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Spokeswoman calls it 'a planning exercise,' but May 20 forecast is likely to project less in taxes.

PMG PHOTO: PETER WONG - The Oregon Capitol, which is closed to the public because of the coronavirus pandemic. Gov. Kate Brown has asked budget officials to compile potential agency spending cuts amounting to 8.5% of their share of the tax-supported general fund over the 2019-21 budget cycle.State agencies have been told to prepare spending cuts that may amount to 8.5% of their share of the tax-supported general fund in the next two years.

The proposed cuts, which Gov. Kate Brown has directed state budget officials to compile by May 8, would add up to just under $2 billion. They also would be deeper than 8.5%, given that state government already is 10 months into its 2019-21 budget cycle.

"At this point, the reduction plans are a planning exercise that will give the governor a series of options to consider," said Elizabeth Merah, a spokeswoman for Brown.

Oregon's two-year budget from the general fund — largely personal and corporate income taxes that make up more than 90% — and lottery proceeds is $23.7 billion. The state spends more, but federal grants are earmarked and other funds are restricted.

Tax collections and lottery proceeds are likely to fall far short of projections because shutdowns and curtailments linked to the coronavirus pandemic have resulted in worker layoffs and less business activity. Most Oregon Lottery proceeds are generated by video terminals, which are in bars, taverns and restaurants shuttered to the public.

The state's next quarterly economic and revenue forecast is scheduled for Wednesday, May 20.

"While we do not know the precise impacts of the forecast, we do know it will be a significant drop in state revenues," said a memo from Chief Financial Officer George Naughton and his deputy, Kate Nass. "This impact could be as high as a loss of $2 (billion) to $3 billion in state resources during the current 2019-21 biennium."

The most recent forecast had projected an ending balance of $1.153 billion, but the request for spending-cut proposals now envisions a total of $1.847 billion to cut. In practice, the ending balance is never zero, though in the 1981-83 downturn, it got down to $3 million of a general-fund budget of just under $3 billion by the end of the cycle in mid-1983 — and that was after the Legislature raised personal income taxes to balance the budget.

Potential offsets

The request for spending-cut proposals do not take into account some other factors:

• State reserve funds, which total just under $3 billion, about 14% of the general-fund budget. Only the Legislature can tap those funds — a general reserve and a lottery reserve earmarked for education — and lawmakers are barred from spending all the money in a single budget cycle.

• Oregon's $871 million share of $150 billion that the federal CARES Act allotted to the states. The state total is actually $1.6 billion, but it includes money for Portland, Multnomah County and Washington County — all with populations exceeding 500,000 — that they can seek directly from the U.S. Treasury. (Some local governments that fall under the 500,000 mark have urged Brown to give them a share of the state's money.)

But the law, and recently released Treasury guidelines, bar states from using the money to offset projected shortfalls — only to cover expenses connected with the pandemic. However, Congress is considering more aid to state and local governments in a future relief plan.

"I will continue to advocate for changes to federal guidance that will allow states to use CARES Act funding to supplement lost revenue, or for additional funding sources that could be used in this way," Brown said last week. "Without these critical dollars, the state will be forced to make difficult budget cuts at a time when Oregonians need state services more than ever."

• Options affecting employee pay, such as salary freezes and unpaid furloughs. State budget officials said in their memo that recommendations would be considered on a statewide basis, not by agency.

Also, although the request by budget officials calls for cuts amounting to 8.5%, the reductions are unlikely to be across the board. The state cannot reduce debt repayments or some services mandated by law, although such services can be reduced to a specified minimum.

While Brown has the authority to cut across the board, only the Legislature can approve selective spending cuts. A special session for that purpose, whether called by the governor or legislators themselves, is likely to await the May 20 forecast.

On Brown's behalf, Merah concluded:

"One thing we do know: whether it's at the Oregon Health Authority, at the Department of Human Services, at our State Police or at the Department of Corrections, state employees are working many long hours to keep Oregonians safe and secure during this pandemic. In this time of crisis, Oregonians rely on state services more than ever, so cutting critical state services will be a last resort."

Limited exemptions

Although Brown has ordered a partial hiring freeze, it does not affect such agencies as the Oregon Health Authority or the Employment Department, which is raising the number of claims-processing employees from 100 to 800 to handle a deluge from unemployed workers.

Some agencies are exempt from the request because they fall outside the governor's budget authority. Among them: the Legislature itself, state courts, Oregon Lottery Commission, secretary of state and state treasurer, the latter two being independently elected officials under the Oregon Constitution. The Department of Justice and the Bureau of Labor and Industries, though led by elected officials, are subject to executive budget authority.

In a related development, Labor Commissioner Val Hoyle has ordered managers in her bureau to take one unpaid day off per month through the budget cycle ending in mid-2021. She said it is the first step in what is likely to be other spending cuts.

"After the May budget forecast, we will have more information about the extent of future budget cuts. These decisions will be difficult," Hoyle said in a statement.

"In any scenario, I will continue to prioritize service to Oregonians — to workers who are wronged or face discrimination or harassment, to employers who need guidance, and to apprenticeship programs that will be critical as we rebuild our economy when the time comes."

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