Revenue forecast puts State School Fund possibilities in focus

The State School Fund debate pits what Oregon should pay for schools against what legislators are willing to allocate.

The Legislature has already heard what it should spend. School business officials say it will take at least $10.3 billion for most schools to continue the staff and programs they have now. The Quality Education Commission, a legislative advisory group, says the State School Fund should be $11.9 billion to pay for the kind of high-quality education system Oregonians say they want.

The March Oregon Economic and Revenue Forecast released Wednesday, Feb. 22, told legislators how much they can spend. The good news is that it is more than they thought even a few months ago.

Legislative Highlights is offering a weekly look at the State School Fund process, “Funding Oregon’s Future.” The quarterly forecast sets the limits for all budget discussions.  

With corporate and personal income taxes continuing to outstrip expectations, the state’s estimated resources have gone up even from the December forecast. For 2023-25, the Legislature will have more than $31.4 billion net general fund and lottery resources, $715 million more than predicted in December, according to the Legislative Revenue Office summary. 

“The upshot of this forecast is … there is a significant amount of additional resources that will be available for policy makers as they craft the next 2023-25 biennial budget,” state economist Mark McMullen told legislators at a joint meeting of the House and Senate revenue committees.

Context is important, though. State analysts in December estimated that merely maintaining the state’s services would require $30.7 billion. That estimate included a State School Fund roughly $800 million too low because it was based on faulty calculations, education advocates said.

Gov. Tina Kotek upped the ante in January, proposing a $9.9 billion State School Fund as part of a $32.1 billion budget. Kotek proposed suspending the payments to reserve accounts to help pay for her budget. The current forecast says that would open up an additional $773 million to spend.

Oregon already has unprecedented reserves. By the end of this biennium, the Oregon Rainy Day Fund is projected to have $1.3 billion and the Education Stability Fund will have $700 million. Both are nearing their statutory caps.  

The latest forecast shows the money is now there to meet the state’s estimated CSL budget while also funding the State School Fund to the $10.3 billion schools say they need. Money for new programs or investments could come from suspending the reserve payments.

Now the real jockeying begins. The Legislature actually writes the budget, and everybody has good ideas on how to spend the money.

Legislation for addressing issues such as homelessness and child care would add hundreds of millions of dollars to the budget. Education bills for issues such as improving early literacy and addressing workforce shortages would raise school costs significantly, calling for either a bigger State School Fund or separate funding mechanisms.

Typically, the co-chairs of the Joint Ways and Means Committee, the Legislature’s budget writers, release a budget proposal in the weeks after the quarterly report. The Legislature doesn’t have to officially finish its business until June 25. It will get one more forecast May 17, which will offer a better look at this year’s tax collections.

McMullen warned legislators to be cautious.                                                                         

The latest forecast is no longer predicting a recession this year, but it says recessionary dangers remain. It says a “soft landing” from inflation and continued economic growth look increasingly likely. A sharp downturn sometime in the next biennium, though, is still significant enough that the forecast includes a recession scenario.

Still, Oregon has those reserve funds handy, and the long-term outlook remains positive. This biennium’s tax collection boom seems to be at least partly due to tax law changes that encouraged high earners to grab some profits. Early cash-outs this biennium are expected to cut into next biennium’s tax collections, but that effect will dissipate with time.

In the meantime, revenue for this biennium is expected to be $6.7 billion higher than predicted when the 2021-23 budget was written. The kicker tax law will send a record $3.9 billion of that back to individual taxpayers. The $1.5 billion corporate kicker will technically go to education but effectively will boost the general fund unless proposed legislation passes this session to redirect it.

The forecast also offered good news for the Student Success Act, a separate source of funding aimed at improving education access and opportunities for historically underserved students. The corporate activity tax, which provides the act’s funding, is projected to collect $2.6 billion, a small increase from the last forecast but still below projections when the law was passed in 2019.

- Jake Arnold, OSBA
jarnold@osba.org

Previous Funding Oregon's Future stories:

Feb. 21: Adequate State School Fund is force for local control

Feb. 13: ‘Total investment’ in Oregon schools doesn’t tell full story 

Feb. 6: $9.9 billion State School Fund is better but students deserve more 

Jan. 30: Bill aims for true accounting of school funding needs 

Jan. 23: State School Fund is education policy made real