The Governor’s Budget: Much More Than Beer Money

Governor John Kitzhaber released his proposed 2015-17 budget this week. Critics were quick to argue that it’s either too much or too little, depending on their point of view. Media reports focused on his General Fund budget which, at $18.6 billion, would be an eleven percent increase over the current budget.

In an attempt to make this number seem inconsequential, one person commented on an Oregonian story that $18.6 billion over two years works out to about $6.50 per day per Oregonian. He characterized that as less than the price of one beer at a Blazer game, and noted that with the Governor’s budget “you get a whole state, and you’re only renting the beer.”

But that’s less than one third of the story. While the General Fund is, in effect, the discretionary part of the budget funded primarily by state income tax revenue, the All Funds budget is much larger.

At $66.5 billion, the Governor’s All Funds budget proposal is more than three-and-a-half times bigger than the $18.6 billion General Fund amount. Much of that comes from fees and federal funds, but it’s still our money.

So, in the words of that one-beer-a-day commenter, the Governor’s total budget proposal actually would buy every Oregonian three Blazer game beers a day. Put in a more meaningful way, that’s $16,625 over the two-year period for every man, woman, and child in the state. Or, $66,500 for a family of four. Now that’s real money.

Oregon’s Budget Transformation

Governor John Kitzhaber has called for transforming state government, in part by proposing a new ten-year budget process that he says “is necessary to change a decade of declining employment and wages.” The Governor hired former Metro Chief Operating Officer Michael Jordan to implement this transformation, while leading and supervising all aspects of the state’s day-to-day operations as its first COO. Jordan’s charge includes reviewing outdated state systems, streamlining departments, and creating efficiencies and cost savings.

The transformation process includes a set of Guiding Principles and Outcome-Based Budgeting Principles that sound good but so far fail to address adequately at least four important concerns:

First, Government cannot and should not do everything. Determining core functions and prioritizing them should be the first step to achieving more accountability in state government.

Many state agencies don’t have a clear understanding of what their priorities should be. This concern was highlighted in a legislative hearing where the head of an agency was asked by a freshman legislator what his highest priority activities were.* Without hesitation, the agency head looked at the freshman and told him that everything his agency did was high priority.

The legislator then asked what would be cut if the agency budget ended up smaller than requested. The agency head stated, again without hesitation, that he couldn’t cut anything. He repeated that everything his agency did was a top priority.

If everything is a top priority, then nothing is a top priority.

The proper role of government in a free society clearly includes the protection of our rights to life, liberty, and property. But just as clearly, for example, it should not include provision of our jobs, entertainment, and alcohol. We should be willing to end state economic development programs, which do not create jobs so much as they pick winners and losers in the economy.

We need to end state control of liquor through the OLCC, and we should not even consider using tax dollars to fund entertainment venues such as sports stadiums. These belong in the private sector.

Of course, sticking to core functions is hard, especially because of the misguided belief that anyone’s unmet need is the proper concern of government. It is not. The average person can’t afford the time in Salem to lobby against any given program that may only cost him or her a few dollars a year. However, it is well worth the time for those who benefit from a program to spend as much time and money as needed to ensure that the millions or billions of dollars at stake move from the taxpayers to them.

The pressure is always in favor of more government, not less. To resist this pressure, lawmakers need to understand government’s proper role and the harm they do when taking money from some to provide benefits to others. Citizens need to learn why more government means less freedom and how they might meet their needs better through voluntary, private sector approaches.

Second, we need to understand why one of the Governor’s 10-Year Plan Guiding Principles—the reliance on evidence-based information to make informed policy decisions—hasn’t worked before and may not work in the future.

In the late 1980s, then-Senator President John Kitzhaber relied on this principle when he helped create the Oregon Health Plan (OHP). The Plan attempted to use medical and scientific evidence to prioritize treatment of medical conditions for Medicaid patients based on cost-benefit analysis. The problem then was (and likely will be now) that politics gets in the way.

Medical conditions that objectively should have fallen below the cutoff line in the OHP rose above the line because special interest groups successfully lobbied for their constituents. Consequently, the plan saved little, if any, money for taxpayers. As long as government provides the service, or provides the funding, this dynamic will be hard to change.

Third, achieving streamlined operations and cost savings through consolidation of agencies, boards, and commissions will be harder than it sounds.

Forces are at work in large firms and governments that cause them to produce goods and services at increased per-unit costs. Economists call these forces diseconomies of scale. They are especially prevalent when trying to combine monopolies―which defines government agencies.

Take, for example, Oregon’s attempt from 1992 through 2001 to reduce education costs by consolidating school districts. Legislation resulted in 277 school districts being consolidated down to 198. Rather than fewer districts resulting in less administrative overhead, at the end of the period there were actually more central office staff per pupil than at the beginning. Also, non-teaching staff grew faster than teachers, and real per student spending rose more than 11 percent. We should not be surprised if upcoming efforts to consolidate boards, commissions, and agencies yield similar results.

Finally, as famed management consultant Peter Drucker warned: “There is nothing so useless as doing efficiently that which should not be done at all.”

This gets us back to the first concern above. Unless we prioritize core functions, and stop doing other things, state government will expend a lot of energy, and a lot of taxpayer dollars, trying to do efficiently that which government should not be doing at all.

* House Agency Oversight and Efficiency Committee, Oregon Legislature, April 8, 1997. Rep. Ryan Deckert (D) questioning William Scott, Director, Oregon Economic Development Department.

Testimony in opposition to SB 1581 before the Senate Committee on Education and Workforce Development

Opposing More Top-Down Control of Oregon Education

Chair Hass, Co-Chair Morse, and members of the Committee, my name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, a non-partisan, non-profit public policy research organization based in Portland. Our mission is to promote policies that enhance individual liberty, personal responsibility, and economic opportunity in Oregon.

I’m here to oppose SB 1581 because I believe that the legislature is continuing to fall into the “bigger is better” trap. The goal of unifying everything from early childhood through graduate school education can’t be accomplished without pushing power and control even farther away from the people who should matter most—parents and students. This bill, by giving even partial control over a number of positions in Oregon’s public education system to the new Chief Education Officer, simply continues movement into that trap.

Before you approve any further Oregon Education Investment Board legislation, please ask yourselves how it squares with the Oregon Education Act for the Twenty-First Century, which overwhelmingly passed the legislature in 1991 when Governor Kitzhaber was President of the Senate.

It was full of new committees, new high school CIM and CAM tests (which were eventually abandoned), and a promise from the legislature that it would produce “the best educated citizens in the nation by the year 2000.” So, how did that work out?

In both 2010 and 2011, Education Week’s Annual Education Report Card gave Oregon a grade of C-. It ranked our public education system 43rd in the nation―not exactly best in the nation.

And how does this new effort square with the Quality Education Model, which then Governor Kitzhaber supported in 1999 by appointing the Quality Education Commission? The Model proposed entirely theoretical prototype elementary, middle, and high schools that, again theoretically and with enough funding, would get 90% of our kids to state standards. Does anyone really think that spending another two billion dollars this biennium, as the Model suggests, would do any such thing?

Why haven’t such big revolutionary reform efforts in the K-12 education system achieved their goals? Because, they “…suck power upward and away from parents and students into top down, centralized and inflexible political arrangements, where unions and other special interests have more political clout. This causes accountability to decline and results in higher per pupil costs and lower educational results.”*

Is the answer really to produce an even broader revolutionary reform effort, putting everything from early childhood education through graduate school into one centrally planned system?

I’m sure the Governor and the people he’s appointed to the Investment Board are very smart people. But no such group can hope to design a system that meets the needs of all Oregon children and their parents.

In conclusion, I want to quote from a 1991 Wall Street Journal column, “Education by Committee in Oregon,” in which we warned what would happen if the “revolutionary” Oregon Education Act for the Twenty-First Century went forward:

“…[T]o be ‘revolutionary,’ educational change must be systemic. It must reform the system, not just add to it. Oregon’s educational reformers are unwittingly legitimizing the very system that needs reform. Well-meaning politicians have once again increased state control over education in order to mandate desirable goals. The Oregon plan provides the nation with an important lesson in reform: how easy it is to fall into the bureaucratic trap of good intentions.”

Our 1991 critique could just as easily be said about the current “revolutionary” reforms through the Investment Board. It’s time to stop increasing state control over education and start moving accountability and control down toward parents and students.

Thank you.

 

* John T. Wenders, Ph.D., “Deconsolidate Oregon’s School Districts,”
Cascade Policy Institute, March 2005.

 

The Oregon Health Plan: A Policy Placebo

Cascade Commentary

The Oregon Health Plan: A Policy Placebo
by Eric Fruits

The Oregon Health Plan has been called a “bold experiment” designed to expand health insurance to Oregon’s low-income residents. Its promoters promised the impossible: To expand health insurance coverage while simultaneously controlling costs and fostering provider participation. These promises would be met by the explicit rationing of care through a prioritized list of conditions and treatments. However, like the experimental drug that performs no better than a placebo, Oregon’s bold experiment has produced results that are not significantly different from the outcomes seen by the U.S. as a whole. In this way, the experiment has failed.

Expanding coverage. When John Kitzhaber first proposed the Oregon Health Plan in the late 1980s, he claimed that nearly 20 percent of Oregonians did not have health insurance, a claim that state agencies have echoed ever since. Unbeknownst to them, however, their data was incorrect. Revised estimates by the U.S. Census Bureau show that between 1987 and 1989, only 14.5 percent of Oregonians were uninsured, a percentage that was not much different from the U.S. as a whole. Indeed, census data show that the rate of uninsured during the life of the Oregon Health Plan has not been significantly different from the U.S. as a whole. In the end, one cannot confidently conclude that the Oregon Health Plan had any significant and sustained impact on reducing the number of uninsured as a share of Oregon’s population.

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The Oregon Health Plan: A Policy Placebo

Cascade Commentary

The Oregon Health Plan: A Policy Placebo
By Eric Fruits, Ph.D

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The Oregon Health Plan has been called a “bold experiment” designed to expand health insurance to Oregon’s low-income residents. Initially, the experiment had bipartisan support. The plan’s chief architect was John Kitzhaber, a Democratic state senator turned governor who is currently running for a third term as governor. The plan’s chief advocate in Washington, D.C. was Republican Senator Bob Packwood. Its promoters promised the impossible: To expand health insurance coverage while simultaneously controlling costs and fostering provider participation. These promises would be met by the explicit rationing of care through a prioritized list of conditions and treatments. The rationing plan generated international headlines, and the rollout of the plan prompted physicians and politicians from around the world to visit Oregon to see the bold experiment in action. However, like the experimental drug that performs no better than a placebo, Oregon’s bold experiment has produced results that are not significantly different from the outcomes seen by the U.S. as a whole. In this way, the experiment has failed.

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The Failure of the Oregon Health Plan

Steve Buckstein

QuickPoint!

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by Steve Buckstein

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A new report by Cascade Policy Institute looks at how well the Oregon Health Plan met its promised goals. Launched in 1994, the Oregon Health Plan sought to use a prioritized list of conditions and treatments to simultaneously expand coverage, control costs and foster provider participation in the state’s Medicaid system for low-income residents. By explicitly rationing care, the plan was called a “bold experiment” and was supported by political leaders of both major parties.

Now, sixteen years later, the report’s authors find that:
“[L]ike the experimental drug that performs no better than a placebo, the Oregon Health Plan has produced results that are not significantly different from the outcomes seen by the U.S. as a whole.”

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Sweet Sixteen?

Laura Lewis

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by Laura Lewis

Sweet Sixteen?

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While John Kitzhaber is gearing up for November’s gubernatorial election, this year marks the sixteenth birthday of the Oregon Health Plan (OHP), Oregon’s innovative prioritized list system which Kitzhaber spearheaded as president of the Oregon Senate in the early 1990s. The prioritized list, a statement of conditions and treatments ranked by effectiveness and cost, was designed to contain costs while providing health care to more individuals.

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Rationing Political Discussion

Steve BucksteinQuickPoint!


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Former governor and emergency room physician John Kitzhaber held a live Facebook conversation on health care reform last week. Wanting to be Governor again, he billed it as a way to collaborate with Oregonians to “create policies that work for Oregon.”

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