“I present this budget as the starting place for a broader conversation with Oregonians and legislators about how best to align our resources with our shared values and vision for moving Oregon forward,” Brown said.

PHOENIX – Facing a projected two-year budget shortfall of $1.7 billion, Oregon Gov. Kate Brown has proposed a biennial budget she characterized as a "short-term" solution that uses new revenues and cuts to keep core services funded.

Brown, a Democrat elected in her own right in November after rising to the governor's office in 2015 when John Kitzhaber resigned, had previously warned that she expected tough cuts in her 2017-2019 budget proposal.

She delivered on that prediction with an all-funds proposed budget of $74.3 billion on Dec. 1, though it includes a healthy budget for bond issuance to fund capital projects. In her message accompanying the budget, Brown emphasized that she wants to invest in education and infrastructure while not losing sight of the need to keep the state's books balanced.

"State government will tighten its belt and live within its means, but not without painful cuts to critical programs at a level I find unavoidable and unacceptable," Brown wrote. "I present this budget as the starting place for a broader conversation with Oregonians and legislators about how best to align our resources with our shared values and vision for moving Oregon forward."

Brown's budget includes authority to issue $968.9 million of general fund-supported debt for various programs, including $273.6 million for facility expansions and improvements at public universities, $202.3 million to fund grants for seismic rehabilitation of public education and emergency services buildings, and $120.1 million for matching grants for school district capital improvements. Her recommended budget also includes $130.8 million for state-owned facility renovations, $60.8 million for affordable housing needs, and $66.8 million for replacement and implementation of information technology systems. In addition, $102.8 million in general obligation bond authority is recommended to fund community college campus improvements.

Overall, the budget Brown proposed Dec. 1 represents a 5% increase from the legislative approved 2015-2017 budget of $70 billion, with spending increased 7% for education and 8% for transportation.

But it also includes a cut of 5% to the natural resources budget, and only increases spending on human services by 2%.

Brown looks to increase spending with hikes on tobacco and liquor taxes to offset projected drops in federal funding and an expected increase in the cost of providing government services, especially pension benefits and health care.

Oregon voters in November voted not to approve a corporate tax increase that would have erased the projected deficit entirely by raising an estimated $3 billion annually. Brown said that trying to balance the budget with cuts alone would have been unacceptable to her.

"Balancing the budget with program cuts alone would mean taking health coverage away from thousands of Oregonians," Brown said. "It would mean some families would not have access to preschool or early childhood education opportunities that support student success. It would mean no more Oregon Promise. These are not cuts I am willing to make."

But even with Brown's emphasis on education, she is still proposing less than the state's education leaders say they need. The $8 billion she marked for K-12 education was an increase from the $7.45 billion in the last biennium, but the Oregon School Boards Association said that small increase is not enough to cover inflation or education spending cuts since then.

Jim Green, OSBA's deputy executive director, said the proposed education budget provides a starting point, but doesn't meet the needs of Oregon students and their schools.

"This proposal falls far short – roughly $500 million – of what schools are telling us they need just to maintain current services," Green said. "The gap is even greater if we look at the funding necessary to create the 21st century school system Oregon's students deserve. We need solutions. We need a fair and equitable system of revenue reform to pay for schools."

The League of Oregon Cities pointed in its Dec. 2 news bulletin to Brown's proposal to spend $71 million on port infrastructure, public transportation, the aviation system, bike/pedestrian trails and the rail network, and said the League, like Brown, will continue to advocate for revenue reform.

"Governor Brown repeatedly noted her support for revenue reform, acknowledging that her proposed budget cuts are painful," the League said. "She emphasized that available revenues simply do not align with the values and needs of the state, and additional revenue is needed. The League will continue to advocate for property tax reform as part of any revenue reform package."

But despite the somewhat downcast rhetoric from Brown and from some stakeholders, the overall economic news for Oregon is generally positive.

Brown has noted this in her reactions to the state's regularly scheduled economic outlook reports, and analysts generally consider Oregon in better position than many U.S. states. In a report last month, S&P Global Ratings affirmed its AA-plus general obligation rating on the state, noting its above-average economic position and strong fiscal management. The agency assigns a stable outlook.

"The stable outlook reflects our view that Oregon's finances are poised to remain strong and currently good reserves mitigate potential future revenue cyclicality," S&P said.

Sussan Corson, primary analyst on that report, told The Bond Buyer that Oregon does have some volatility related to relying heavily on personal income taxes for state revenue. The state has no sales tax. Corson said Oregon's financial performance was generally tracking estimates.

"Relative to the nation, Oregon's economic trends are still favorable," she said.

The state legislature, where both houses are controlled by Brown's fellow Democrats, is not bound to abide by Brown's budget, and is expected to be working on budget legislation in the coming weeks.

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