Here are five takeaways from the two-year state budget that Gov. Tina Kotek recommended to lawmakers last week.

Her stated priorities for her first year in office: Housing and homelessness, mental health and addiction treatment, and targeted programs for public schools. Another question is about the perennial issue of how much money goes to Oregon’s 197 school districts, and the other is about how Kotek proposes to spend more money and balance the budget without raising taxes.

“We are not going to solve all the state’s problems within a single budget cycle,” she said in her message. “And with one-time federal resources expiring, future budget cycles may present difficult choices. That should not dissuade us, however, from demanding more and working hard to deliver results for Oregonians.”

Lawmakers have until June 30 to approve a series of agency and other budgets that constitute state spending for the next two-year cycle.

State School Fund

How much Oregon’s 197 districts draw from the state school fund remains important in the budget debate, ever since voters in 1990 approved statewide limits on local property taxes and shifted the burden of school operating costs to the state budget, which relies on income taxes.

Kotek has proposed $9.9 billion for the state school fund, up from the $9.3 billion approved two years ago. (The fund also got $851 million in excess corporate income taxes in 2021, but that amount is excluded from the base.)

Part of the fund draws from a corporate activity tax that lawmakers approved in 2019, but most of those proceeds are earmarked for school improvement projects.

“It is definitely a starting point for the session. It is higher than what analysts were requesting months ago,” Kotek told reporters at a briefing Jan. 31. “But I know there is a higher ask out there. I suspect we will have robust conversations during the session about how we get that number higher.”

Kotek’s budget is based on the revenue forecast released Nov. 16, but there are two more forecasts before lawmakers make final decisions.

The Oregon Education Association — whose political action committee was a major supporter of Kotek — and the Oregon School Boards Association say they want a no-cuts amount of $10.3 billion.

OEA President Reed Scott-Schwalbach said this in reaction:

“As students in Oregon continue to recover from not only the educational, but also the social and emotional impact of the pandemic, it is more important than ever for lawmakers to pass a budget that avoids any cuts to services for our neighborhood public schools and institutions of higher learning. Gov. Kotek’s recommended budget gets us closer to that reality.”

Housing and homelessness

In addition to $130 million she proposed on Jan. 26 for immediate spending — $40 million to be drawn from this budget cycle and $90 million from the next — Kotek has proposed even more in the new budget for homelessness and housing.

“We must act now to provide immediate relief to unsheltered Oregonians and to prevent thousands of families from becoming homeless,” she said.

Highlights on her homelessness proposals:

• For rapid re-housing and rental assistance for up to 12 months, $172.2 million, which constitutes the state’s first longterm commitment to such aid.

• For ongoing prevention of homelessness, $73 million.

• For maintenance of shelters, including 600 beds created by the early spending plan, $24.1 million.

• For insurance for providers of permanent supportive housing, which offers services in addition to shelter, $4.5 million.

Another $5.3 million is proposed for the coordinated emergency response in five regions that Kotek designated in an executive order Jan. 10.

In the arena of housing:

• For construction of housing for renters and homeowners, $770 million from bonds.

• For preservation of existing housing, including manufactured homes, deemed affordable, $118 million.

• For replacement of some manufactured homes, $4 million.

• For construction and other assistance for providers of permanent supportive housing, $130 million.

• For technical assistance to local governments and developers from a new state office managed by two agencies, $2.2 million.

Gov. Kotek’s proposals on home ownership:

• For aid to more families, $13.6 million.

• For community land trusts, $5 million.

• For improved access by people to housing support services, $9.4 million.

• For housing needs of Oregon’s nine federally recognized tribes, $5 million.

Kotek did not embrace a plan by the Oregon Mayors Association and the League of Oregon Cities for per-capita aid at $40 per resident and $50,000 minimum per city.

“I’ll be up front: Not every community needs per-capita funding,” she told reporters. “I want to make sure that when we are moving resources, they are going to where the most need is, where there is limited capacity, and we are getting the outcomes we need.”

Mental health and addiction treatment

In her final year as House speaker in 2021, Kotek helped steer approval of more than $1 billion in new spending for mental health and treatment of substance use, on top of spending in the previous budget.

She said her main goal as governor is to ensure that the money gets to providers. But her budget proposes some additions:

• Spending on mental health:

• For continued support of added capacity in 2021 for residential treatment, $40 million.

• For expanded jail diversion programs, enhanced intervention and outreach for patients before they reach civil commitment, and improved civil commitment services, $14.9 million.

• For 988 call centers, $18.4 million.

• For mobile crisis services to divert people from jails and hospitals, such as Portland Street Response and CAHOOTS in Eugene, $47.6 million.

• For suicide prevention programs, $7.7 million.

Spending on substance abuse treatment:

• For programs at Oregon State Penitentiary in Salem and Snake River Correctional Institution in Ontario, $8.7 million.

• For various other programs, $278.9 million from proceeds of marijuana sales as redirected by a 2020 ballot measure.

• For startup costs for residential detox, inpatient treatment and recovery community centers, $15 million.

Spending on workforce:

• For continued increased pay for mental health workers under higher Medicaid rates, $127.4 million.

• For financial aid for training of providers and students, $60 million.

• For the provider incentive program under the Oregon Health Authority, $20 million.

• Spending on the Oregon State Hospital:

• For safe staffing around the clock, $34.5 million.

• For safety upgrades at the hospital in Salem, $8 million.

• For a complex-case management unit, $4.2 million.

• For a health equity unit, $3.5 million

“These steps will bring us closer to a holistic and culturally responsive behavioral health system so that no matter who you are or what you can pay, you are not alone,” she said. “Help will be there when you need it.”

Early education and child care

Though she acknowledged that the coronavirus pandemic did not help, Kotek said it was “absolutely unacceptable” that less than half of Oregon third graders have demonstrated mastery of grade-level reading skills.

Her budget proposes $100 million targeted to boost reading skills in preschool and lower grades.

It also proposes $20 million for similar programs in summer school, matched by districts — and $30 million for summer programs by tribes and community-based organizations. The proposed funds are only for this summer, though Kotek said she would consider more for summer 2024.

As for child care, Kotek proposes $100 million from bonds to build more child care centers and preschools, $62.5 million to increase pay for early-learning professionals, and $41.3 million to boost rates for providers of employment-related day care.

“Every Oregon child should have a safe place to receive a high-quality, cultural responsive public education, and every family needs access to affordable child care options,” her budget message says. “Oregon has work to do to build toward that vision.”

Budget balancing

Kotek’s recommended budget proposes spending of $32 billion from the general fund — largely personal and corporate income taxes — and lottery proceeds. Those are the most flexible for state spending; federal grants and other sources are usually earmarked for specific purposes.

But state economists have forecast a “mild” economic downturn starting as early as this fall, just months into the new two-year budget cycle. The gap between projected revenue and spending is as much as $3 billion, although two more revenue forecasts remain.

Kotek proposes to draw the bulk of new money ($765 million) by canceling an otherwise-required transfer from the ending balance in the current budget into a general reserve fund. Under a 2007 law that created the fund, the amount is 1% — but lawmakers can change it by simple majorities.

Kotek does not propose to tap any of the total $2 billion sitting either in that reserve — known as the rainy-day fund — or the education stability fund, which consists of 18% of lottery proceeds under a measure that voters approved in 2002. Withdrawals from either require 60% votes in both chambers of the Legislature.

“Oregon’s budget writers have never had access to significant reserve funds during past recessions,” her budget message says. “Although today’s reserves will not cover all the shortfall caused by a severe recession, they are large enough to ease much of the pain.”