Basics of Oregon Budget Law
In the State of Oregon, the budget law is a critical part of the gubernatorial and legislative process. Under Article IX, Section 3 of the Oregon Constitution:
On or before the date specified by law for the submission of the budget report to the [Legislative Assembly], the Governor shall submit to the [Legislative Assembly] a budget report… showing all proposed expenditures of the state and all moneys estimated to be available for expenditure, together with any anticipated revenues for the period covered by the budget.
Under the Oregon Budget Act (ORS 291.001 – 091), the Governor and the state legislature are required to submit a budget for the proposed fiscal year, as well as make appropriations to those budgets . The budget is to be used to appropriate spending from variable funding sources, such as the general fund. All budgeted expenditures must be permanent and continuous in nature. This means that if something is budgeted for, the agency cannot spend more than what was budgeted for in the budget without taking additional steps. And that additional step could be another budget hearing. Budget committees meet within 45 days of the Governor’s budget submission. Each committee member will review the Governor’s budget and then send the Governor the members’ recommendations for changes to the budget. The Governor must then revise the budget and submit the revised budget at least 5 days before the regular session of the Oregon Legislature begins.
Elements of the Oregon Budget Process
The Oregon budget process is a complex series of steps, each more or less mandatory, intended to ensure both adherence to Oregon law and that state and local agencies are spending taxpayer dollars cost effectively. In order to accomplish this, Oregon requires its agencies to present and justify their budgets for review and approval by officials with financial oversight authority. Budgets must then be approved by the Legislative Assembly and the Governor, in a series of steps detailed below.
The State of Oregon prepares the state budget as two-year budget estimates in odd-numbered years. The state receives its revenue from a number of different sources, including taxes on corporate income, timber, and property. These agencies develop and submit their budgets through an internal process. These agency budgets are received by the Legislative Fiscal Office, which analyzes them and provides assistance to state agencies as needed. The agency budgets are reviewed and consolidated into one "state budget," based on the six principles of state budget preparation. The House Committee on Revenue conducts a series of public hearings, during which time individual agencies make presentations explaining their proposed budgets. After the hearings, the House Committee on Revenue makes budget recommendations to the Legislative Assembly, including "measures to enact budgetary changes." The Governor submits the "Governor’s Recommended Budget" (simultaneously with his annual message to the Legislature) in even-numbered years.
The Local Budget Law outlines the process that local municipalities in Oregon must follow for proposed budgets for the next year. Like the process for state agencies, the local budget process consists of several required steps. First, the budget officer develops a proposed budget for the local municipality, using the annual financial estimates provided by the department of revenue. This proposed budget must be published in one issue of a newspaper of general circulation for the county, with notification of the availability of the budget in the second issue of the same paper. The budget must be available electronically or be made available through the local municipality, for at least 30 days prior to the local budget hearing. The second step in the process requires the governing body (city or county) of the municipality to hold a public hearing on the proposed budget. The proposed budget must be made available to the public at least one week in advance of the hearing.
Also during the hearing, the governing body must adopt the proposed budget. If the budget officer and governing body of the municipality disagree on the proposed budget, the governing body may submit the budget to the voters of the municipality for approval. Once the budget is adopted, it becomes the approved budget of the municipality. As a result of Constitutional limitations on the amount of property taxes, after the budget is adopted, the county assessor must certify a rate of levy of ad valorem taxes used to determine property tax revenue.
Sources of Revenue and Appropriations Issued
Of the revenue sources for Oregon’s budget, the largest single fund source is the Oregon Lottery Fund. The Oregon Lottery Fund revenue supports schools and economic development programs. Of the 32 funds supporting Oregon’s budget, Lottery funding comes from two primary sources: 1) sales of lottery tickets, including video lottery receipts; and 2) interest accrued on Lottery Fund cash balances. Allotments for Lottery programs support public education, economic development, and state and local parks and recreation programs. Funding for K-12 public education from the Lottery Fund is provided through the School Capital Matching Bond Fund (Chapter 1 of the Oregon Laws of 1993). Twenty-five percent of Lottery Fund revenue is allocated to the Common School Fund, which provides financing for school capital construction projects through the sale of limited obligation bonds backed by the estimated future Bond Fund revenues. The remaining 75% of Lottery Fund revenue is deposited in the School Capital Matching Bond Fund, which currently finances a $150 million bond sale. Current estimates for the expected bond proceeds available from a future sale in 2015 are $22 to $23 million. Over the past 10 years, funding for K-12 public education has risen 14 percent per year which has helped maintain the average revenue per student.
Relevant Oregon Statutes Governing the Budget Process
The State of Oregon budget is created and executed within a legal framework established by the Constitution and statutes of the State of Oregon. Throughout this process there are checks and balances between three distinct branches of government: the executive, the legislative, and the courts.
Article III, section 1, of the Oregon Constitution provides that "[t]he powers of government shall be separate, and distinct, and the administration thereof be divided into three separate departments, the legislative, executive and judicial." This is known as the separation of powers doctrine. Article III, section 1, also prohibits one branch of government from exercising any power properly belonging to another branch.
The Oregon Constitution authorizes either the governor or the legislature to present legislation for State spending to the people. Specifically, article IX, section 3, provides that "[t]he Legislative Assembly may provide by law for submitting to the people any question of appropriating moneys from the State Treasury." In ORS 286A.090(1), the legislature has specifically selected the governor to present non-emergency measures to the people.
There is no requirement under the Oregon Constitution to budget with regard to any specific type of funding, nor is there a requirement to divide and categorize funding in a specific manner. However, the Oregon Budget Law, codified at ORS 291.001 – 291.100, requires the establishment of a budgetary process and certain financial statements to effectuate the raising, appropriating, and expenditure of State funds.
Oregon Budget Law requires the governor to deliver State budget estimates to the legislature prior to February 1st in the calendar year prior to an election year. ORS 291.010. The budget estimates, which must include a summary of the types of expenditures to be made from the State treasury on or after July 1st of that year, are to be accompanied with a message from the governor regarding the general outlook for the economy, tax revenues, and expenditures. ORS 291.020.
As part of its budgetary process the legislature must adopt a Concurrent Resolution approving State expenditures. ORS 291.020(1). The legislature must also adopt a joint resolution establishing the priorities for State actions, programs, and investments. ORS 291.020(7). Finally, the legislature must adopt a Joint Legislative Budget Report, which sets forth the budget requirements of the legislature. ORS 291.020(8). To adopt these resolutions a simple majority of both houses of the legislature must vote in favor.
During the State’s budgetary process the Legislative Fiscal Office, a non-partisan service agency of the legislature, solicits comments and recommendations from the state agencies and other interested parties. ORS 291.020(9). This information is then incorporated in the staff’s recommendations which are presented to the legislature with the report required by ORS 291.020(8).
After the legislature adopts a Concurrent Resolution approving State expenditures, the governor submits a proposed appropriation bill to the legislature for consideration. ORS 291.020(3). The 6month budget review and establishment process concludes when the governor signs the appropriation bill into law. ORS 291.020(3).
Challenges Arising under Oregon Budget Law
Where there are disagreements over how to best allocate limited resources, there are likely to be controversies. This has certainly been the case in Oregon. Particularly over the past 30 years the legislature has repeatedly acknowledged the need for improvement in the budget process and has invited public participation. Partly as a result of its willingness to invite public participation and partly as a result of using a non-partisan staff to develop the budget proposals into line-item detail with full fiscal impact included, Oregon is often seen as ground zero for disagreement over the budget process. That is not to say that there have not been other states with significant disagreements over their budget process or their state expenditure priorities. One only needs to look at California to see divisive budget politics. But to the extent that the concept of "participatory budgeting" is distinct, Oregon’s embrace of the concept did not produce a harmonious agreement among stakeholders or interest groups.
The political conflicts and disagreements over the budget process and budget priorities in Oregon have almost always been rooted in the political and economic philosophies of its residents. For those with more libertarian or state rights ideologies , such as the Libertarian and Constitution parties, the state budget is far too large, given the lack of attention to individual and community initiative in the production of wealth. The arrangement between Oregon’s productive enterprises and its governmental administrative apparatus is far too top heavy. And the top heavy structure pays undue deference and de facto parentalism to the request from all manner of social service programs. For those on the other end of the spectrum, expenditure priorities are much more in keeping with a socialist orientation, paying less attention to individuals and communities and focusing more on social justice and deterrence of inequity. Without making value judgments about the merits of either orientation, it is important to note that these underlying beliefs are significant influences on how Oregonians think about the budgeting process and to what degree the legislation governing the budgeting process and the practice of budgeting reflects a "political compromise" or hard fought negotiations among divergent interests.
Recent Amendments to and Proposals Regarding Oregon Budget Law
The most substantial recent change to Oregon’s budget laws is the creation of the Oregon Legislatively Approved Budget for 2019-2021. The OLAB serves as Oregon’s biennial budget, replacing the "Oregon Revised Statutes" designation that had previously applied to the state’s biennial budget law. Here, the OLAB serves as the "Oregon Revised Statutes" designation for the period during the 2019-2021 biennium. The 2021-2023 OLAB is currently under development and is expected to begin in December of 2020. In addition to creating the OLAB designation, the 2019-2021 OLAB added a two-year delay to certain cash flow reserve requirements. Under prior law, the cash flow requirement would take effect in the 2017-2019 biennium, leading to a cash reserve requirement of $20 million, set to grow to $25 million in the next two biennia and $30 million in the 2021-2023 biennium. However, due to the unique circumstances presented by the COVID-19 pandemic, the 2019-2021 OLAB delayed the imposition of the $20 million cash reserve requirement to the 2021-2023 biennium. The increases to the cash reserve requirement are also delayed one biennium (due to the one-year gap between the imposition of the requirement and the delivery of the first properly allocated budget).
How Oregon Budget Law Affects Oregonians
The impact of Oregon’s budget law is felt by all Oregon residents. The primary result of the budget law is that Oregon’s state agencies must keep their spending within the limits of the budget established every two years. That reality means that much of what state agencies do, including much that is critical to Oregonians’ safety and well-being, relies on consistent and stable funding, which in turn depends on various factors such as the state’s economy, tax revenue, available federal funds, and more.
For example, the Oregon Department of Human Services (DHS), which operates state programs for child protection, domestic violence, youth in the juvenile justice system, child-care subsidies, seniors, and people with disabilities, among other populations, experiences significant challenges operating under the state’s budget law. DHS has been cut by nearly $200 million from its budget request for 2017-19. The agency recently announced 55 layoffs to close the remaining budget gap for the current biennium (2017-2019), which included a 9 percent cut to funding for the Supplemental Nutrition Assistance Program (SNAP), among other programs. Although maintaining SNAP is important in its own right, the program also supports the Oregon Health Plan, by increasing enrollment of Oregonians in health coverage. It is likely that without the federal match, DHS may have to cut the Oregon Health Plan, which serves almost 1 million Oregonians.
The Oregon Department of Education, which manages the state’s schools, has likewise been constrained by the state budget law. The agency requested $260 million for its Student Investment Account, which would be funded by an increase in the state’s corporate minimum tax, but lawmakers have only proposed a $125 million investment . According to the Oregon Department of Education, the difference could mean 175 fewer school nurses, counselors and mental health professionals throughout the state. Governor Brown recently signed a bill that will require the agency to provide a status report on how the state is managing student mental health in K-12 schools. Advocates of the state’s current education budget are concerned that the lessened investment will strain the ability of Oregon’s schools to meet students’ needs, including those related to mental health.
Oregon’s budget law derives from Article IX of the state constitution, which requires the Legislative Assembly to "create and pass all necessary laws for the raising of revenue sufficient to defray the public expenses of the state [and] make appropriations for exercising all powers granted to the State under this Constitution . . . ." The Legislative Assembly’s constitutional authority to raise revenue and authorize spending means that the Governor’s and state agency heads’ roles are limited to making proposals, lobbying the legislature for the proposals, and carrying out the budget once passed. Because the Oregon Constitution states that the financial authority resides only with the Legislative Assembly, the Governor cannot unilaterally create funding for state programs. In contrast, governors in other states may have line-item veto authority, which allows them to selectively eliminate appropriations passed by the legislature. In Oregon, if the courses of action desirable to the Governor require new funding, the Governor must seek approval from the legislature to raise revenue.
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