Oregon Blue Book: Government Finance: State Government

Government Finance: State Government

2007-09 Legislatively Adopted Budget

Source: Legislative Fiscal Office

Overview
Oregon has a biennial budget. Each budget begins July 1 of odd-numbered years and lasts for two years. Oregon law requires all governments—state and local—to balance their budgets. How does state government’s budget work? The state receives money from a variety of sources, which are grouped into “funds.” These funds are known as the General Fund, Lottery Fund, Other Funds and Federal Funds.

The total Legislatively Adopted Budget for the 2007–09 biennium was $47.9 billion. This is slightly more than the 2005–07 total actual expenditures of $40.8 billion. The General and Lottery Fund portions of the 2007–09 budget amounted to $15.1 billion.

General Fund
The total Legislatively Adopted Budget for the 2007–09 biennium was $47.9 billion. This is slightly more than the 2005–07 total actual expenditures of $40.8 billion. The General and Lottery Fund portions of the 2007–09 budget amounted to $15.1 billion.
General Fund
The 2007–09 Legislatively Adopted Budget included approximately $14.0 billion in the General Fund, for a 29.1 percent share of the total budget. The general fund is largely made up of personal and corporate income taxes, collected by the Oregon Department of Revenue. General fund appropriations provide funding to agencies that either do not generate revenues, receive federal funds or generate sufficient funds to meet their approved programs. Agencies do not actually receive money from the General Fund. Instead, they expend against an appropriation from the General Fund that is established for general government purposes, up to the amount approved in their budget bill. The personal income tax makes up the largest share of General Fund revenue. It accounts for 87.4 percent of projected revenue for 2007-09.

Corporate income taxes are 6.1 percent of the total revenue amount. Other sources make up the remainder. The largest of these are the cigarette tax, estate tax and the liquor apportionment transfer. Because General Fund monies can be used for any public purpose and the amount of General Fund is limited, competition for these monies is keen.

2007-09 General Fund and Lottery Funds

Source: Legislative Fiscal Office

In 1990, voters approved Ballot Measure 5. This reduced property tax rates, especially for schools, and shifted much of the responsibility for funding public schools to the state’s General Fund. The 2007–09 Legislatively Adopted Budget had $8.2 billion, or 54.3 percent of the General and Lottery Funds being spent on education.

General Fund revenues for the 2007–09 biennium are expected to total $14.0 billion and the balance carried over from the prior biennium was $1,436.7 million. At an expected $12.2 billion, personal income tax accounts for 87.4 percent of total revenues. Anticipated corporate income tax of $857.3 million was an additional 6.1 percent. As of the September 2008 forecast, the revenue forecast was $175.7 million below the “Close of Session” forecast. The beginning balance was revised down to $76.3 million, bringing total resources to $14.0 billion. The projected ending balance for 2007–09 is $23.8 million.

Lottery Fund
State Lottery revenue derives from the sale of lottery game tickets and from Video Lottery. After prizes and lottery expenses are paid, revenue flows to the Economic Development Fund. A portion of the fund is constitutionally dedicated to be spent in specific ways. The remainder is distributed at the discretion of the Legislature for economic development.

The 2007–09 Legislatively Adopted Budget included $1.3 billion in Lottery Funds. Dedicated spending accounted for about 37 percent of that amount, and debt service accounted for 12 percent. The remainder was distributed to the State School Fund and a variety of other projects. Overall, about 2/3 of lottery funds were dedicated to education.

Other Funds
The 2007–09 Legislatively Adopted Budget included $23.6 billion in Other Funds, for a 49.2 percent share of the total budget. Other Fund revenue generally refers to money collected by agencies in return for services. Legislative actions may allow an agency to levy taxes, provide services for a fee, license individuals or otherwise earn revenues to pay for programs. These other funds are often separate and distinct from monies collected for general government purposes (general funds), and they may be based on statutory language, federal mandate and legal requirements, or for specific business reasons. Some funds are “dedicated” in that the income and disbursements are limited by the state’s constitution or by law (for example, the Highway Fund). Other Funds may not be moved from one major program to another. Consequently, competition for these monies is limited.

2007-09 Legislatively Adopted Budget - Other Funds

Source: Legislative Fiscal Office

Federal Funds
The 2007–09 Legislatively Adopted Budget included $9.2 billion in Federal Funds, for a 19.3 percent share of the total budget. Federal Funds are monies received from the federal government. The Legislative Assembly may authorize receipt of
Federal Funds for specific purposes. Federal Funds may be used to match General Fund dollars, used for specific programs, or passed through to local governments.

State Budget Process
In Oregon state government, agencies develop biennial budgets according to instructions provided by the Department of Administrative Services, Budget and Management Division. This budget development process begins in even-numbered years, well before the Legislative Assembly convenes in January of the odd-numbered years. Agencies are required to prepare and submit their budget requests for review by the Budget and Management Division by September 1. These budget requests consist of narrative descriptions of agency programs, completed forms and reports from the Oregon Budget Information and Tracking System (ORBITS).

Agencies begin by building a current program budget, which is the amount of money needed in the new biennium to continue all existing programs. An agency may request changes to this budget through Policy Packages, which are separate pieces of the budget with the purpose and the amount needed specified. Agencies also must identify program reductions and performance targets. For their 2007–09 budget requests, agencies began in March 2006 and submitted their completed requests no later than the beginning of September 2006. An agency’s budget provides an outline of what an agency does, what it costs, and how many people are involved.

After they pass a review by the Governor’s Office and the Budget and Management Division, the budget requests become part of the Governor’s Recommended Budget. The Governor’s Recommended Budget includes the proposed budgets for the Legislative Assembly and the Judicial Department, although they are not subject to the governor’s budget authority. This is because the governor has a legal obligation to submit a balanced budget for the state. The governor presents the Recommended Budget to the Legislative Assembly when it convenes in January of odd-numbered years.

When the Legislative Assembly is in session, a subcommittee of the Joint Ways and Means Committee hears each agency’s budget. At the budget hearings, an agency presents its budget request and answers questions asked by members of the committee. Staff members from the Legislative Fiscal Office and the Budget and Management Division are also present at the budget hearings. Members of the public may attend the hearings and request an opportunity to testify. At the end of an agency’s budget hearings, the agency’s budget goes to the full Ways and Means Committee for a vote and then on to the full House and Senate for a vote. The agency’s budget may be amended at any point in this process, although changes typically occur during the subcommittee hearings. When both houses pass an agency’s budget bill, it becomes the agency’s Legislatively Adopted Budget for the biennium, and it goes into effect July 1 of odd-numbered years.

2007-09 Legislatively Adopted Budget - Federal Funds

Source: Legislative Fiscal Office

Kicker Provision
The 2.0 percent surplus kicker was enacted by the 1979 Legislature. It gives taxpayers an income tax refund or credit if actual revenues are more than 2.0 percent higher than forecast at the time the state budget was adopted. The law divides General Fund money into two pots: 1) corporate taxes, and 2) all other revenues. At the end of each biennium, if the actual collections in either of these pots is more than 2.0 percent higher than was forecast at the close of the regular legislative session, then a refund or credit must be paid. When triggered, all of the money in the pot greater than the forecast must be returned to taxpayers. Surpluses in the corporate pot result in a corporate tax credit.

Surpluses in all the other revenues pot result in a personal income tax refund. Taxpayers receive a check by December 1 of the year the biennium ends (odd-numbered years). The refund is an identical proportion of each taxpayer’s personal income tax liability for the prior year. During 2007–09, a $1.1 billion personal income tax rebate was issued. Additionally, the Legislature chose to deposit $319.3 million into the Rainy Day Fund in lieu of issuing a corporate tax rebate. As of the September 2008 forecast, no kicker rebates are expected.

Rainy Day Fund and Education Stability Fund
In 2007, the state established the Oregon Rainy Day Fund, essentially creating a savings account for state government. The fund balance is projected to be $340.6 million by the end of the current biennium. Withdrawals can be made only if at least one of three requirements is met: a decline in employment, a projected budgetary shortfall, or declaration of a state of emergency plus a three-fifths vote.

The Education Stability Fund (ESF) was created through a constitutional amendment approved by voters in 2002. The ESF receives 18 percent of lottery earnings, deposited on a quarterly basis. The ESF has similar triggers as the Rainy Day Fund and is projected to have a balance of $396.2 million at the end of the 2007-09 biennium.

State Spending Limit
The state spending limit was first enacted by the 1979 Legislative Assembly. It limited the growth of General Fund appropriations to the growth of personal income in Oregon. The 2001 Legislative Assembly replaced this spending limit with one tying appropriations for a biennium to personal income for that biennium. The appropriations subject to this limit may not exceed 8.0 percent of projected personal income for the same biennium. The 2003–05 Legislatively Adopted Budget authorized an expenditure limit of 7.6 percent of projected personal income for the biennium, based on the May 2003 revenue forecast. The limit may be exceeded if the governor declares an emergency and three-fifths of the members of both houses vote to exceed it.