1. Public Policy Analysis ECON 439/539 May 16, 2007 George Naughton Department of Administrative Services Budget and Management Division (503) 378-5460

2. 2 Highlights of Oregon Economy Oregon’s economy continues to show improvement and is well positioned for growth in 2007 and beyond Employment picture in Oregon has been strong since 2003 Oregon’s basic strengths –Diverse economy with substantial international presence –Relatively lower energy costs –A high quality of life –Well-educated workforce –Affordable housing –Business cost advantages –Pacific Rim orientation Oregon’s economic growth is on track due to the following factors –Strong population growth due mainly to in-migration –National rebound in corporate spending –Increased trade and exports

3. 3 Population Growth Oregon’s strong economy has continued to add to the State’s population growth and such growth is projected to continue well into the future Projected

4. 4 Decennial Population Growth (in percent): 1990 – 2000 CLATSOP WASHINGTON MULTNOMAH COLUMBIA DOUGLAS LANE LINCOLN POLK YAMHILL TILLAMOOK MARION COOS DESCHUTES MALHEURHARNEYLAKEKLAMATHJACKSON JOSEPHINE CURRY HOOD RIVER BENTON LINN JEFFERSON CROOK WALLOWA UMATILLA MORROW GILLIAM WASCO SHERMAN WHEELER GRANT BAKER UNION > 20 % Source: U.S. Census Bureau, 1990 and 2000 Censuses CLACKAMAS Office of Economic Analysis Population Change 10 – 20 % Less than 10 % Oregon: 20.4%

5. 5 Long-Term Employment Trends Oregon’s overall employment trends have mirrored the U.S. with slightly more job loss during the recession but stronger recent and projected growth Source: Office of Economic Analysis The Oregon economy follows the path of the national economy Job growth turned positive in July 2003 and is positive for almost all sectors of the economy Oregon’s employment growth will continue to be fueled by strong exports, population growth and business investment Projected

6. 6 Robust Job Growth All sectors have added jobs since the employment trough of June 2003 Total Job Growth through August 2006: 151,100

7. 7 Oregon Exports Oregon enjoys a wide range of trading partners Source: MISER, 2006 (Note: Smaller trading partners totaling 14.10% are not listed) North/Central America Europe Asia/Australia

8. 8 Budget Process Overview Agency Request Governor’s Recommended Budget Legislatively Adopted The budget process has four major cycles: Budget Execution

9. 9 Continuous Development Constant

10. 10 Legislatively Approved Budget organized by agency and program. Base Budget adjustments: –Salary and benefit increases Essential packages: –Phase-ins/phase-outs/one-time expenditures –Inflation increases –Mandated caseload adjustments for some programs. Modified Zero-Based Budget

11. 11 Policy packages: –Other Funds and Federal Funds expenditure reductions required by declining revenues. –Adjustments due to emergency legislative action. –Policy and program changes: New or expanded programs. Increased funding for existing programs. Funding to support legislative concepts. New capital construction and information technology projects. Debt service on new projects. Modified Zero-Based Budget (cont)

12. 12 Budget Framework Principles that Transcend the Decision-Maker Must Balance within available resources Start with mandatory items. Implement core missions: –Focus on the essentials. –Emphasize programs with widely-distributed benefits. Target investment where it will provide the most impact in the long run: –Focus on prevention. Reduce overhead costs. Plan for the Future

13. 13 General Fund Forecast Comparison Fiscal Years, in Millions

14. 14 Lottery Resources Available to the State Office of Economic Analysis Note: Resources do not include Video Lottery proceeds dedicated to the Counties. Beginning balance is included. 2003-09 debt service figures do not reflect any Education Endowment Fund or reserve earnings designated for debt service on education bonds.

15. 15 2007-09 Governor’s Budget Total Funds

16. 16 2007-09 Governor’s Budget General Fund and Lottery Funds * Includes beginning balance & carry forward

17. 17 General Fund and Lottery Funds Budget Trends Overall Expenditure General Fund and Lottery Trends General Fund & Lottery Funds Budgets Over Past Three Biennia $11,053 million $12,478 million $14,929 million

18. 18 Expenditures by Category General Fund and Lottery Funds 2007-09 Total: $14,929 million

19. 19 What has caused the General Fund expenditure growth since 1989? Primary –Population –Initiatives –Policy decisions Secondary –Inflation –Lawsuits

20. 20 State and Local Resources for K-12 School Funding Billions of Dollars

21. 21 Inflation-Adjusted K-12 School Funding Allocation per ADMw

22. 22 Community College Support Fund Per Student

23. 23 Oregon University System Education & General Services General Fund and Other Funds Per Student

24. 24 Estimated Impact of Measure 11 on Oregon's Prison System

25. 25 Department of State Police 2007-09 Governor’s Recommended Budget Sworn Patrol Positions

26. 26 Poverty Rate, 1999 CLATSOP WASHINGTON MULTNOMAH COLUMBIA DOUGLAS LANE LINCOLN POLK YAMHILL TILLAMOOK MARION COOS DESCHUTES MALHEURHARNEYLAKEKLAMATH JACKSON JOSEPHINE CURRY HOOD RIVER BENTON LINN JEFFERSON CROOK WALLOWA UMATILLA MORROW GILLIAM WASCO SHERMAN WHEELER GRANT BAKER UNION > 15 % Source: U.S. Census Bureau, Census 2000 CLACKAMAS Office of Economic Analysis % of persons under poverty 10 – 15 % Less than 10 % Oregon: 11.6%

27. 27 Estimated Poverty Rate, 2004 CLATSOP WASHINGTON MULTNOMAH COLUMBIA DOUGLAS LANE LINCOLN POLK YAMHILL TILLAMOOK MARION COOS DESCHUTES MALHEURHARNEYLAKEKLAMATH JACKSON JOSEPHINE CURRY HOOD RIVER BENTON LINN JEFFERSON CROOK WALLOWA UMATILLA MORROW GILLIAM WASCO SHERMAN WHEELER GRANT BAKER UNION > 15 % Source: U.S. Census Bureau, Data Integration Division, Small Area Estimates Branch CLACKAMAS Office of Economic Analysis % of persons under poverty 10 – 15 % Less than 10 % Oregon: 12.9%

28. 28 2007-09 General Fund Revenue Forecast Including Impact of Kicker Calculation (December 2006 Forecast) 2007-09 General Fund Resources ($ Millions) Beginning Balance $1,363.9 Structural Revenues Personal Income Tax $12,274.8 Corporate Income Tax 839.0 All Other Revenues 861.2 Gross General Fund Revenues $13,975.0 Person Kicker Refunds (1,097.5) Corporate Kicker Credit (275.1) Net General Fund Revenues $12,602.4 Proposed Governor Changes $19.3 Net Available Resources $13,985.6

29. 29 2007-09 General Fund Budget Projections (December 2006 Forecast) Revenues Beginning Balance $1,363.9 Projected Net General Fund Revenues – Current Law 12,602.4 Proposed Governor Changes 19.3 Total Resources $13,985.6 Expenditures – Governor’s Budget Cost of Continuing Existing Programs $13,001.9 Program Enhancements / Policy Packages / Employee Compensation Changes 808.8 General Purpose Emergency Fund 30.0 Total Expenditures $13,840.7 Ending Balance $144.9

30. 30 2007-09 Governor’s Recommended Budget Budget Reserves Projected Reserves ($ Millions) 2005-072007-09 Ending Balance/Emergency Fund$ -*$ 175 Education Stability Fund232452 Rainy Day Fund (Corporate Kicker) - 275 TOTAL$ 232$902 * Reflect Ending Balance after distribution of $1.3 billion kickers.

31. 31 Budget Framework Principles that Transcend the Decision-Maker Must Balance within available resources Start with mandatory items. Implement core missions: –Focus on the essentials. –Emphasize programs with widely-distributed benefits. Target investment where it will provide the most impact in the long run: –Focus on prevention. Reduce overhead costs. Plan for the Future