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  • Economic report

Grim economic report holds some rays of hope

Thursday, May 21, 2020

State Economist Mark McMullen presented Wednesday a grim change of perspective on Oregon’s economic prospects.

In February, the quarterly revenue projection said, “The developing coronavirus situation represents a risk to the outlook but to date appears unlikely to derail the longest economic expansion on record.” 

On Wednesday, Oregon saw the derailment, including $2.7 billion less this biennium and continued revenue reductions in future biennia.

The full presentation to a joint meeting of the House and Senate revenue committees is available on the Legislature’s website. In brief, Oregon is entering a severe recession, the likes of which it hasn’t seen before.

The budget shortfall will partially be offset by federal emergency relief money, including the Coronavirus Aid, Relief and Economic Security Act. Also, the breakdown of the 2020 session, in which essentially no new allocations were made by the Legislature because of a Republican walkout, means there was a larger-than-normal accumulation of reserves that can now be used.

It helps that state lawmakers have been responsible budget managers and have been socking away money in reserve accounts in anticipation of a recession. Those reserves, which were created largely in response to the 2008 economic collapse, include the Rainy Day Fund ($949 million) and the Education Stability Fund ($800 million) and will have approximately $1.75 billion by the end of this biennium.

What all this means for Oregon schools is unclear. Rough estimates based on the report calculate the General Fund hole as significantly less than the $1.8 billion deficit factored into Gov. Kate Brown’s 8.5% General Fund reduction exercise earlier this month. If the governor recalculates her proposed allotment reductions based on this forecast, then the reduction is closer to 4%, or an approximate $300 million cut to the State School Fund, according to the Confederation of Oregon School Administrators.

Given the healthy state of cash reserves, the Legislature has a clear path to protect the State School Fund and ensure the needs of our most vulnerable and historically underserved students and families are met.

This sets the stage for a special session, and legislators are already lining up positions. Senate Majority Leader Ginny Burdick praised the prudent financial decisions that set up the high level of reserves currently available.  

House Speaker Tina Kotek called for infrastructure investments. House Majority Leader Barbara Smith Warner highlighted the continued importance of education and health care. Senate Republican Leader Fred Girod and House Republican Leader Christine Drazan both praised Oregonians while directly attributing the economic harm to Brown’s shutdown order.

The date of a special session has not been determined. Given the collapse of the 2020 short session, trust seems to be in short supply between the partisan leaders in both chambers. An election-year special session for an already-dysfunctional Legislature is a charged undertaking. Add in significant budget shortfalls caused, at least in part, by major policy choices in response to a global pandemic and you have a recipe for problems. 

For ongoing coverage of budget news, including State School Fund analysis as new information emerges, make sure to check our OSBA News Center.

- Richard Donovan
Legislative Services specialist

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