Gov. Kate Brown Thursday proposed a 2017-19 budget that cuts spending across most areas in state government, while keeping whole K-12 education and programs assisting low-income students with college tuition.

The $20.8 billion budget plan uses a potpourri of cuts and tax increases to fill in a $1.7 billion state revenue hole, caused largely by increases in negotiated salaries and benefits and a loss of federal funding for subsidizing health insurance for low-income residents.

“I present this budget as a short-term solution,” Brown said. “It is the starting place for a broader conversation about how best to align our resources with our shared values and vision to move Oregon forward.”

She unveiled her budget proposal at an event Dec. 1 in her ceremonial office at the Capitol.

Brown proposed funding to maintain existing services at the K-12 level, while boosting allocations for two college tuition assistance programs — the Oregon Opportunity Grant and Oregon Promise.

Despite Brown’s claim that the plan would maintain K-12 funding, the Oregon School Boards Association issued a statement saying the proposal falls short by about $500 million “of what schools are telling us they need just to maintain current services.”

The budget for higher education will remain flat despite increases in costs for existing services, which could mean colleges and universities will have to consider program cuts or tuition hikes. Brown’s budget plan also preserves the number of clients who receive subsidies for health insurance under the Affordable Care Act.

Proposed cuts are less severe than the 10 to 15 percent across-the-board reductions Brown had predicted before the Nov. 8 election. State agencies face cuts averaging 4.2 percent, but the cuts vary according to the agency.

Education at the K-12 level faces no cuts, while health care could sustain 16 to 25 percent reductions in general fund revenue, said George Naughton, chief financial officer at the Department of Administrative Services.

Agencies are charged with finding specific reductions, such as attrition of nonessential positions and reduction in travel, Brown said.

Other cost-cutting measures call for closing the state psychiatric hospital in Junction City and the youth correctional center in Clatsop County, slashing funding to a program that helps people with developmental disabilities and eliminating a program fo families with children who have special needs.

Brown moderated the cuts by proposing several increases in targeted taxes and assessments and closing two tax loopholes. Those measures bring in about $897 million in new revenue.

The tobacco tax would increase by 85 cents per pack under her plan, and a liquor surcharge would climb from 50 cents to $1 a bottle. The plan also involves increasing assessments on hospitals and insurers to the tune of $530 million.

Not enough tax revenue

Republican House Leader Mike McLane of Powell Butte said the state continues on “an unsustainable fiscal path.”

“Despite record revenues and despite what has been described as a roaring state economy, we are being told we don’t have enough tax revenue to cover the tab,” McLane said.

He said lawmakers need to reduce spending before asking for more taxes.

Much of the state’s shortfall stems from reductions in federal funds for the Affordable Care Act and the unfunded liability of the Public Employees Retirement System.

And the business community has signaled it wants PERS reforms before accpeting any new business taxes.

An Oregon Supreme Court ruling in 2015 scuttled many of the reforms lawmakers had sought to make in the past, and lawmakers will be curtailed by that ruling in any future attempts at reform.

The governor had endorsed a corporate sales tax measure in November that would have boosted state revenue by $6 billion every two years. With Measure 97’s defeat, Brown has backed away and taken a hands-off approach to revenue reform and proposing any additional taxes on business. Lawmakers on the Legislature’s revenue committees are discussing potential revenue packages.

Brown’s proposal “will definitely prompt debate,” said Senate President Peter Courtney, D-Salem, in a Dec. 1 statement. “Oregon faces enormous budget challenges for the next two years. Meeting those challenges will require us all to work together. The process doesn’t end today. It is just beginning.”

The next step is for the Legislature’s Joint Ways and Means Committee to propose a budget early next year. Committee members will seek public input on those proposals.

Lawmakers have yet to make any concrete proposals for other forms of revenue. Sen. Mark Hass, D-Beaverton, chairman of the Senate revenue committee, said lawmakers are discussing reviving a proposal for a commercial activity tax that he and Rep. Mark Johnson, R-Hood River, tried to pass in 2016 as an alternative to Measure 97. The tax would have less of an impact on corporations but also would raise significantly less revenue than Measure 97.