Will Oregon face a $1.4 billion deficit? It depends.
State agencies submitting budget requests for the next biennium are facing the challenge of planning for both growth and cutbacks, according to George Naughton, Oregon's chief financial officer and acting chief operating officer.
He said the state may face a $1.4 billion discretionary spending deficit in the next biennium — give or take $500 million. Officials have said that whether cuts occur depends in part on if voters approve a new corporate tax.
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As acting COO, Naughton is the governor's primary state government manager. He sat for a wide-ranging interview last week with the Statesman Journal at the Executive Building in downtown Salem.
Expenditures are rising in part because Oregon's expanding population means higher demand on state services. Also boosting costs by billions are an Oregon Supreme Court decision limiting cuts to public pension benefits and the state paying an increasing share for Affordable Care Act services.
The corporate tax measure on the ballot is called Initiative Petition 28, and would create a 2.5 percent tax on corporate sales exceeding $25 million.
The tax would raise an estimated $6 billion in revenue each biennium, according to estimates from the Legislative Revenue Office. That's more than enough for agencies to hire new employees, expand programs or create new ones.
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Along with submitting budget requests in August and September, agencies produce "reduction options" outlining their service levels under a hypothetical 10 percent budget cut, Naughton said.
Those plans are sent through Naughton's agency, the Department of Administrative Services, to Gov. Kate Brown, who will release a proposed balanced budget on Dec. 1. The state Legislature approves the final budget.
This budget is unfolding like all others; agencies always plan for expansion and cuts, creating wish lists for what to fund if new revenue is found, along with who and what to slash if cuts are necessary.
Yet this cycle is different because the possible growth or cuts are at further extremes than usual, said Naughton.
Naughton has worked with the state budget for 20 years, at first in health care policy, and was promoted to CFO by Gov. Ted Kulongoski in 2006. He became acting COO and DAS director in March 2015, when DAS Director Michael Jordan abruptly resigned amid questions about the agency's handling of Gov. John Kitzhaber's private email server.
As Naughton assumed the CFO and COO roles, Clyde Saiki, a long-time state administrator, was tapped by Brown to lead DAS. Saiki took over for two months until Brown reassigned him as acting director to the struggling state Department of Human Services. (Saiki has since been confirmed by the Senate as the permanent head of DHS.)
Naughton went back to being COO and CFO. He hasn't been shy about his desire to serve exclusively as CFO following the November election. In the meantime, there is much to be done.
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As acting DAS director, Naughton has a hand in much of state business. Along with the budget, DAS handles state procurement, IT and data security, asset management, bond administration, HR and labor relations, real estate, risk management and more.
Naughton chairs biweekly meetings of the Enterprise Leadership Team, a group of 20 or so state agency directors or chiefs of staff. The group started meeting several years ago to talk about state government and encourage cross-agency communication. Naughton said it's working, albeit slowly.
Similarly, the state — which is "probably behind the curve" in its use of technology, according to Naughton — is modernizing computer systems to communicate with each other, he said. Major state computer systems, like those that handle accounting, taxation and human resources, are being updated from decades old technologies.
As for Brown, who is seeking reelection for the first time, Naughton said he's known the governor for years and praised her affable demeanor.
"When you spend time with Gov. Brown you really get the impression that she cares about you as a person," he said.
Naughton's agency works in close concert with governors and their staffs as they make budgetary value judgments: who gets how much money, and for what.
He called the process "messy," especially when it comes to the hypothetical budget cuts. "It's always a painful process. Every agency hates going through it ... If it's your job that's on that hypothetical list, it's very unnerving for folks," he said.
Oregon's economic forecast looks good, Naughton said. But the state's revenue is more volatile than elsewhere because of its reliance on income taxes, which can reflect tumult in the markets.
Naughton said analysts will have a better idea of the true budget situation when revenue forecasts are released in September and November.
Send questions, comments or news tips togfriedman2@statesmanjournal.com or 503-399-6653. Follow on Twitter@GordonRFriedman