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A state economist predicts a relatively mild economic downturn due to 'rainy-day funds.'

PMG PHOTO: COURTNEY VAUGHN - Students in Megan Whitaker's class at Sabin Elementary School on the first day back to school. If recession comes to Oregon next year, it will be offset to some degree by "rainy-day funds" — money set aside for economic downturns. That includes $700 million set aside for Oregon public education.
Record budget reserves could cushion state spending cuts if an economic downturn does happen.

Unlike in previous downturns, Oregon now has healthy amounts in its main reserve funds — one earmarked for education, the other for general purposes — plus the ending balance in the budget.

According to the Legislative Revenue Office, the current total from all three sources is $5.9 billion, which will rise to a projected $6.2 billion by the end of the two-year budget cycle in mid-2023.

Here's where those "rainy-day" funds are:

• For education, the fund is projected at $700 million.

• For the general reserve, its $1.3 billion.

• And the ending balance, $4.1 billion, part of which has to be carried over into the next budget cycle. The ending balance includes nearly $500 million that Oregon got in federal aid during the coronavirus pandemic and is intended to offset some of the other one-time federal funds spent in the current state budget. State government got an estimated $2.6 billion from the 2021 American Rescue Plan Act.

The Legislature can withdraw money from the reserve funds by 60% majority votes, though such action must be preceded by one of two economic triggers. State Economist Mark McMullen said one has already been met, because projected tax collections for the next two-year budget cycle are 10% less than approved spending for the current cycle. (The actual trigger is 3%.) The other trigger is reduced job growth in two consecutive quarters, a mark that has not been reached.

But lawmakers are limited as to how much they can take from reserves in a single cycle.

The Legislature did withdraw $400 million from the education stability fund in 2020 to balance the state budget in the immediate aftermath of the downturn triggered by the coronavirus pandemic.

The kicker for corporate income taxes was suspended twice, in 1993 and 2007. In the latter case, business interests agreed to forego the amount, which was converted into a general reserve now known as the rainy-day fund. (Voters in 2002 approved the conversion of an existing fund to create the education stability fund, which is fed by excess proceeds from the Oregon Lottery.)

The amounts are capped at 5% of previous general-fund spending for the education reserve and 7.5% for the general reserve.

Excess corporate income taxes now go into the state school fund, instead of going back to businesses, under a 2012 measure approved by voters. That amount is excluded from the base for the following two-year budget.


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