Oregon may need third special session to stay ahead of budget woes

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Oregon lawmakers closed a billion-dollar budget hole in an all-day special session Monday passing 11 bills in about 15 hours.

Gov. Kate Brown gave the process a mixed review during a Tuesday press conference, emphasizing that she doesn’t think the state should be dipping into the Oregon Public Retirement System’s reserves.

Oregon Gov. Kate Brown isn't closing the door on the possibility of a third special session.

“I do have concerns regarding the use of reserves and one-time funds,” Brown said. “We have spent years building up our rainy day reserves, but that savings account is only so big. If we use up a substantial portion this year, then we won’t have it for next year.”

Democrats control the governor's office and both houses of the legislature.

It was lawmakers' second special session of the year. Lawmakers spent three days at the capitol in June working on police reform laws, and a handful of other issues left over from the regular session in March that ended abruptly when minority Republican lawmakers walked out.

Brown added that she will closely examine the details of the budget and bills. She didn’t discount the idea that Oregon lawmakers could have a third special session in coming months.

“It depends on whether Congress can get its act together and come up with funding for the states and localities, and get it passed through both houses,” Brown said. “If Congress doesn’t act, it will require myself and the Legislature taking further drastic budget steps.”

It doesn’t appear likely that any help from Congress will be arriving in the near term.

Relief talks have not stalled, they have stopped, Tom Kozlik, head of municipal strategy and credit for Hilltop Securities, wrote in a Tuesday municipal commentary.

The U.S. House left Washington on July 31 and the Senate’s scheduled session ended Friday, Aug. 7.

The U.S. Capitol is being described as “empty” and there is no stimulus bill in the works, Kozlik said.

"The scale of this crisis dictates additional support from the federal government," said Oregon House Speaker Tina Kotek.

It could be weeks before any serious talks resume, Kozlik wrote, adding that both legislative chambers are scheduled to return to Washington Tuesday, Sept. 8, the day after the Labor Day holiday.

With Congress in recess, and Presidential Donald Trump’s executive actions seen as not having the influence of congressional policy, there is no federal relief coming for state and local governments anytime soon, Kozlik wrote.

Trump issued an executive order that would have states contributing $100 a week of $400 in additional funding for unemployed workers. Congress had approved $600 a week for unemployed workers throughout the pandemic, but that expired in July.

The impasse means that state and local governments “do not even have the ability to repurpose the $139 billion allocated to them in the CARES Act,” Kozlik wrote. “Some state and local governments have already factored in federal relief to their budget plans. Others have been scaling back on their spending in different ways, including laying off workers.”

About 1 million state and local government employees nationally have been laid off since the beginning of the pandemic, and without federal aid, that number could grow, Kozlik wrote.

So far in 2020, rating agency actions for state and local issuers have not been significant — not yet anyway, Kozlik wrote. Factors upon which most public finance entities' credit quality depend, typically do so, on a lagging basis, he said.

He took a look at Moody’s Investors Service upgrades and downgrades following the Great Recession for insight into what might occur as a result of the economic fallout from the pandemic.

“The first year Moody’s public finance downgrades outpaced upgrades was 2009, but downgrades did not peak until several years after the recession in 2012,” Kozlik wrote. “In all, downgrades outpaced upgrades for a total of six years. While this time may be slightly different, this gives us an idea of the potential for a lagged impact on municipal credit quality.”

Oregon's GO ratings of Aa1 from Moody’s 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.

Brown saved her harshest criticism for the inability of Congress to pass a second CARES package to aid states and local governments with revenue shortfalls and the increased costs of battling COVID-19.

“I'm frustrated that the White House and D.C. Republicans are refusing to pass another stimulus bill, and I will continue to press for congressional action,” Brown said. “Without direct support, our budget reserves will soon run dry.”

In response to whether she might take executive action to strike out the use of PERS funds to balance, the budget, she responded that all options are on the table.

“It is dependent on what action Congress takes,” Brown said. “It is important they act now, or Oregon, and other states will have to take greater action in the next several weeks.”

Lawmakers protected critical state services including schools, health care, and senior services, while taking action to tighten belts in state government, Brown said.

The public had not been allowed into the Oregon State Capitol during the marathon special session due to coronavirus concerns, with lawmakers only accepting written testimony on bills.

Lawmakers approved budget cuts totaling $362 million in general fund dollars during the second emergency session of the legislature convened in the wake of the COVID-19 pandemic.

They also approved $400 million in emergency dollars from the Education Stability Fund to keep K-12 funding stable. State economists predict the state will collect $1.2 billion less in revenue than expected by mid-2021.

The state also has been contemplating closing two prisons.

“While I'm disappointed that a few lawmakers blocked a bill to speed up mitigations in police use of force, we are taking action on racial justice,” which Brown said involves more than just police, but housing and many other municipal services. “I’m disappointed they didn’t pass the bill that would provide unemployment checks for school janitors and cooks, but they did pass two bills to help unemployed Oregonians.”

House Speaker Tina Kotek said she is “appalled that Senate Bill 1702, which would have sped up the process and helped thousands of Oregonians get their benefits faster, failed. This was a missed opportunity that we should come back on.”

Senate Republicans countered that SB 1702 “would have prioritized public employees to jump the unemployment line over other Oregonians that have been waiting for help for months.”

“I am trying to protect the tens of thousands of unemployed Oregonians, through no fault of their own,” said Sen. Lynn Findley, R-Vale. “Oregonians are begging for help, some filing for bankruptcy, and the governor is blind to those pleas, and instead prioritizes public employees.”

Monday’s special session is far from the end of conversations needed to put Oregon on the path to an equitable economic recovery, Kotek said.

“The scale of this crisis dictates additional support from the federal government, and I urge Congress to provide that support as soon as possible to prevent the suffering that is happening daily across this state,” Kotek said.

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State and local finance Coronavirus CARES Act State of Oregon Oregon