It has been a bad month for Oregon’s budget. First, Governor Kulongoski released a report that forecasts a decade of budget shortfalls. Next, the state released the budget forecast for this year showing a $500 million shortfall. Oregon is facing one of the greatest budgetary crises of its history. Our state has a structural budget problem, which is the polite way of saying that our fiscal house is collapsing. A decade of budget shortfalls will impact the safety, prosperity, and education of our families. The fact is the state is spending money faster than the economy is generating tax revenue to fund it. Depending on your political views, this either means a revenue or spending problem.

In business when your cost grows faster than your revenue, it is a cost problem. In our households if we spend our money frivolously, it would be a spending problem. These collective experiences of Oregonians should point to the problem as being a spending problem. Before we get into how to address our structural problems, I want to be clear that this isn’t a judgment on what we spend our money on. This is a discussion about the limitations of the state budget, and what it means to our families.

Last month, the Lane County democratic legislative delegation had a town hall meeting. Because the economy is bad, the state budget came up several times. The delegation claimed that they had cut $2 billion out of the current budget. If you called up House Minority Leader Bruce Hanna (R-Roseburg), he would claim that in 2009-2010 the legislature spent $9 billion more than the previous budget. The budget went up by 16%. How can both sides be correct? Oregon should be able to agree if the budget has gone up or not, right? It seems like a simple question. Well, the problem is something called the effective budget level. Oregon’s use of the effective budget level contributes to our inability to fund essential services.

During the legislative session, the Legislative Fiscal Office (LFO) puts together the effective budget level. The effective budget level looks at the previous budget as a base. The previous budget is then grown based on labor contracts, benefit increases, inflation, and other cost factors. The LFO is estimating inflation from one cycle to the next cycle.

The issue is that the LFO is hiding the growth in employee costs from the legislature. Health care, wage increases, and retirement costs are all major components of the state budget. That cost is built into the budget when it is handed to the legislature. If the budget doesn’t treat raises like increased cost, how do we expect our leaders to work to off set them? Like a lot of Oregon’s problems, the essential budget level creates an information problem for Oregonians. The budget process leads the legislature to fight over money to fund services, instead of addressing increasing costs.

To address that problem, we need to replace the effective budget level with a different budgeting strategy. A budget process called zero-based budgeting. Zero-based budgeting requires that all departments begin with the previous years budget. Departments would have to off-set increases in spending with cuts in other parts of the budget. The goal would be that the budget for the state always sums to zero.

The advantage to this type of budgeting is increased costs are presented as new spending. If health care costs go up, then the state would need to off-set those costs. If the legislature wanted to add programs, the budget would have to be either off-set or it would show to Oregonians as growing. It should be clear to the public when the budget is increasing. Using zero-based budgeting, no one could be able to politically hide from budget increases.

By changing the budget process, we will force ourselves to face our out of control spending. The state needs to address the actual structure of state government. Our forecasted budget shortfalls are a structural problem. Once we see the budgetary reality, we can ask questions about state spending. Does the state have the right amount of state boards and commissions? Do we have the right amount of state departments, and do they have clear responsibilities? Do we have the right amount of offices in the community? Do Oregonians access the state government in the way we want them to in the future?

Looking forward to the next decade, we need to change the way we think about, and spend the state’s money. In the 2010 election cycle, don’t let state candidates hide from spending that is growing faster than revenue. This is our opportunity to act, and put Oregon on sound fiscal footing.