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Gov. Kate Brown proposed a 2017-19 budget Dec. 1 that cuts spending across most areas in state government, while keeping whole K-12 education and programs assisting low-income students with college tuition.

The $20.8 billion budget plan uses a potpourri of cuts and tax increases to fill a $1.7 billion state revenue hole, caused largely by increases in negotiated salaries and benefits and a loss of federal funding for subsidizing health insurance for low-income residents.

"I present this budget as a short-term solution," Brown said. "It is the starting place for a broader conversation about how best to align our resources with our shared values and vision to move Oregon forward."FILE PHOTO - Oregon Gov. Kate Brown

Washington County's highest-ranking lawmaker, Sen. Ginny Burdick, praised the proposed budget, given the difficult financial situation that Oregon faces. "Gov. Brown and her administration have put a considerable amount of thought and hard work into making priorities for a challenging budget cycle," she said.

Burdick, a Democrat, serves an area including Tigard, Metzger, and parts of Bull Mountain and Southwest Portland. She serves as Senate Majority Leader; a member of the Senate leadership team.

"Senate Democrats will carefully review her recommendations as we come together to craft a budget that prioritizes education, critical core state services, and new revenue to stabilize Oregon's fiscal resources," Burdick said.

Brown unveiled her budget proposal at an event Dec. 1 in her ceremonial office at the Capitol.

Brown proposed funding to maintain existing services at the K-12 level, while boosting allocations for two college tuition assistance programs — the Oregon Opportunity Grant and Oregon Promise.

Despite Brown's claim that the plan would maintain K-12 funding, the Oregon School Boards Association issued a statement saying the proposal falls short by about $500 million "of what schools are telling us they need just to maintain current services."

The Legislature's budget-writing body — The Ways & Means Committee — will counter with its budget sometime early in 2017. Lawmakers then will begin the process of dickering between the governor's vision, and the Legislature's vision, to craft the budget.

School districts don't have the luxury of waiting that long. The Beaverton School District, for instance, will begin the process for developing its 2017-18 budget in January.

"The governor's budget is always just the starting point," said district spokeswoman Maureen Wheeler. "Through the legislative process, we're hopeful the number will go higher."

During a listening session last week for its multi-year finance plan, the district estimated that it faces a roughly $20 million deficit based on the governor's budget.

Additional K-12 funding could bring that down to a $9 million deficit.

The district has not yet identified where reductions would come from.

The budget for higher education will remain flat despite increases in costs for existing services, which could mean colleges and universities will have to consider program cuts or tuition hikes. Brown's budget plan also preserves the number of clients who receive subsidies for health insurance under the Affordable Care Act.

Proposed cuts are less severe than the 10 percent to 15 percent across-the-board reductions Brown had predicted before the Nov. 8 election. State agencies face cuts averaging 4.2 percent, but the cuts vary according to the agency.

Education at the K-12 level faces no cuts, while health care could see 16 percent to 25 percent reductions in general fund revenue, said George Naughton, chief financial officer at the Department of Administrative Services.

Agencies are charged with finding specific reductions, such as attrition of nonessential positions and reduction in travel, Brown said.

Other cost-cutting measures call for closing the state psychiatric hospital in Junction City and the youth correctional center in Clatsop County, slashing funding to a program that helps people with developmental disabilities and eliminating a program for families with children who have special needs.

Brown moderated the cuts by proposing several increases in targeted taxes and assessments and closing two tax loopholes. Those measures bring in about $897 million in new revenue.

The tobacco tax would increase by 85 cents per pack under her plan, and a liquor surcharge would climb from 50 cents to $1 per bottle. The plan also involves increasing assessments on hospitals and insurers to the tune of $530 million.

The defeat of the tax measure was a primary topic of statewide business leaders who gathered Monday in Portland for the annual Oregon Leadership Summit. Brown, who gave the keynote speech at the summit, said it is incumbent open those who opposed Measure 97 to provide possible solutions for the state's budget shortfall.

Brown on Monday challenged business leaders to bring her revenue proposals they can support. "You might think that (Measure 97's defeat) puts a tremendous burden on me as your governor to find another way to fund Oregon's future," she said. "But I'm here today to state that the price of victory is responsibility — both for me and for you."

One proposed revenue source under discussion arose in early 2016 by Sen. Mark Hass, D-Beaverton. His idea: levy a small commercial activity tax on corporations.

Hass said last week that he is running numbers on how much revenue could be raised from the tax. His proposal last year would have raised about $500 million.

Not enough tax revenue

Republican House Leader Mike McLane of Powell Butte said the state continues on "an unsustainable fiscal path."

"Despite record revenues and despite what has been described as a roaring state economy, we are being told we don't have enough tax revenue to cover the tab," McLane said.

He said lawmakers need to reduce spending before asking for more taxes.

Much of the state's shortfall stems from reductions in federal funds for the Affordable Care Act and the unfunded liability of the Public Employees Retirement System.

And the business community has signaled it wants PERS reforms before accepting any new business taxes.

An Oregon Supreme Court ruling in 2015 scuttled many of the reforms lawmakers had sought to make in the past, and lawmakers will be curtailed by that ruling in any future attempts at reform.

The governor had endorsed a corporate sales tax measure that would have boosted state revenue by $6 billion every two years. But with Ballot Measure 97's defeat last month, Brown has backed away and taken a hands-off approach to revenue reform and proposing any additional taxes on business. Lawmakers on the Legislature's revenue committees are discussing potential revenue packages.

Brown's proposal "will definitely prompt debate," said Senate President Peter Courtney, D-Salem, in a Dec. 1 statement. "Oregon faces enormous budget challenges for the next two years. Meeting those challenges will require us all to work together. The process doesn't end today. It is just beginning."

The next step is for the Legislature's Joint Ways and Means Committee to propose a budget early next year. Committee members will seek public input on those proposals.

Lawmakers have yet to make any concrete proposals for other forms of revenue. Sen. Mark Hass, D-Beaverton, chairman of the Senate revenue committee, said lawmakers are discussing reviving a proposal for a commercial activity tax that he and Rep. Mark Johnson, R-Hood River, tried to pass in 2016 as an alternative to Measure 97. The tax would have less of an impact on corporations but also would raise significantly less revenue than Measure 97.

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