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Budget Blueprint Rollout Press Conference
REMARKS BY GOVERNOR TED KULONGOSKI
Thursday, February 19, 2009
Good morning. I want to talk with you today about the state budget and how we must be smart and strategic in the coming months to ensure we provide Oregonians the certainty they need from their state government.
Effective March 1, 2009, as Governor I will take a 5-percent reduction in pay. The money from this reduction will be given as a direct payment to the Common School Fund.
I also want to announce some additional steps we will be taking across state government – starting with my office – to reduce administrative costs in the current fiscal year. I met with my staff and with state agency directors this morning to announce the following steps:
As to state management employees – not the union-represented workforce – all salary step increases will be frozen effective March 1, 2009. The additional salary step implemented for management employees last July will be suspended through June 2011.
Let me explain this in a little more detail. On July 1, 2008 – some state managers became eligible to receive a step increase. This step increase becomes effective on the manager’s anniversary date.
Any manager whose anniversary date falls between March 1, 2009 and July 1, 2009 will not get the step increase.
On the other hand, state management employees who have already received their step increase – because their anniversary date is before March 1, 2009 – will have their salary reduced by approximately 5-percent from March 1st until the end of the 2009-2011 biennium as a result of the suspension of the July 1, 2008 step increase.
I am also announcing that effective March 1, 2009, my office and other state managers will be asked to take furlough days – ranging from one to four days over the next four months.
The number of days will depend on an employee’s salary level and each director will manage the furloughs for his or her own agency.
These measures are in addition to steps that state agencies have been implementing over the last 6 months – from reducing out of state travel, to not filling hundreds of vacant positions, to cutting administrative costs. That said, my goal today is to avoid layoffs whenever possible.
I do not think it is in the public’s interest to layoff employees when demand for services is reaching an all time high. And it is not good for Oregon’s economy to layoff workers at the same time we’re trying to reduce our state’s unemployment rate.
I appreciate that our state agency directors and staff recognize the very difficult times we are facing, and that tough times call for shared sacrifices.
State employees of every rank are stepping up – doing more with less especially with demand for services only growing. State managers will help lead the way.
What I announced today translates into pay cuts for thousands of state workers – pay cuts that will affect Oregon families across the state.
So I want to say to all state employees – thank you for your continued commitment to Oregon, and to creating hope and opportunity for a better and brighter future.
Now I want to move to the bigger message – the state budget and the choices before us as we work to continue moving Oregon forward even when revenues are sliding backward.
There are lots of numbers out there. From projections about the current budget and the next biennium – to how the federal recovery bill will help fill those shortfalls.
There are also a lot of very difficult decisions that need to be made in order to balance the budget for the current 2007-2009 biennium – and the upcoming 2009-2011 biennium.
The American Recovery and Reinvestment Plan that President Obama signed into law on Tuesday is a first step toward economic recovery for our nation and our state. I deeply appreciate the Obama administration’s efforts to see the states as a critical part of any national economic recovery.
The investment in education, health care, renewable energy, transportation – and assistance to families struggling to make ends meet is the right thing to do.
But I need everyone to understand that this federal assistance will not (and I repeat, will not) solve our budget shortfall. It will help by reducing some of the cuts to essential government programs. But the money is simply not enough to prevent reductions to important services.
Today, the State Legislature now has 3 identifiable sources of reserves available to us through the current fiscal year and the 09-11 biennium.
First, as news outlets reported this week, we know that the level of funding available to Oregon through the Federal Stimulus’s Packages Education and Flexible Funds is approximately $570-million dollars.
That $570 million Package provides flexibility in the use of those funds and the funds are immediately available for education and other services. By flexibility, I mean these funds can be allocated over the next three years – 2009, 2010 and 2011.
Please note: That isn’t $570 million each year – that’s $570 million total available to us to allocate over the next three years.
Second, in addition to the Federal Education and Flexibility Funds, Oregon is expected to receive approximately $820 million dollars over the next three years as a result of an increase in the federal reimbursement rate in the Federal Medical Assistance Percentage (FMAP). This program is the federal government’s share of providing Medicaid services.
Lastly, the state will have approximately $800 million in savings through both the Rainy Day Fund created by the legislature last session and the Education Stability Fund by February 2010 if left untouched.
These funds total approximately $2.2 billion for us to use as a safety net for this year and the next two years to supplement the State General Fund.
This leaves the legislature with three options:
- Spend it all now. That is, use the entire Federal Education and Flexibility Funds and Education Stability Fund and Rainy Day fund for the current 2007-09 budget, leaving nothing in savings for tomorrow;
- Don’t spend any of it now – save it all for tomorrow; or
- Prudently plan and provide a stable, certain safety net to help Oregon manage this recession over the next 2 ½ years.
Option one – using all available funding to plug the current budget hole – is politically easy and politically popular. And I understand the enormous pressure legislators are under to pick that route.
But that path is not only fiscally irresponsible – it also gives a false message to the public that everything is okay. And while it might temporarily ease the pain – it will also result in deeper cuts – with longer and lasting consequences-- that will make it harder and longer for us to mount a recovery when this economy rebounds.
When we talk about state budgets – we tend to talk about millions or even billions of dollars, which has little relevance to the average Oregonian. So let me illustrate my point about option one using numbers that fit with most family budgets.
If one adult in a two-income family is about to lose his or her job – and the family has $5,000 in savings: Would you advise them to spend the $5,000 immediately – and all at once – or save it because their budget will soon be even tighter on one-income?
I think the answer is self-evident. No one would advise the family to deplete their savings.
The same is true for our state budget. Oregon is a family – and we have to be smart, prudent and responsible if we’re going to keep our family together and whole – during these very trying times.
Option two – spend nothing – is also not an answer. We cannot afford to fall behind – negating all of the progress we’ve made over the last several years to move education forward in Oregon.
That means, we must continue to expand educational opportunities at every level – from Head Start to the Opportunity Grant Program. That is the only way we will make sure that everyone who calls Oregon home has access to the quality education he or she deserves.
There is no escaping the reality that the budget shortfall we’re facing will require some reductions to core services like education. But we cannot afford extremes on either end: Cut now and spend it all later – or spend it all now and make devastating cuts later.
That leaves the third option – which also happens to be the right option: Find an approach that is prudent, responsible, strategic and balanced.
To do that, we need a plan for the next 18 months that protects education, expands health care, and creates economic opportunities for every region of the state.
In particular, we must take the money we are receiving from the federal government, combined with our state savings, and apply it strategically to provide certainty for our schools, families and communities.
Yes – there will be some cuts. The legislature is looking now at where to make those cuts.
This is a difficult process, and I support our legislators and will work with them to make sure we’re doing our best to protect our most vulnerable citizens and the programs that are critical to building a strong economy – especially education.
But here is how I believe the Legislature should proceed in allocating the federal dollars and our state revenues.
I call this my 20-40-40 plan.
It begins with the revenue that we will have in the state General and Lottery Fund.
As I noted above, the state has a safety net of approximately 2.2-billion dollars through the combination of the Federal Education and Flexibility Funds, FMAP, and the state Rainy Day Fund and Education Stability Fund.
My proposal is to allocate 20-percent of this $2.2-billion to help mitigate severe cuts for the remaining four months of the current biennium – which amounts to $400-million.
The co-chairs of the Ways and Means Committee outlined approximately $350 million in cuts yesterday, which combined with $330 from the Federal Education and Flexibility Fund and FMAP dollars that the co-chairs also announced yesterday, will help us balance the 2007-09 budget.
This $330 million represents about 16-percent of our $2.2 billion safety net, giving us the flexibility if the May revenue forecast is down again.
And instead of looking at the 2009-11 budget over two years, I believe we need to break it up and budget annually because of how volatile the economy is right now.
So with this approach, I believe we should allocate approximately 40-percent of the $2.2 billion for July 1 – Dec 31, 2009 – which is approximately 900 million to help with the first half of the biennium.
And that leaves the Rainy Day Fund and Education Stability Fund, and $200 million from FMAP – approximately $900 million – as a safety net for the legislature to allocate when they come into session in January 2010.
Let me be perfectly clear – this plan will only work if the Legislature holds off using the Education Stabilization Fund and Rainy Day Fund during this legislative session.
I will veto any bill that attempts to raid these funds during this legislative session.
I’d like to end where I started. We have difficult decisions ahead of us, and there is still some uncertainty about when this recession will bottom out and level out. But we can manage this tough budget environment and continue to make progress in key areas that are critical to a strong economic recovery.
In partnership with the legislature, I will continue to make education a priority and work to create certainty for Oregonians and their families. That is the best way to make sure that for Oregon – this downturn is followed by a strong recovery and growing prosperity.
Thank you.
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