most severe cuts.”

“Each step of the way, we’ll be thinking of everyday Oregonians and the challenges they’re facing in their own lives,” said Courtney.

Hunt echoed similar sentiments saying the legislature will continue on the same course it’s been on in the past few weeks. This includes figuring out the worst of the cuts, lobbying for additional federal funding, and preparing cuts to the agencies that the governor doesn’t have control over, such as the legislature.

With the $577 million reduction, the legislatively approved budget for the 2009-2011 biennium will be reduced from $14.2 billion to about $13.7 billion.

Ken Rocco, Legislative Fiscal Officer for the Legislative Budget Office, noted that while the General Fund budget is smaller than it was in 2007-2009, when it was $14.4 billion, it is still bigger than it was prior to that biennium.

The 2005-2007 biennial General Fund budget totaled $12.4 billion (which is $1.3 billion less than this year’s adjusted budget). Prior to that, the budget in 2003-2005 was $11 billion and in 2001-2003 was $10.5 billion.

The state’s total budget this biennium is $59.6 billion. It was $48.3 billion in 2007-2009.

An Oregon Politico analysis into how this biennium’s General Fund budget compares to the others shows increases in “Other Education” and Human services. Rocco said these increases came about from additional student assistance grants and “caseload growth” for the human services department due to the recession.

Rocco also mentioned that the cuts made by the governor will only be to the general fund and are actually only 4.6 percent of the biennial budget. They are reflected as 9 percent cuts because those agencies that have already spent their budgets for the first half of the current biennium will need to cut 9 percent from the next year to meet the 4.6 percent cut for the full biennium.

The governor’s largest reductions are coming in education and human services. The Department of Education will lose $258,945,297 while the Department of Human Services has to reduce its budget by $158,260,778.

Schools will face the brunt of the Department of Education’s loss with many of them reducing school days or laying off staff in order to meet their reduction goals while honoring union contracts.

As for human services, most of their cuts will come from food stamps, mental health services, the State Hospital, and “managed care organizations.”

And although the general budget mentioned above is being cut, the “Other funds” budget which constitutes just over 50% of the state’s total budget has continued to grow each biennium, including this one. This budget consists of funds used by agencies for services and are usually paid for with taxes and fees. This budget was approved at $29.9 billion in the current biennium which is up from $23.8 billion in 2007-2009, $21.8 billion in 2005-2007, and $18.09 billion in 2003-2005.

BY SARAH ROSS

SALEM- With Hearing Room F’s speaker phone tuned into legislators across the state who were unable to attend Tuesday’s Emergency Board meeting, the Committee voted to grant $64,762,227 to the Oregon University System (OUS).

The Emergency Board Committee is a standing committee of the legislature that meets in the interim to give emergency funds to agencies who request additional funding.

The OUS asked for just over $29 million to accommodate growth in enrollments at its schools, $11 million to help with “higher levels of externally funded research,” and $23 million to offset some of the cuts coming from the governor’s allotment process.

Specifically, the Committee voted to give the OUS $44 million for the items requested and then transfer an additional $20 million from the Capital Improvement Program Area, which is used to improve the area surrounding the Capitol but not for Capitol maintenance. This $20 million, the Legislative Fiscal Office said, is “not predicted to be needed this biennium.”

According to the Legislative Fiscal Office, the $64 million, plus increased student enrollment and higher tuition rates, will help the OUS end up with about the same ending balance before the budget cuts.

Sen. Doug Whitsett, R-Klamath Falls, asked the Legislative Fiscal Office if the OUS was in danger of losing funding from the federal stimulus program that had helped balance the state’s budget in February.

The Legislative Fiscal Office responded by saying that post secondary institutions could lose federal stimulus funding since the governor’s lower allotment would push the Universities below their 2006 level of expenditures.

The 19 members that make up the committee then voted unanimously to grant the OUS’s request for a fund increase.

BY JACOB SZETO

PORTLAND - At a Metro work group session last week, TriMet representatives outlined their current and future budget situation, telling the Metro Council that their budget picture is “bleak” and that near-term restoration of transportation cuts is unlikely.

TriMet has continued to cut services over the last two budget cycles due to budget shortfalls. Last year’s shortfall was $31 million. This year $27 million will need to be cut from the budget.

To balance the budget, TriMet plans a five-percent administrative cut, salary and hiring freezes with a reduction of 120 staff, service reductions, fair increases and a $7.25 million federal stimulus backfill.

Over the last few years, total TriMet services have been cut about 15 percent, primarily in bus services. During the same period TriMet’s revenues have continued to grow, with 2008 operating revenues of $395 million and budgeted operating revenues for 2010 reaching $454 million, a 15 percent increase.

TriMet employee compensation has increased along with revenue. In 2008, total employee compensation was $221 million. The $244 million budgeted for this year is an 11 percent increase.

In the meeting, TriMet’s executive director of communications, Carolyn Young, described TriMet’s healthcare benefits package as “generous.” When questioned by Robert Liberty, Metro Council District 6, Young stated that they had a plan to meet the obligations created by the healthcare benefits.

However, an examination of TriMet’s latest financial forecast by Oregon Politico shows that these debts will continue to build at a rapid pace for the next decade. Oregon Politico’s analysis showed that TriMet will accumulate approximately $45 million in retiree healthcare debt annually, creating an unbalanced and unsustainable budget for at least the next ten years.

By 2019, TriMet will have accumulated $427 million in healthcare debt in addition to the $632 million already accumulated, bringing the total unpaid healthcare expenses to $1.6 billion.

Currently TriMet is involved in labor negotiations with its transit union. This contract will determine salary increases, cost of living adjustments, healthcare benefits and retirement benefits.

BY SARAH ROSS

SALEM- After the legislature used stimulus dollars and other federal aid to balance the budget in February’s special session, Governor Ted Kulongoski is now turning to Congress again to fill remaining gaps.

Kulongoski wrote a letter to the state’s Congressional delegation urging the passage of two bills in Congress that would extend expiring medical assistance and bring more aid for educational jobs.

“But these cost-saving measures [budget cuts and salary freezes]will fall far short of covering the $560 million shortfall Oregon faces right now,” Kulongoski wrote. “With little left in our budget reserves, federal dollars will continue to be critical in our efforts to fund schools and serve the increasing numbers of Oregonians relying on the state for health care and other human services.”

Following the discovery of the State’s $577 million shortfall in the 2009-2011 biennium, Kulongoski asked each state agency to send him their plans for cutting 9% from each of their budgets for the time remaining in this biennium. These plans were returned to the Governor on Wednesday.

“Today’s plans represent the next step in this difficult process,” said Kulongoski. “There are no good answers and no easy solutions to the current shortfall. With a shortfall of this magnitude, we are limited in our options to balance the budget – and the longer we wait, the more painful and deep the cuts.”

Kulongoski is expected to finalize cuts in the budget for agencies toward the end of June when the Department of Administrative Services will “work with agencies to ‘unschedule’ funds in accordance with the 9 percent reductions.”

Speaker of the House Dave Hunt, D-Clackamas, released a statement saying the budget cut process will begin Wednesday and continue during the Legislative Emergency Board meeting on June 15. The June meeting will be used for legislators to meet with the Legislative Fiscal Office to go over the budget cuts and their expected impacts.

“The road ahead is tough. But just as we managed to fill a $4 billion budget hole in 2009, we’ll find a balanced path through this latest challenge,” said Speaker Hunt. “And we’ll do our best to continue creating jobs and protecting core services as we meet our constitutional obligation for a balanced budget.”

House Minority Leader Bruce Hanna, R-Roseburg, issued a response saying that balancing the budget will require “difficult and perhaps even unpopular choices.”

The Governor himself acknowledged that there will be layoffs and cuts in services to get the budget balanced again.

Instead of bringing the Legislature into a special session to rebalance the budget, the Governor decided to use his “allotment authority” to lower state spending. In addition to asking for a 9% cut across the board on agency spending, he also extended pay freezes for management and non-union government workers.

Still, House Republicans are not convinced by the Governor’s plan to act alone in fixing the budget.

“The Legislature can’t afford to wait for ‘further analysis’ or yet another taxpayer-funded bailout from the federal government,” complained Rep. Hanna. “We should immediately convene into special session, make the tough decisions, and re-prioritize spending to protect the most essential programs in education, public safety and human services from devastating cuts.”

The biggest cuts presented in these plans came from the Department of Education, with over $258 million in cuts, and the Department of Human Services, with over $158 million. These cuts would be so large because these are also the two biggest state agencies.

BY RACHEL CHEESEMAN

SALEM - The $562 million dollar budget shortfall was a heavy blow dealt to agencies across the state, but it was not the last.

An accounting error resulted in an overestimation of projected revenue from tobacco taxes and resulted in an additional $15 million shortfall in the general fund, explained Mazen Malik, a senior economist for the legislative revenue office, raising the final number to $577 million.

Tobacco taxes were calculated to bring in 22 percent of sales from tobacco products, when they actually bring in only 22 cents per pack of cigarettes. This error changed the revenue from tobacco taxes from $480.9 million to $396.4 million, a difference of about $84.5 million and an overestimation of about 21 percent. In addition to the general fund, revenue from tobacco taxes goes toward smoking cessation programs and advertisements, public transportation and the Oregon Health Plan.

Economists were quick to catch the error. Agencies were notified the day after the original forecast, Wednesday, May 27.

Patrick Cooney of the Oregon Department of Transportation said ODOT receives only 2 cents per pack in tobacco tax revenues, so the effect of the miscalculation was “very minimal.”

This shortfall will be added to the current deficit, and agencies statewide will have to factor this in as they attempt to rebalance their budgets.

While this will increase across-the-board budget cuts needed to balance the budget by only two-tenths of a percent, from 9.1 to 9.3 percent, it does increase the current budget deficit by 2.6 percent. Certain agencies that rely heavily on general fund money, like the “big three” departments of Education, Human Services and Public Safety, will have to find ways to further trim their budgets.

The Department of Education will have to cut approximately an additional $6.6 million from its budget, after already being asked to cut $252 million. This will result in cutting another $6 million from the money appropriated by the state for kindergarten through twelfth grade education.

The Department of Human Services will have to cut an additional $4 million from their budget, after cutting $158 million.

The Department of State Police will have to cut another $260,000, and the Department of Corrections another $2 million. At $84.46 to house one inmate per day, that translates to the cost of housing 65 inmates for one year.

Jeanine Hohn, communications manager for the Department of Corrections, said that the additional $2 million was a “drop in the bucket” compared to the $52 million they now will have to cut.

“Obviously, the agency is going to have a challenging time making any kind of cuts,” Hohn said. “We will work closely with the governor’s office and legislative leadership to have the least amount of impact on our correctional system as possible, if that is possible. “

Ann Snyder of the Oregon Youth Authority explained that her agency might take one of several steps to reduce spending in the agency by the necessary $11.9 million, originally forecasted at $11.5 million.

“Some of the options would be we hold additional vacancies, we delay program implementation, we reduce services somehow,” said Snyder. “It means an additional $400,000.”

BY SARAH ROSS

SALEM- The Senate Republican Office announced Wednesday that they are seeking a vote among legislators to call the body into a special session.

GOP officials are asking for the session to deal with Tuesday’s news that the current biennium is facing a gap of over $560 million between what the Legislature budgeted and what the state economist projected revenues to be for this year.

Bend Republican Senator Chris Telfer had this to say in Wednesday’s press release: “Callous over-spending by the majority party has created this massive shortfall, and some reductions are an unfortunate necessity.”

However, Sen. Telfer and GOP leaders have spoken out against Governor Ted Kulongoski’s plan to allocate the budget himself and make 9% cuts across the board for state departments and agencies.

“These cuts should happen carefully and precisely reflecting the priorities of Oregonians, protecting the most vulnerable and investments in K-12 classrooms. That means the legislature must come into session and do what it was elected to do,” stated Sen. Telfer.

The Senate Republican Office has reported that ballots to initiate a special session will be sent to the state’s Representatives and Senators as soon as the Legislative Administrator deems it “practical.”

If a majority of the members in both chambers vote to have a special session, then the Legislature will be required to have one.

Gov. Kulongoski said in a press conference Tuesday that this time of year, with the partisanship acquired during an election cycle, would not be conducive to making good policy decisions.

BY JACOB SZETO
PORTLAND – Buried in the back of TriMet’s latest approved budget summary is a one-page document entitled “Financial Forecast Summary,” which portrays a stable financial future but fails to tell the whole story.

The forecast depicts a growing future for TriMet. Revenues climb 58 percent in 10 years, while expenditures grow by a lesser 50 percent. All the while, TriMet will be mostly running budget surpluses, adding to its coffers an average of $12 million a year.

Markedly missing from the forecast are payments to TriMet’s retiree healthcare system. These payments are short on average by $45 million a year, resulting in an accumulation of an additional $427 million in off-account debt by the end of the 10-year forecast.

Due to a lack of accounting and budgeting rules, these payments, which represent the payments needed to stay current on the agency’s past and current expenses, do not have to be budgeted. Instead, they are kept off the books and relegated to the “notes” section of the annual report, providing an option to avoid paying today’s bills.

The “notes” section provides a disclosure of what TriMet owes and a window into the consequences of not budgeting and paying for its current costs. As of 2009, TriMet has accumulated $632 million of unfunded healthcare liabilities. These liabilities increase by $45 million every year and represent a $45 million budget shortfall.

TriMet’s pension system follows a similar, although less abusive story. The financial forecast shows TriMet will continue underfunding its pension system for 8 out of 9 years when compared to its annual required contribution. Consistent underfunding has led to a total accumulation of $275 million in unfunded liabilities as of 2009, a 225 percent increase from 2001. The forecasted decade will add another $35 million.

Combining past and future shortfalls for both the retiree healthcare and pension systems, TriMet will have accumulated almost $1.4 billion in debts that are held off-account by 2019.

These delayed payments for current and past expenses will have to be paid someday and inevitably will fall on the backs of future taxpayers, essentially transferring the cost of today’s services to tomorrow’s taxpayers because they can.

In the same budget document, TriMet acknowledges the need to incorporate the costs of retiree healthcare and pension systems into its budget, stating, “Over time, TriMet will need to increase annual pension fund contributions in order to achieve 75% or higher funding….TriMet needs to take steps to partially fund a retiree-medical trust….”

But even though TriMet has acknowledged these facts, it has yet to make plans for them, much less follow through on any. It could have to do with the fact that not funding them allows TriMet to spend approximately $50 million more than it has on a yearly basis. To do otherwise would require additional budget cuts of the same magnitude.

If TriMet budgeted for these costs, it would run out of cash reserves (restricted and unrestricted) by 2011. This means that if TriMet were to pay the true cost of its current services, its forecasted expenditures would have to be reduced by just under $270 million for the next decade.

The costs of the retiree healthcare and pension systems are a direct result of labor contracts with unions. TriMet is in the midst of renegotiating its contract with Amalgamated Transit Union, of which all details have been blocked from the public view by TriMet and the Multnomah County District Attorney. Read more about the DA and TriMet blocking contract details.

TriMet’s budget is subject to the scrutiny of the Tax Supervising Conservation Commission (TSCC) on Wednesday at 8:00 am. After the TSCC meeting TriMet’s budget will be subject to another round of public scrutiny at the TriMet board meeting at 9:00 am at the same location.

See TriMet Financial Forecast

See Adjusted Forecast to see TriMet’s financial future, including its estimate including all projected costs.

Tom Potowski and Josh Harwood from the Office of Economic Analysis present their forecast to the Joint Revenue Committee

BY SARAH ROSS

SALEM- Oregon’s leaders were caught by surprise Tuesday morning upon learning that the State now must endure a $560 million budget shortfall for the current biennium.

A presentation by Tom Potowski and Josh Harwood from the Office for Economic Analysis showed that the state’s revenues are short $560 million for the 2009-2011 biennium.

Before unveiling the large budgetary gap, Potowski urged the committee to see the positive signs that his office found.

“I’ve just given you a picture that I think is hopeful in that we’re starting to see the recovery and moving forward,” said Potowski. Yet, he acknowledged the disconnect between those signs and the reported shortfall.

The most noticeable difference between this forecast and the one given at the end of February was the decrease in personal income tax revenue by $798.1 million, adding to an overall decrease of $876.5 million for General Fund revenue.

Harwood added that the State’s Capital Gains income tax went down in 2009 by almost half, going from just under $4 billion to under $2 billion.

“We are not alone. All the states have seen this sort of situation where the final payments in the April period were down much farther then what they actually expected,” said Potowski.

He added that Oregon differs from other states in that it has not been able to cushion its decline, as many other states have with their sales taxes. He went on to say that Oregon’s situation therefore may look worse than other states because it is so dependent on the very volatile personal income tax.

Legislative leaders were taken aback by this news which, according to Senate President Peter Courtney, they didn’t see coming.

“This has been a sobering morning for us,” said Senate Revenue Committee Chairwoman Ginny Burdick, D-Portland. “We can’t put ourselves through this anymore and it really is time to do kicker reform.”

The shortfall will add an additional $200 million to the 2011-2013 projected budget shortfall of $2.6 billion, projected in the March forecast.

In Tuesday’s press conference, House Speaker Dave Hunt reinforced that the shortfall would be even greater if the tax measures 66 and 67 had not passed.

However, Hunt’s declaration did not stop House Minority Leader Bruce Hanna from issuing his own statement blaming the shortfall on Legislative leadership.

“Rather than working with the private sector to encourage job growth, Oregon’s businesses have been stifled by job-killing taxes and mandates. It’s no surprise that April’s tax collections were ‘dismal,’ because the Democratic supermajority has done nothing to improve our private sector economy,” wrote Hanna.

BY SARAH ROSS

EUGENE- Concerns over Oregon’s state budget and economy ruled the conversation at Wednesday’s town hall in Eugene.

The meeting was held at the Song Brook Community Center in west Eugene for local constituents to talk with their legislators about February’s legislative session. The legislators, all Democrats, included Rep. Val Hoyle, Rep. Nancy Nathanson, Rep. Terry Beyer, and Rep. Paul Holvey and House Speaker Dave Hunt, from Clackamas County.

Although questions were proposed about forestry and rent control, the audience focused their comments on the state’s budget. Questions, such as how to get tourists to pay their fair share of taxes and how accurate the state economist’s revenue forecast really is, were addressed to the Lane County representatives.

One question drew particular interest when the leaders were asked if something was being done to address the short-handed staff and resources at the Department of Human Services.

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With regard to the forestry issue, Speaker Hunt agreed that the environmental pendulum probably has swung too far in an extreme direction recently and that more harvesting of the resource should be considered, just not to the extent that it was permitted a few decades ago.

None of the legislators took a hard and fast stance on rent control, but Rep. Holvey said a conversation on the topic likely would be needed.

To get tourists to pay their fair share in taxes for using local resources, the legislators cautioned away from a sales tax, with Speaker Hunt calling it regressive. However, he did show interest in some kind of user fees that are generally tourist-specific.