Oregon economic report better than before COVID-19, making kicker possible

Oregon’s state economists predicted Wednesday that Oregon revenue had recovered enough to trigger its unique kicker refund law.

The improving economic outlook means school district budgets appear safe for this school year, according to the Oregon Association of School Business Officials, but flat predictions for the next couple of biennia could trigger cuts for 2021-23.

What a difference a year makes, especially one with disease, fires and storms.

In February 2020, schools were riding a wave of economic support, with a healthy $9 billion school fund and the recently passed Student Success Act. The economic outlook was stable, with a lowered recession risk. Schools could think about the continued program recovery from the recession of more than 10 years earlier.

Three months later, the coronavirus pandemic closed schools and created a tsunami of new expenses for technology, facilities, safety protocols and staffing. At the same time, the state was staring at a nearly $3 billion drop in revenue for the biennium and possible mid-biennium budget cuts.

The report presented to legislators Wednesday showed Oregon revenue for 2019-21 up $1.2 billion from the close-of-session forecast. If the estimate holds, it would trigger a $571 million personal kicker refund and a $420 million corporate kicker, which is dedicated to K-12 public education. The kicker gives back money to taxpayers if state revenue comes in more than 2% above projections. The kicker would be paid out in 2022.

This economic report is the last one before the tri-chairs of the budget-making Joint Ways and Means Committee – Democratic Sens. Betsy Johnson and Elizabeth Steiner Hayward and Rep. Dan Rayfield – release their budget framework, probably in March.

Although Oregon is ending this biennium on a strong note, the forecast for the next biennium projects a budget shortfall around $2 billion. The state, however, still could receive more federal aid and has estimated reserve funds of $3.1 billion.

The corporate activity tax, which funds the Student Success Act, is projected to gross about $2.3 billion for 2021-23. This would translate into about $800 million in direct grants to school districts, according to OASBO.

The Legislature will receive another economic report May 19, and often budget decisions are finalized after that.

Gov. Kate Brown released her own budget proposal in December, after the November economic report. At the time, the state’s economists predicted a 5% growth for 2021-23 that would still fall short of the money needed to maintain all state agencies at current service levels.

Brown’s budget is not binding, but it offers a starting point for many of the state’s spending discussions. 

Brown proposed $9.1 billion for the State School Fund, $778 million for the Student Success Account and $641 million for the Community College Support Fund.

OASBO, working off districts’ real spending numbers, estimates the State School Fund needs $9.6 billion for most districts to maintain current service levels. The Legislative Fiscal Office, the nonpartisan office that provides the Legislature’s fiscal analysis, has calculated a current service level requirement of $9 billion. The LFO estimate, though, uses some mandated calculations that school districts say are inaccurate.

Oregon schools have been rebuilding since their budgets were sliced following the Great Recession, most strongly indicated by a graduation rate that has improved roughly 2 percentage points a year since 2014. The most recent four-year on-time rate of 82.6% is a state record.

The High School Success Fund, known as Measure 98, has given schools dedicated money for dropout retention, college preparation and career and technical education. The Student Success Act is adding dedicated funds for programs targeting the most underserved students.

Schools have also been dedicating more resources to whole-child needs, including food, health and behavioral supports. If the State School Fund falls below current service level needs, programs and staff dedicated to better learning environments and reducing equity problems would be imperiled.

- Jake Arnold, OSBA
jarnold@osba.org