Gov. Kate Brown’s budget proposes prison closures and cuts to healthcare providers

Gov. Kate Brown would close three Oregon prisons in the next two years, while seeking to hold the line on health care services and expanding access to housing and education for communities of color, under a $25.6 billion proposed spending plan released Tuesday.

An overview of Brown’s proposed 2021-23 budget — more narrative than hard numbers — paints a picture of a state facing extreme challenges brought on by wildfire and COVID-19, and working to address ongoing calls for racial justice. And while it leans heavily on a hope that Congress will come through with billions of dollars to assist some of those problems, the governor’s budget proposal is not nearly as dire as some might have expected earlier in the year.

Related: Oregon’s budget picture holds steady, but coronavirus looms

“Oregon will recover from the pandemic and the wildfires, and as we do, our budgets, policy agenda, and priorities must reflect, support, and honor the communities who bore the brunt of the devastation,” reads a 54-page summary of the governor’s proposed budget, a document that takes pains to emphasize the need to include and prioritize people of color in every aspect of public services.

Brown also suggests sacrifice will be necessary, as lawmakers begin work to craft what will be the state’s official budget for the next two years. The proposal released Tuesday reflects the governor’s priorities for that budget, but will likely vary substantively from the document that actually arrives on her desk next year.

“The pandemic has led to a state budget shortfall that will require not only scrapping plans for long-needed investments, but also making small but difficult cuts in services and programs that affect Oregonians’ lives daily,” the budget document said. In a meeting with reporters, Brown called the plan “a budget built on sacrifice and hard choices.”

In broad strokes, Brown’s budget would keep the state’s main school fund relatively static, at $9.1 billion, while at the same time tapping a new business tax for schools and urging lawmakers to use $215 million in emergency money to fund a variety of priorities, like expanded preschool access and enhanced science, math, engineering and technology learning.

In a statement Tuesday, Oregon School Boards Association Executive Director Jim Green called the proposal “a starting point, especially in focusing on equity and addressing the needs of underserved students. But Oregon still has a long way to go to make up ground our students have lost during the pandemic.”

The plan is less giving to public community colleges and universities, which Brown has proposed holding to flat funding. That’s a proposal that legislative budget writers might be loath to accept, as they were when Brown suggested the same thing in 2018.

Brown’s budget also makes housing and homelessness a priority, proposing increased spending on top of record spending on affordable housing in the current budget. Keeping with her persistent theme of equity, Brown has proposed creating a program to help Black, Indigenous and other people of color afford down payments on homes.

But Brown said the state faces funding challenges — particularly in health care, where the pandemic has contributed to an additional 150,000 Oregonians joining the Oregon Health Plan, the state’s version of Medicaid. Even with a new tobacco tax hike set to go into effect, the governor said the increased enrollment has created a gap of $418 million. Some of that gap will require “cost savings and asking our already-stressed health system to share in the sacrifice” via things like lower than anticipated compensation for healthcare providers.

The proposed cuts in state reimbursements got a frigid reception from hospitals, which said they were briefed on the proposal Tuesday morning. Becky Hultberg, president and CEO of the Oregon Association of Hospitals and Health Systems, said the timing was ill-advised.

“She has chosen to propose direct cuts to hospitals in the middle of the biggest public health crisis in a century,” Hultberg told OPB. “Cuts of this magnitude could force hospitals to reduce service to Oregonians during a pandemic.”

Hospital systems were still in the process of quantifying what potential cuts might mean, Hultberg said. Brown said she viewed her proposal as a starting point, and the she wanted to “come together and come up with a package” to plug the budget gap in coming months.

At the same time as Brown contemplates cuts, the governor said she wants to lay the policy groundwork for a state public option for health care that “could increase choice while reducing costs for Oregon consumers.”

Brown is proposing a $10 million pilot program to expand an existing state program providing health care to undocumented children. The so-called “Cover All People” program would provide health care to undocumented adults.

The governor is also going further than expected in altering Oregon’s prison landscape. She proposes the staggered closure of three of the state’s 14 prisons: first Mill Creek Correctional Facility in Salem, then Shutter Creek Correctional Institution in North Bend, and finally Warner Creek Correctional Institution in Lakeview. Combined, the three facilities can hold nearly 1,100 inmates. Brown said the prisons are no longer necessary to support the state’s incarcerated population.

“Oregon no longer needs to maintain costly prison capacity and can now move forward with reductions in beds while maintaining appropriate supervision of adults in custody and keeping Oregonians safe,” the governor’s budget document said. The prison closures would be staggered between July 2021 and 2023 and would generate nearly $50 million in ongoing savings and deferred maintenance.

Brown has long been expected to float prison closures, after the Legislature this year declined to defund two of the prisons now on her cut list. But the proposal is likely to generate heat — particularly from North Bend and Lakeview, whose residents have said they rely on their prisons for economic prosperity.

The governor acknowledged that Tuesday, but said she was committed to taking on mass incarceration in the state.

“My vision for the future of the prison system is that the state will no longer invest in extensive and expensive buildings, but instead invest in people,” Brown said. The state will work to work to re-employ corrections workers laid off as a result of the closures, she said.

The budget also assumes lawmakers will adopt several revenue-raising measures, some of which have failed to get support in past years. According to Christian Gaston, Brown’s incoming budget director, those assumptions include the elimination of special tax rates for so-called “pass-through entities,” and ending taxpayers’ the ability to claim a tax deduction for mortgage interest on second homes.

Brown is also proposing the state disconnect from certain federal tax breaks that were built into the CARES Act that Congress passed earlier this year. Since Oregon automatically adopts federal tax breaks, they are now applied to state tax returns as well. Lawmakers in recent months have been studying the idea of eliminating those breaks. Doing so would net the state more than $88 million, Gaston said.

Not completely clear from Brown’s budget summary is how the state will be impacted if Congress does not come through with another aid package to blunt the impacts of the coronavirus pandemic. The governor said new federal aid will be necessary for Oregon to carry out testing, support businesses, and allow the state to forgive up to $350 million in unpaid rent, but it’s far from clear that Congress will pass a plan that meets all of the governor’s goals.

Related: Bipartisan group of lawmakers reveals $908 billion coronavirus aid compromise

Also unclear is how many more cuts state agencies might face. Oregon’s tax revenues have not been as hurt by the pandemic as initially feared, and in fact are expected to increase for the next biennium. Those increases, though, will be offset by an increase in the cost of services, meaning the state’s Department of Corrections is likely not the only agency facing cuts.

Oregon Legislators crafting a budget next year will have more information about the size of any federal package, and the state’s most current revenue outlook.

Other notable elements of Brown’s proposal:

• $73.7 million in additional money for fire preparedness, and nearly $360 million for cleaning up and rebuilding communities impacted by this year’s wildfires.
• $20 million to help close the pay gap between prosecutors and public defenders, a longstanding issue in the state.
• A pledge by Brown to introduce legislation next year to implement bail reform, so that low-income defendants are not held in jail while those with money go free.
• Brown also said she will urge lawmakers to allow same-day voter registration, and to allow ballots to be accepted if they have been postmarked by Election Day.
• $146.4 million to “fully modernize the employment department’s delivery system” and implement a Paid Family Leave Insurance system. The state received more than $80 million in 2009 to update its unemployment system.
• $118 million for broadband expansion in both urban and rural communities.

Editor’s note: This story has been updated to reflect the correct name of Oregon School Boards Association Executive Director Jim Green.