Legislators heard Wednesday, May 14, that they will have $798 million less in net General Fund and lottery revenue in 2025-27 than they thought they had three months ago.
“There has been a deterioration in the economic outlook from the last time we were presenting our forecast,” said Oregon Chief Economist Carl Riccadonna while presenting the June Economic and Revenue Forecast.
That’s bad news for advocates looking for additional investments.
Overall, Oregon will have roughly $2 billion more to spend this biennium than last, but recent inflation will eat up much of that just to keep services at current levels.
Federal trade and tariff policies have roiled the national economy. Oregon’s economy is highly reliant on trade, making it particularly sensitive to increased tariffs’ dampening effect.
The Legislative Revenue Office reports legislators will have $39.3 billion in net General Fund and lottery resources for 2025-27. Lottery revenue is mostly allocated by law, though, with K-12 education receiving the largest share.
In just available General Fund resources, legislators are projected to have $37.4 billion they can spend, a $756 million drop from the previous quarter.
At the end of the meeting, Sen. Mike McLane, Senate Revenue Committee vice chair, drilled down into exactly how much legislators would have to spend compared with two years ago once all the accounting issues are filtered out.
About $2 billion he was told.
For context, the Co-Chair Budget Framework, released March 19, projected “total available discretionary resources of $39.7 billion and projected expenditures of $38 billion.” It pegged the State School Fund at $11.4 billion for 2025-27, a $1.2 billion increase from 2023-25.
An $11.4 billion State School Fund roughly aligns with school business officials’ estimates for most districts’ inflationary costs to continue current staffing and programs, although some districts have already announced deep budget cuts for next year.
Education advocates say that status quo is just that: the minimum needed for schools to continue on as they are. Advocates came into the session working to elevate the need for additional investments in areas such as special education to meet the real costs of lifting up all students. That ask just got harder.
“We know the state has only so much money and that is the number,” said Stacy Michaelson, OSBA Government Relations and Communications director. “But we also know students’ needs don’t change regardless of how much money is available. We hope to work with legislators and our education partners to prioritize where Oregon needs to invest for its future.”
Oregon economists presented the quarterly report to the Senate and House revenue committees. It’s the last report before the Legislature sets budgets and investments for 2025-27 in the coming weeks.
The forecast lowered resources estimates for 2023-25 by $174 million from the last report, but it’s still more than $3.1 billion higher than at the close of the 2023 session. That incredible growth translates into a $1.6 billion personal kicker tax refund prediction for 2025 and a corporate kicker of $916 million. The corporate kicker, which is down nearly $80 million, is dedicated to education but flows into the State School Fund to be counted as part of the total investment.
Oregon’s economy is still growing, although slower. Wednesday’s presentation put up caution lights for legislators for the next budget, with a significantly higher possibility of a recession and lower degree of certainty than usual.
“We see a prolonged period of near stagnant growth,” Riccadonna said.
Predictions of just a week ago, though, are already “stale,” according to Riccadonna, as the latest news of lower tariffs on China and possible trade deals have lowered the chances of a recession.
Riccadonna and Michael Kennedy, senior economist, told legislators that they have lower confidence in their central predictions because there hasn’t been time to see how federal trade and tariff policies will play out.
“I can’t remember more tumultuous circumstances just going into producing this particular forecast,” said Kennedy.
Fortunately, Oregon also has unprecedented savings, with an expected $1 billion in the Education Stability Fund and $1.9 billion in the Rainy Day Fund to end the 2023-25 biennium.
Michaelson said legislators need to consider all possible sources of K-12 funding, including reserves.
“We know there are difficult decisions ahead, for legislators and districts alike,” Michaelson said. “We must work together to hold our students harmless.”
– Jake Arnold, OSBA
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