This update provides a brief summary of Governor Kate Brown’s recommended budget for the 2019-21 biennium, which she released on Thursday, November 28. To review the proposed budget, click here.

For the Oregonian’s coverage, click here.

Overview

State general fund revenues are projected to increase by 5% from $20.5B in the current biennium to $21.5B for the 2019-21 biennium. Although increasing, general fund revenues are growing at a significantly slower rate than the 12 to 15% increases we have seen in previous biennia this decade.

 

In generating a budget within these means, and anticipating a possible economic turndown, the Governor has placed a priority on education, proposing a 7.6% increase in her budget for K-12 which consumes about half of the state’s general fund capacity. In essence, the Governor has distributed the entirety of any expected revenue increases to K-12 and early childhood education. And, as she did two years ago in her budget proposal for higher education, the Governor has proposed no general fund increases for university programs, despite projected cost increases of over 8% for state-mandated employee retirement and health care costs.

 

Just as she did last biennium, the Governor has characterized her proposal as “unacceptable.” But in a significant departure from the scenario from the last biennium, Governor Brown has proposed increases in a number of funding packages that rely upon the passage of a yet-to-be-defined $1.9B tax package. Passage of this tax package would enable funding increases across a variety of education, human service, economic development and other programs.

 

The Governor is working with legislators to devise alternative new revenue elements that could include tax increases for cigarettes and alcohol and insurance fees to pay for projected health care cost increases. Legislative leaders are reportedly also examining various corporate receipts and activity taxes to pay for education and other programs.

 

This month, voters elected Democratic supermajorities in both chambers of the legislature, enabling Democrats to approve tax increases on party-line votes. It is a risky proposition to rely on party-line votes, especially in the Senate where one recalcitrant Democrat can kill the deal. Even if the legislature approves a revenue increase, any tax measure could be subjected to a citizen referendum process that could send the matter to voters in a subsequent election, as happened last session with proposed health care tax increases. In that case, voters affirmed the legislative action, but the potential for referendum creates uncertainty and delay. This will make life difficult for universities as their timelines are driven by the academic schedule. Tuition decisions must be in place in early spring in order to enable prospective and current students to make informed decisions about where, or even whether, they can afford to attend.

 

In a meeting with university presidents and trustees following the release of her budget, the Governor exhorted them to help in the efforts to adopt new taxes. She reminded them that, to date, legislative leaders had focused their efforts to raise revenues solely on K-12 and early education programs, and that her proposed budget, which included increased funding for universities and community colleges, along with K-12, was intended to bring higher education into the discussions.

 

She also reminded university leaders that regardless whatever funding might be allotted to universities – with or without new taxes – tuition increases over five percent require an affirmative vote of the Higher Education Coordinating Commission (HECC). Two years ago, after flat-funding universities in her 2017-19 budget, the Governor issued criteria demanding that HECC scrutinize university tuition increases over five percent, even though her budget provided no funding for mandatory cost increases for employee retirement and health care benefits.

 

 

Operating Budget

Public University Support Fund (PUSF): This is the primary source of funding to be distributed to all of the campuses, including OSU-Cascades. The Governor proposes no funding increase over $737M. With a $1.9B tax increase, the PUSF would increase by $120M, which is the minimum figure that universities have indicated is needed to keep tuition increases below 5%. In essence, with nearly $2B in new revenues, the Governor is having universities tread water – no new funding to enable universities to increase student services, increase graduation rates or reduce the time to graduation.

 

OSU Extension, Agricultural Experiment Station and Forest Research Laboratory (“The Statewides”): The three programs are essentially flat funded at $124M, with AES taking a minor reduction due to the elimination of one-time projects that were funded by the legislature in the 2017 session. With new taxes, the Governor proposes a $20M increase. This figure would restore historic funding cuts and would enable about a $5M increase spread across all three programs for new projects. The Statewides have been working with a broad range of stakeholders in developing a proposal for a $30M increase over last biennium’s funding level, and Sen. Arnie Roblan (D-Coos Bay) has drafted legislation to enact this increase.

 

State funded programs (Oregon Climate Change Research Institute, Natural Resources Institute, Engineering Technology Sustaining Fund, etc.): The Governor’s proposal flat funds most of these programs, while also eliminating funding for programs that fund engineering and technology across all seven universities. The practical effect to OSU would be elimination of about $15M for the biennium that has been devoted to faculty positions needed to maintain current enrollment and graduation rates for engineering students. With new taxes, the Governor proposes a $60M increase for these programs, but will ask for revisions in the allocation formula.

 

Outdoor School: The Governor proposes to flat fund this program at $24M. In approving this budget in 2017 the legislature forecasted an additional $23M in lottery funds in the 2019-21 biennium to meet the numbers specified in Measure 99 passed by voters during the 2016 general election. Rather than simply keeping the funding at its current level, the Governor calls for front-loading all of the current funding into the first year of the biennium. With new taxes, she proposes an additional $23M to meet the expenses of the second year of the biennium. In essence, if the tax package fails, the program would come to a screeching halt in the second year of the biennium. On the other hand if the tax package is successful, the program would be capable of achieving and sustaining full speed throughout the entire biennium.

 

Sports Lottery: As has been proposed in previous biennia by her predecessors, the Governor is seeking to eliminate $8M for this lottery-funded program which enables athletic scholarships and support for Title IX sports across all seven universities. Each session (so far), the legislature has re-instated this funding.

 

New this year is the Governor’s proposal, subject to passage of the $1.9B tax increase, to reinstate the program with $14.1M – the level incorporated in statutory provisions that dedicate 1% of lottery funds to this program. The Governor has also proposed revisions in the formula used to distribute these funds “to prioritize Technical and Regional Universities and women’s athletic programs.”

 

Oregon Opportunity Grant: The Governor proposes to flat fund the state’s sole state-funded financial aid program for university students at $146M. With the passage of a $1.9B tax program, funding would increase by an additional $121M or 83%.

 

Innovation Research Fund: With the passage of a tax plan, the Governor proposes to provide $10M for a new innovation matching fund administered by the state’s economic development agency, Business Oregon. This proposal was developed in concert with Oregon’s public research universities and would enable them to compete nationally for federal research grants.

 

 

Capital Budget

The Governor has proposed postponing significant investments in university capital projects until the 2020 legislative session, pending the completion of a 10-year strategic capital investment plan by the Higher Education Coordinating Commission. During the 2018 session, legislators called for a review, but the HECC was unable to contract for the work to be done prior to evaluating projects proposed by the universities for the 2019-21 biennium.

 

For consideration during the 2019 session, in addition to a handful of projects funded by non-state revenues (such as residence and dining halls at PSU, EOU, and WOU), the Governor has suggested only three, state-bonded projects:

• $65M for Capital Improvement and Renewal to be distributed by a HECC formula to all seven universities (OSU-Cascades will receive none of this funding);
• $3M to replace a staircase at EOU; and
• $12M to construct a “ShakeAlert & AlertWildfire Seismic Station Installation” at UO. (This project was not considered by the HECC in its capital construction process.)

 

The Governor has reserved $225M in bonding capacity for the universities to be determined in the 2020 session following the completion of the HECC’s 10-year strategic capital plan. As a result, there is not currently funding for three OSU capital projects, including $35M in bonds, matched by $35M in donor funds for the Arts and Education Complex on the Corvallis campus; $12M in bonds, matched by $5M in student fees currently paid at $50/term by students at OSU-Cascades for the construction of a Student Success Center; and $28M in bonds, matched by $28M in university funds to complete the Cordley Hall capital renewal.

 

 

What’s Next

The Governor indicated to university leaders that her budget decisions were made with the intention of ensuring that higher education had a seat at the table when legislative revenue writers were drafting alternatives for increased funding.

 

We have not had the benefit of conversing with legislators to determine their acceptance of a strategy that devotes the state’s current revenue growth solely on K-12 while flat-funding universities in order to leverage support for a tax increase. Legislative budget writers may have an alternative view, as they did in 2017 when they provided universities with a $70M increase over the Governor’s recommended budget. Governor Brown has indicated that she expects to meet again with university leaders in January to determine how universities can hold their tuition increases to below 5% while navigating the uncertainty created by reliance on funding that may not materialize, if they materialize at all, until significantly later than decisions about tuition can be made.

 

Meanwhile, university advocates, led by the Beaver Caucus, will be meeting with legislators on Thursday, December 13 when legislative committees convene in Salem. If you are interested in participating in this effort, click here.

 

If you have questions, concerns, or comments, please do not hesitate to contact me:  jock.mills@oregonstate.edu