Oregon Gov. Tina Kotek proposes $32.1 billion 2023-25 budget

The $32.1 billion state budget Gov. Tina Kotek proposed Tuesday redirects hundreds of millions of dollars that would have gone to the state’s reserves to build houses, teach kids to read and improve access to mental health services.

Education and human services, including funding behavioral health and homelessness, make up a combined 75% of the budget proposal, with $13.5 billion budgeted for education and $10.8 billion for human services. It’s an increase over the $26.8 billion budget legislators approved two years ago for the 2021-23 budget cycle.

“My mission as Oregon’s governor will always be to deliver results and move the state forward to build the Oregon we all want to live in,” Kotek said in a press conference announcing her recommended budget. “This vision for Oregon’s future cannot be realized in one budget cycle. But this plan today provides a roadmap for how we’re going to reach this state’s long term goals.”

Oregon budgets in two-year cycles, and the next begins July 1. Governors usually must present their budget proposals to the Legislature by mid-December. Newly elected governors, including Kotek, have until Feb. 1 to share their plan for state spending.

From there, the governor and her staff negotiate with legislative leaders, lawmakers on the budget-writing Ways and Means Committee and other interested parties to reach a compromise that the Legislature will vote on later this spring. Kotek’s proposed budget provides a roadmap for Democrats in the legislative majority, who share many of her priorities, but details will change over the next few months of negotiations.

A December report  from legislative budget analysts predicted that the state would have $30.2 billion in revenue from the General Fund and Lottery Funds, and that it would cost $30.7 billion to continue funding programs at the same level as the prior budget – a gap of more than $500 million. Kotek’s proposal consists of $32.5 billion in revenue and $32.1 billion in spending. Those higher revenues in the governor’s budget include money that was allocated but never spent in the 2021-23 budget and was folded back into the state’s General Fund.

It includes no new taxes, Kotek said, though it does call for a new fee of 40 cents per telephone line to fund a suicide help line. New fees, like new taxes, require a three-fifths vote in the Legislature, meaning Republicans must support it.

Kotek’s proposed budget also reflects the state’s latest federally approved Medicaid plan, which includes a waiver from federal rules that allows the state to use $1.1 billion in federal funds beginning in 2024  to help pay rent and food costs for people on the Oregon Health Plan who are homeless or have unstable housing. One in three Oregonians receive health care through the Oregon Health Plan, and the plan allows the state to use federal funds to address issues like homelessness that contribute to health issues. 

Kotek’s budget proposal involves redirecting $765 million that would have automatically been saved in the state’s reserve funds, which now total more than $2 billion, to programs intended to improve education, homelessness and mental health. 

That recommendation comes as state economists predict a mild recession sometime this year. Kotek said the state is better prepared than most to weather a recession because of its high reserves.

Diverting money from the state’s Rainy Day Fund and Education Stability Fund could require support from Republican lawmakers. House Speaker Dan Rayfield, who previously served as co-chair of the Ways and Means Committee, said during a meeting with reporters on Tuesday that legislators will have conversations about that later this spring, but he thinks it’s reasonable to keep some money out of reserves.

Rayfield, D-Corvallis, noted that Oregon’s $2 billion in savings is a historic high, and that the state expects to send roughly $3.7 billion back to taxpayers in the form of the “kicker” tax refund that’s triggered when the state collects more in revenue than it budgeted.

Senate Republicans praised Kotek for preserving the kicker refund in her recommended budget. The House Republican caucus said in a statement that it was optimistic that the governor’s proposed budget didn’t touch the kicker or call for tax increases, but it was concerned that agencies will raise fees. 

“The Governor focused her budget on several topics our caucus has also identified as priorities,” the House Republican statement said. “However, we are disappointed there was no initial mention of other crises impacting our state such as transportation backlogs, a severe drought impacting our agriculture industry, public safety in our communities or Oregon’s severe public defender crisis.”

Those issues are addressed in the broader budget recommendation, but Kotek didn’t focus on them. Rayfield told reporters the broad vision in Kotek’s budget aligns with priorities held by legislators in both parties. Legislators will work with the governor on details, he said. 

“What I really appreciate from the governor’s budget is the focus on housing and homelessness,” he said. “Highlighting that and those investment packages make a ton of sense moving forward.”

Housing and homelessness

About 18,000 Oregonians are homeless, according to the U.S. Department of Housing and Urban Development, and about 11,000 are unsheltered, living in tents or cars. Many more Oregonians are on the brink of homelessness, dealing with high rent and minimal savings. 

Kotek earlier this month called for $130 million in spending during the current budget period to add 600 new shelter beds, rehouse 1,200 homeless individuals or families and provide rent assistance and eviction prevention services to help 8,750 households stay in their homes.

Her request for the next budget period includes $172 million to help rehouse homeless people and connect them to long-term rent assistance if needed. It also includes $130 million for permanent supportive housing, or housing bundled with other services including counseling and job help, as well as $73 million for a permanent homeless prevention program and $24 million to operate new and existing shelters.

To start meeting the goal of building 36,000 new homes per year, Kotek’s proposing creating a new state office and spending $770 million on bonds to build more homes affordable to low-income families. The proposed Housing Production and Accountability Office, jointly overseen by the Department of Land Conservation and Development and the Department of Consumer and Business Services, would be in charge of working with developers and local governments to reduce bureaucratic land use laws or permitting barriers that slow the building process. 

Mental health and addiction

Kotek’s proposed budget calls for building on the $1 billion the Legislature allocated to behavioral health in 2021, money that has been slow to reach Oregonians in need. Staffing shortages and complicated funding systems make it difficult for people in crisis to find the help they need, leading to preventable deaths and incarceration.

“Despite many innovative programs and people who work tirelessly to serve their clients, Oregon’s patchwork of funding and revolving strategic direction have left Oregonians with a confusing conglomeration of services and a hopeless outlook,” the budget document said. 

Kotek’s plan calls for more funding for incentives for behavioral health workers, including $60 million earmarked for student loan repayment, scholarships and tuition stipends, $20 million to nearly double an incentive program run through the Oregon Health Authority and $127.4 million to continue a 30% rate increase for providers treating Medicaid patients that was enacted in 2022. 

The Medicaid plan, also called a waiver, and funds from Measure 110, the voter-approved law that decriminalized possession of small amounts of drugs and allocated money to addiction services, will provide $278.9 million for treatment, housing and employment assistance and peer support services for people struggling with substance abuse issues.

Kotek’s budget request includes $14.9 million to expand jail diversion programs and $47.6 million to mobile crisis teams like the CAHOOTS program in Eugene where mental health professionals, rather than police, respond to people who are intoxicated or experiencing mental health breaks. The goal of those teams is to help people find treatment, rather than send them to jail, and free police to focus on more serious crimes. 

iIt includes $195.7 million to continue some of the 2021 investments, with more money for aid services including community-based behavioral health centers. Another $40 million would go toward operating mental health residential facilities. 

There’s also money earmarked for suicide and youth serrives, including $18.4 million to operate the state’s new 988 help line and $7.7 million to expand suicide prevention programs. And the Oregon State Hospital, which houses people charged with crimes who are not competent to aid and assist in their own defense, and others, would receive more than $50 million to hire more workers and upgrade facilities. 

Education

Kotek’s budget request would increase the State School Fund from $9.5 billion to $9.9 billion. The fund  covers most of the state’s K-12 budget and is the single largest item in the state’s budget. Still, the increase is less than the $10.3 billion the Oregon Education Association says is necessary to maintain current service levels for students. Oregon Education Association President Reed Scott-Schwalbach called the proposal  a “move in the right direction,” but not enough. 

“As students in Oregon continue to recover from not only the educational, but also the social and emotional impact of the pandemic, it is more important than ever for lawmakers to pass a budget that avoids any cuts to services for our neighborhood public schools and institutions of higher learning,” Scott-Schwalbach said in a statement. “Governor Kotek’s recommended budget gets us closer to that reality.”

Kotek said her $9.9 billion is a starting point, and that she expects to work with legislators to reach a higher number.

Fewer than half of Oregon’s third-grade students were reading at grade level in the 2021-22 school year, and research shows that students who aren’t reading at grade level in third grade are four times more likely than their peers to drop out of high school. Kotek’s budget calls for $100 million for preschools, elementary schools, community-based organizations and tribes to teach children to read.

There’s also a proposal to spend $20 million in the summer of 2023 for summer school programs focused on literacy, with schools providing a 50% match. Kotek plans to seek the same funding in 2024, but it’s not included in the proposed budget. Her request also calls for $30 million for summer enrichment programs, which are intended to help children connect with each other and their communities as they recover from the pandemic and its effects on schools. 

More than $200 million would be set aside for programs for early childhood education and care, including $62.5 million to pay preschool teachers more and reduce teacher-to-student ratios for young children with disabilities. Another $100 million would go toward building or expanding child care facilities. And the remaining money would support efforts to add child care facilities at affordable housing developments and expand the state’s employment-related day care program, which helps low-income working families and students pay for child care. 

The budget doesn’t include any funding for construction projects at Oregon’s universities, though they would receive $200 million to address deferred maintenance. Kotek said that was a result of needing to focus on housing.

Other highlights

Kotek’s recommended budget includes $40 million for the Oregon Public Defense Services Commission to form a legal team of state employees to help represent people accused of crimes who can’t afford to hire their own attorneys. The state and federal constitutions guarantee defendants the right to legal representation, but a shortage of public defense attorneys means about 770 Oregonians lack attorneys for ongoing criminal cases, according to the Oregon Judicial Department.

The proposal calls for spending $200 million from the state’s Lottery Funds for as-yet-unspecified incentives for advanced manufacturing, including semiconductors. A legislative committee is working on details of the state’s semiconductor incentives to take advantage of billions in federal funding under last year’s CHIPS and Science Act.