Massive revenue forecast puts chum in water for legislative spending frenzy
Every quarter, the Legislature receives a report from the Oregon state economist about the revenue the state is expected to receive. Last week, on Wednesday, Feb. 8, legislators heard that report.
And, like most recent quarters since the onset of the COVID-19 pandemic, they again received stunning financial news.
The March Economic and Revenue Forecast shows another massive surge in tax collections. Net General Fund and lottery revenues are up almost $1.2 billion since the December forecast, an astonishing 4% rate of growth in just one quarter. Commensurate growth in the projected personal kicker has almost doubled, to $964.2 million total, and the projected corporate kicker has grown by over 150%, to $633.8 million. And, as the state is only a third of the way through the 2021-23 biennial budget period, there is every reason to believe that those numbers will continue to grow significantly in the next few forecasts.
The state’s reserve funds (Education Stability Fund, Rainy Day Fund, and cash reserves) also grew significantly. They are currently projected to top $5 billion during the 2021-23 biennium, or roughly equivalent to 20% of the General Fund budget. This, coupled with the exceptional strength of corporate activity tax (the funding mechanism behind 2019’s Student Success Act) collections, indicates that Oregon’s budget is in the strongest financial position perhaps since the passage of Measure 5 in 1990.
For schools, there are potentially two major takeaways from last week’s forecast:
First, this deluge of cash will significantly bolster education stakeholder efforts to fund significant education investments in the current legislative session. At this time the main vehicle looks to be House Bill 4030, which targets workforce challenges. In a down year this bill could have received little to no funding. With this news, it seems possible that the bill could receive tens or hundreds of millions of dollars to drive programs addressing the workforce challenges districts and ESDs are facing. Furthermore, Senate President Peter Courtney (D-Salem) expressed an explicit desire to fund summer school programs. In a press release he said, “Wow...That is a lot of money,” and listed a number of priorities, including saying, "We can do year-round schools."
Secondly, as Oregon’s economy continues to exceed revenue projections by leaps and bounds, future funding advocacy must be tied to the need for sustained investments to meet the needs of our students and communities. According to the Oregon Department of Education, student enrollment has declined by roughly 7,000 students since last year and almost 30,000 students since the start of school in 2019. That school districts facing enrollment drops could actually incur budget reductions at a time of unprecedented state revenue growth is an ongoing concern.
Such a large increase in revenues is the worst nightmare of non-partisan agency budget writers. This kind of cash influx often leads to broad spending by legislative leadership and the governor, with pet programs and initiatives variously receiving funding proposals that would otherwise be impossible in an “average” budget year. This was evidenced by calls for funding for almost anything by various elected leaders, including: housing; law enforcement; public schools; and economic recovery and working families.
Speaker Dan Rayfield (D-Corvallis) is newly elected to his leadership position, while Courtney and Gov. Kate Brown are at the end of their final terms. This circumstance sets up the potential for wild spending as Rayfield seeks to secure his position and Courtney and Brown pursue legacy projects. However, great increases in funding often precede great cuts a few years later when the economic expansion stops.
When asked about the revenue forecast, lobbyists, all of whom did not want to be identified for fear it could affect their work, responded with skepticism. There was general grumbling about legislative horse-trading. One lobbyist said, “Republicans will get $60 million for law enforcement and agriculture to show up and vote,” presumably thereby avoiding a walkout. Another lobbyist mentioned Courtney’s continue pursuit of infrastructure upgrades to the Capitol, saying that this forecast gave enough money for extensive construction projects and that “We (lobbyists) won’t be back in that building until 2025!” Finally, a more philosophical lobbyist observed that it is often state agencies that bear the brunt of excessive revenues. “They get told to stand up all these new programs, and then when the worm turns in two years, it’s cut, cut, cut!”
This skepticism played into the larger machinations ahead of the 2022 elections cycle. The impact of independent gubernatorial candidate, former Sen. Betsy Johnson, is absolutely turning that race on its head already. This, combined with rumblings of an energized Republican base and fears of an uninspired turnout by Democrats, have quietly impacted spending proposals for the majority Democrats in the Legislature. In the next few weeks, it seems likely that Democrats’ spending proposals will include more “bread and butter” issues like economic revitalization and, hopefully, public education.
- Richard Donovan
Legislative Services specialist