$9.3 billion State School Fund passes Senate

In May 2020, economists told legislators the sky was falling, with a $2 billion hole for this biennium and budget shortfalls as far as the eye could see. Last week, economists revised their forecast to say it was raining money. 

It’s not clear how much the latest message has sunk in for legislators.

The Senate passed Senate Bill 5514 on Wednesday, allotting $9.3 billion for the 2021-23 State School Fund with little debate. It is a 2.2% increase from the Legislature’s initial proposal in March. But Oregon’s revenue expectations for the next biennium have increased more than 8% since then. 

The Oregon Association of School Business Officials calculated schools need $9.6 billion to maintain current staff and programs, not including any additional coronavirus expenses.

“We are heartened to see legislators have increased the State School Fund for our children, but it’s still not enough,” said OSBA Executive Director Jim Green. “Oregon’s schools need at least $9.6 billion to assure students won’t have less learning time and fewer teachers when they return to full-time class in the fall. 

“With the state’s recent booming economic forecast, we are hopeful the Legislature can meet the needs of all our students in all our districts.”

The forecast contained good news for this biennium and the foreseeable future. Oregon is expected to end this biennium on a high note and overshoot the projected budget by more than 2%, meaning a $1.4 billion personal kicker tax refund and $664 million for schools from the corporate kicker refund. Final numbers will come later this summer. 

“The bottom line is that this outlook there are a whole lot more resources available than we last reported in March,” state economist Mark McMullen told legislators last week. 

McMullen said Oregon is looking at more than $1 billion in additional resources this biennium and the next three biennia. 

“I’ve never really seen such a strong outlook,” he said, adding that economists across the nation agree the economy looks strong.

The Coalition of Oregon School Administrators applauded legislators for increasing the State School Fund to better serve students impacted by COVID-19 but is hopeful it is not the end of the discussion.

“With record state revenues and reserves available after the May 19 revenue forecast, we are optimistic this will lead to further conversations about increasing the budget before the Legislature adjourns,” said Morgan Allen, COSA deputy executive director of policy and advocacy.

The bill now moves to the House. The Legislature could still amend the bill or add school funds through other bills.

Sen. Elizabeth Steiner Hayward, one of the co-chairs of the budget-writing Joint Ways and Means Committee, said early Tuesday that legislators are still considering the forecast’s implications. 

During Tuesday’s Senate debate, Steiner Hayward also said legislators are still deciding how the State School Fund will be filled.

SB 5514 includes $200 million from the Education Stability Fund, but the bill authorizing that transfer is stuck in committee. Gov. Kate Brown, in a scathing letter about the school budget’s equity implications, called the use of reserves “potentially unconstitutional.”

Oregon is forecast to end this budget cycle with $4.2 billion in reserves, with $1.38 billion of it in its two reserve funds, according to the latest forecast. Those reserve funds are forecast to grow to $1.94 billion in the next biennium, or 8.3% of revenues.  

Richard C. Auxier, a senior policy associate in the Urban-Brookings Tax Policy Center, said there is no right answer to how much a state should have in reserve.

“The policy trade-off is clearly the more reserves you have the more you are ready for these shake-ups, but the more you put in reserves the less you are spending on programs that need funds,” he said. 

Auxier said legislators like consistent economic reports and the wild swings of the past year can be disconcerting.

“State legislatures go slow, and they want to go slow,” he said. “They are not built to turn on a dime, but they have to.”

Auxier, whose work focuses on local tax policy and budgets, said that if the state is doing better, it is reasonable for schools to see their budgets increase as well.

“Schools are what states do,” he said. “Schools are the largest expenditure for state governments with their own dollars.”

K-12 public education is Oregon’s biggest state money expense, roughly 40% of discretionary spending. 

Legislators have pointed to the hundreds of millions in federal funds promised to schools to fill in gaps. Auxier said it was smart to use one-time federal money for coronavirus expenses but to avoid using it to shore up school budgets, which are heavy with recurring staff costs.

OASBO calculates staff costs are about 86% of Oregon school budgets.

Auxier said legislators need to think about this budget period differently. 

“Clearly, the pandemic was this exceptional thing,” he said. “So there clearly are going to be one-time expenditures.”

He added that legislators still had to plan for the future and not let coronavirus response overwhelm budget thinking.  

“If you’re spending on that, then you’re not spending on staff and all the things that are long term,” he said. 

- Jake Arnold, OSBA
jarnold@osba.org