Oregon lawmakers expected to focus on closing $1 billion budget gap during special session

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With the coronavirus pandemic and the ensuing economic shutdown wreaking havoc on budgets, not to mention the challenges of predicting when it will end and revenue streams will return to normal, Gov. Kate Brown has called for a special session of the Oregon Legislature on Aug. 10 to close a $1 billion shortfall.

Since the onset of the coronavirus crisis, state agencies were asked to find efficiencies and reduce non-critical spending, delay new programs, halt non-essential travel and leave positions unfilled. Brown has already proposed $150 million in general fund savings for the biennium.

The governor is convening the special session under her authority pursuant to Article V, section 12, of the Oregon Constitution.

“This crisis has impacted all of us — Oregon families, businesses, non-profits, and local governments have all had to cut costs,” Brown said in a statement. “The state of Oregon has been tightening its belt as well. With a nearly $1 billion budget deficit in the current biennium, there is more work to do."

Oregon's GO ratings of Aa1 from Moody’s Investors Service and AA-plus from both Fitch Ratings and S&P Global Ratings were affirmed, with stable outlooks, ahead of a $320.4 million taxable general obligation bond sale.

Oregon Gov. Kate Brown called for a special session to deal with a budget shortfall and other issues.

The state sold three tranches of taxable refundings in June to capitalize on the extremely low interest rates, 1% or 2% on some maturities, Laura Lockwood-McCall, the state's debt manager, said at the time. The $320 million of taxables also includes $95.3 million of green GOs to support its affordable housing program, she said.

The state achieved $26 million in present value savings on the taxable refunding, Lockwood-McCall said, which was more than twice the $10 million in present value savings the state was anticipating two weeks prior to the sale.

The state postponed a lottery revenue bond sale planned for July 17, because of a drop in lottery revenues.

Lawmakers from both sides of the aisle stressed that other policy matters should be set aside and discussions at the special session should be on the budget, not other issues, such as police reform.

The Trump administration sent federal agents to Oregon in July after protesters vandalized federal buildings in Portland amid continuing Black Lives Matters protests. Brown had been discussing using the special session to debate police reforms as well as budget cuts needed to balance the state's 2019-21 two-year budget approved last summer.

Oregon is among states that use a biennial budget, and make adjustments in the second year. But the delay of federal income tax filings to July from April, has created difficulties for many states' budget processes, in addition to the additional costs to battle the coronavirus and the loss of revenues from business closures from stay-at-home orders.

“COVID-19 upended our economy and put state services at risk,” Senate President Peter Courtney, D-Salem, said. “We need to address the budget. Key budget legislators have been working on this for months, now is the time to get it done.”

The state has another long session coming in January, he noted, during which other issues can be discussed, but the budget needs to take priority.

“In the June special session we passed policy bills, we made progress on police reform, and addressed immediate COVID-19 needs,” Courtney said. “Now is the time for the budget. That must be our mission this special session.”

Senate Republicans have been willing to work on the budget since before the governor called the first special session earlier this summer, Senate Republican Leader Fred Girod of Lyons said in a statement.

“If we diverge from the stated purpose of addressing the budget, this second special session will make a mockery of the legislative process yet again,” he said. “Policy bills should be off the table. The focus should be on the budget.”

In her proclamation calling the special session, the governor noted her support for legislation that builds on matters considered in the first special session, including additional police accountability reforms.

“We need to preserve critical services like health care, education, and senior services during this pandemic," she said. "And, we must do more to address the disparities in state support for Oregon’s underserved communities, particularly our Black, Indigenous, Latinx, Pacific Islander, and other communities of color. I would like to thank legislators for beginning this work already, and I look forward to rolling up our sleeves and crafting an updated budget that serves all Oregonians.”

Oregon will have to save some of its reserves to balance the 2021-23 budget, Brown said, which starts 11 months from now, given that tax collections are unlikely to fully recover by then. More than 90% of spending from the general fund, the state’s most flexible source, comes from personal and corporate income taxes.

“These decisions will not be easy,” Brown said. “Oregon has been smart with our reserves and saved for a rainy day, preparing us to weather this economic storm. But if we use too much of our savings now, then we’ll be stuck with an even bigger budget gap for the next biennium. Putting off tough decisions this summer will only leave us with impossible choices next January.”

Agencies had submitted cuts adding up to just under $3 billion at Brown’s request. Brown has endorsed about $150 million in savings, leaving the other change decisions for lawmakers.

The state’s school funding remains at $9 billion, the amount approved last year for the biennium. The legislative budget plan calls for using $400 million from the Education Stability Fund, which consists of Oregon Lottery proceeds earmarked for a reserve, to maintain the education budget proposal.

The state budget also has a general reserve and ending balances, which only the Legislature can tap. If the Legislature taps all of the state's reserves, it will carve the deficit down to $1 billion, and more will need to be done.

Economists also expect the state will take in $415 million less than originally projected in public education funding from Oregon’s new business tax, according to the June economic and revenue forecast from the Oregon Office of Economic Analysis. Reserves totaled $1.6 billion or 8.1% of the general fund as of April, according to the forecast.

Six budget subcommittees reviewed details and heard public testimony about the proposed spending cuts in a series of virtual hearings July 22-24.

“Unlike the federal government, Oregon must balance our state budget,” Brown said. “State and local governments have been left reeling from the economic downturn. For months, we have waited for Congress to take action, and it is still my hope that they will include aid for states and local governments in the coronavirus relief package currently being negotiated."

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State budgets Deficits Coronavirus Oregon Kate Brown
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