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Gov. Brown says federal aid must be coupled with spending cuts to cushion blow on vital state services and schools.

PMG ILLUSTRATIONGov. Kate Brown says federal aid must go hand in hand with spending cuts to offset almost $3 billion that state tax collections and other sources will be short.

Brown made her statement Wednesday, May 20, after state economists told lawmakers that the COVID-19 coronavirus pandemic has resulted in an unprecedented economic downturn from shutdowns in business activity and public life.

Oregon's unemployment rate jumped from a modern low of 3.5% in March to a modern high of 14.2% in April. Oregon's state general fund budget draws more than 90% of its money from personal and corporate income taxes. The combined general fund and lottery budget for the 2019-21 cycle is about $23.7 billion, and virtually all of the potential spending cuts of $2.7 billion will fall within the second year starting July 1.

"The steepness of this decline is unprecedented," State Economist Mark McMullen said during a video conference of the House and Senate revenue committees.

While he and Senior Economist Josh Lehner said they expected a quick economic recovery when business activity resumes — as early as the second half of 2020, and an "all clear" by mid-2021 — "it takes a full year or more before pain is realized."

They also projected that state coffers will get less than originally forecast in the following two budget cycles. Oregon did get $1.4 billion as its share of $150 billion in federal aid from the recent CARES Act, although $415 million is tentatively earmarked for local and tribal governments other than Portland, Multnomah County and Washington County.

Brown said: "Make no mistake, the budget gap created by this pandemic is too large to bridge without additional congressional action. I am thankful for the work of our congressional delegation to secure federal funding for Oregon in the relief packages Congress has passed so far. But those funds only address a fraction of our current need, especially since we are not permitted to use the funding we have received so far to address state budget shortfalls.

"As a state, we took action to shutter our economy in order to save lives in the middle of a once-in-a-century crisis. Now it's time for Congress and the president to step up and provide once-in-a-century support for important state services, including schools, health care, and public safety."

More federal aid uncertain

The Democratic-led U.S. House passed a $3 trillion aid bill on May 15 with $500 billion for states and $375 billion for local governments. But the Republican majority in the U.S. Senate has balked at the price tag, and President Donald Trump has taken a wait-and-see stance, so more aid for states does not appear to be imminent.

Brown has received agency plans she ordered earlier this month for $3 billion in spending cuts, amounting to 17% of their general fund support starting July 1. But no one expects those cuts to pass the Legislature. Brown has the authority to cut spending across the board, but only lawmakers can approved selected cuts.

PMG FILE PHOTO - Gov. Kate Brown's 2019-21 budget will face big cuts because of the pandemic shutdown.Brown also could impose a hiring freeze — although she has said more workers have been needed at the Employment Department and other agencies affected by the pandemic and the downturn — or employee furloughs.

"The latest forecast for state revenue makes it clear that we have tough choices ahead," she said in her statement Wednesday. "We will need to tighten our belts. I am working with legislative leaders to preserve critical state services, find efficiencies, and prepare for potential budget cuts."

But neither she, Senate President Peter Courtney of Salem, nor House Speaker Tina Kotek of Portland have said when a special legislative session might occur. Kotek, in a video conference Tuesday, May 19, sponsored by the Portland Business Alliance, said lawmakers still need to assess other sources of aid stemming from the $3 trillion CARES Act.

She did say that a session is likely before August, and that lawmakers cannot put off action until their next regular session starts Jan. 11.

Other sources

Lawmakers were told that the state has $1.6 billion in its two main reserve funds — one generated by lottery proceeds for education, the other from income taxes for general programs — plus $1 billion in ending balances that lawmakers could tap. The reserve funds have had a chance to grow since the most recent downturn a decade ago, but lawmakers are barred from using all of the money in a single budget cycle.

PMG FILE PHOTO - State Economist Mark McMullen (right), with Senior Economist Josh Lehner told lawmakers Wednesday, May 20, that the state could take years to dig out of recession caused by the pandemic shutdown.The forecast by state economists also projects a 23% decline ($364 million) in Oregon Lottery proceeds, the lion's share of which is generated by video machines — which are mostly in restaurants, bars and taverns that have been shuttered since March 16. Lottery proceeds go to economic development and education, but voters have earmarked shares for an education stability fund, parks and watersheds, veterans' programs and outdoor schools. Lawmakers also have used lottery proceeds to repay bonds.

A new corporate activity tax, proceeds from which are earmarked for school improvement and other programs, is projected to generate 25% less ($414 million) than originally forecast. The tax took effect at the start of this year. Business coalitions have urged Brown and lawmakers to suspend the tax, which essentially is on gross Oregon receipts for all but the smallest businesses. Brown directed the Oregon Department of Revenue to waive penalties for late filings for businesses making good-faith efforts to pay, and allow the smallest businesses to pay in 2021.

McMullen said the pandemic-induced downturn has resulted in $9 million more than projected in marijuana taxes — but even they will decline slightly over the next few years. Most of that money is earmarked, so it does not go into general state services.

"We're trending high in marijuana sales," he said. "But even those taxes are not immune to the downturn."

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Link to report and other materials:

www.oregon.gov/das/OEA/Pages/forecastecorev.aspx

Reactions to the forecast:

Here are reactions to the May 2020 economic and revenue forecasts presented Wednesday, May 20, by the Oregon Office of Economic Analysis. (Gov. Kate Brown's statement is last; excerpts are in the main story.)

Senate President Peter Courtney, D-Salem:

"We knew the forecast was going to be down… really down. The governor and the Legislature have been preparing for this. We have the nerve, the moxie, to get through this. It will take coming together and working together as never before."

House Speaker Tina Kotek, D-Portland:

"Today's challenging forecast was expected given the devastating toll the coronavirus pandemic has taken on the Oregon and national economies. The state will rebalance its budget carefully and strategically.

"We must remember that budgets are not just numbers on a spreadsheet. Budgets are about people, our communities, and our collective well-being. We need to take the lessons learned from the Great Recession and do more to protect vulnerable Oregonians and rebuild an economy that promotes success for everyone.

"Fortunately, our state is in a far better financial position than it was at the start of the Great Recession. We have strong reserves that should be tapped early to avoid additional damage to our economy. I also believe increased bonding for public infrastructure will help to jumpstart the economy and put people back to work.

"Together, Oregon will survive this challenge and thrive again soon."

Senate Republican Leader Fred Girod of Lyons:

"Oregonians had a clearly defined goal from the beginning of the COVID-19 pandemic: to flatten the curve. Governor Brown's insistence to keep Oregon's economy shut down despite flattening the curve weeks ago has cost Oregon billions of dollars of revenue, impacting generations to come. This revenue loss could have been mitigated if the governor had been a leader and opened our state weeks ago."

House Republican Leader Christine Drazan of Canby:

"Oregon families are hurting and have been forced to make significant budget cuts. Now the state must take reasonable actions to bring the budget in line with declining revenues. The best approach going forward is for the legislature to do all we can to support a full economic recovery for hard-working Oregon families across this state, who were disproportionately harmed by the governor's executive shutdown orders."

House Majority Leader Barbara Smith Warner, D-Portland:

"These are unprecedented times for our state and nation. Across Oregon, families are suffering and people are scared about the future. In the coming weeks and months, we will do all that we can to find creative solutions to minimize impacts on the critical services that Oregonians are counting on now more than ever, including health care and education. We will do this with an eye toward equity and ensuring the resources we have are getting to the areas where they are needed most.

"Fortunately, thanks to prudent fiscal management over the years by Democratic leadership, Oregon is the most prepared it has ever been to weather an economic downturn. Together, we will get through this."  

Labor Commissioner Val Hoyle:

"This news is unprecedented in our lifetimes. It's not surprising after the drastic steps we've had to take to weather this global pandemic for more than two months.

 "These numbers show the beginnings of the impact the pandemic will have on Oregonians, our small businesses, and our economy for years to come. It's incredibly sobering. There are no easy solutions.

"We need to have thoughtful and inclusive decision-making on the state budget as soon as possible to begin to support workers and businesses, ensure access to critical state services, and move our state forward in a responsible way. The legislature should meet as soon as possible for a special session to make these decisions.

"I stand ready to work with the governor, legislators, and other elected officials across the entire state to rebuild Oregon's economy. Workers, businesses, and all of our residents are depending on us to come together and find a path forward."

John Larson, president, Oregon Education Association:

"The COVID-19 pandemic has made clear that Oregon's neighborhood public schools and colleges not only play a vital role in the education of our state's students, but also in keeping our state's economy moving forward. That is why, despite today's difficult revenue forecast, it's absolutely critical that state lawmakers do everything in their power to ensure Oregon schools will have the resources they need to safely reopen their doors to students this upcoming academic year.

"Safely reopening Oregon schools will require the state to make additional investments in our K-12 and college education systems, and certainly cannot be achieved through severe budget cuts and layoffs. Oregon decision makers must prioritize securing additional federal support, tapping into budget reserves, and enacting creative cost-saving solutions in order to protect our schools from cuts that will only make it harder for our state to climb out of this deep recession."

 

Alejandro Queral, executive director, Oregon Center for Public Policy, Portland:

"Today's economic and revenue forecast removes any shred of doubt that, absent congressional action to shore up state budgets, the public services Oregonians depend on are at risk of being eviscerated. With Oregon staring at a $2.7 billion drop in expected revenue in the current budget period, it is incumbent on all Oregon elected leaders — regardless of political affiliation — to demand swift action by Congress in extending aid to state and local governments.

"At stake in this fiscal crisis is the ability for our communities to thrive. This is about whether teachers, state troopers, and health care providers will continue to perform their vital work. This is about whether foster children and adults with disabilities will receive the care they need. This is about whether, at a time of a public health emergency, low-income Oregonians will be able to continue receiving health care. Public services are always vital, but even more so during tough economic times like now, when more Oregonians turn to the state for help.

"The harm to Oregonians from congressional inaction is likely to linger well beyond the public health emergency. Budget cuts means fewer state contracts to businesses throughout the state; it means layoffs to teachers and other public employees. As a result, less money flows into communities throughout the state, further depressing economic activity.

"We appreciate the leadership from some of Oregon's elected leaders who have already made forceful calls for congressional action. The time is now for every elected official in the state to call on Congress to take action in order to protect all Oregonians."

Gov. Kate Brown:

"From the outset of this pandemic, it has been clear that the need for critical state services would far outstrip our resources as a state. Working Oregon families are counting on us to deliver COVID-19 emergency response efforts, while also ensuring public health, public safety, housing assistance, food assistance, unemployment insurance, and so many more essential state government functions continue uninterrupted.

"The latest forecast for state revenue makes it clear that we have tough choices ahead. We will need to tighten our belts. I am working with legislative leaders to preserve critical state services, find efficiencies, and prepare for potential budget cuts.

"Make no mistake, the budget gap created by this pandemic is too large to bridge without additional congressional action. I am thankful for the work of our congressional delegation to secure federal funding for Oregon in the relief packages Congress has passed so far. But those funds only address a fraction of our current need, especially since we are not permitted to use the funding we have received so far to address state budget shortfalls.

"As a state, we took action to shutter our economy in order to save lives in the middle of a once-in-a-century crisis. Now it's time for Congress and the president to step up and provide once-in-a-century support for important state services, including schools, health care, and public safety."

NOTE: Adds statements from various officials and organizations.


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