Oregon could face a $1.6 billion shortfall in the next two-year budget due to immense unanticipated spending on pandemic and wildfire recovery and a slowdown in tax revenue growth.
Less than two months ago, legislative analysts pegged the dollar figure for a status quo 2021-23 budget at $25.6 billion. They predicted the state would be $793 million short of general fund and lottery dollars needed to balance that budget.
Then, lawmakers approved $800 million in additional COVID-19 response and wildfire recovery spending, including to aid to tenants and landlords, during a one-day special session in December. That brought the potential budget gap for the next two-year cycle to $1.6 billion.
Rep. Dan Rayfield, a Corvallis Democrat who is a co-chair of the Ways and Means committee, said in a news briefing with House Speaker Tina Kotek on Monday that legislative committees will soon begin working on proposals for how state agencies could absorb budget cuts of 5% to 7%, if that turns out to be necessary.
Even as Oregon lawmakers spent more than anticipated last year in response to the pandemic and historically large wildfires, the state’s tax revenues grew more slowly than expected. Still, income tax revenue remained stronger than some leaders initially worried it might be in the early months of the pandemic. Lawmakers will get a better picture of the revenue outlook at forecasts on Feb. 24 and May 19.
Kotek, a Democrat from Portland, recalled on Monday how the forecast for tax and lottery revenues shot up $2 billion in September, surprising many and taking some of the short-term fiscal pressure off lawmakers.
Therefore, she wants to wait on the additional forecasts this month and in the spring before making budget decisions, she said.
“I don’t think you want to be cutting a whole bunch of essential services” before getting a better picture of projected revenues, Kotek said. At the same time, she said legislative leaders are aware of tough economic times and do not want to add new programs except to address racial inequities.
Lawmakers and state analysts are also still figuring out details of how Oregon can use federal aid in the second COVID-19 relief bill Congress passed in December, which could help reduce the budget gap.
Rayfield said video lottery closures due to the pandemic cost the state tens of millions of dollars a week in lost revenue. He also noted that a new law that voters approved in November contributes to the budget gap by redirecting roughly $100 million in recreational marijuana tax revenue from public schools to “addiction recovery centers” and drug treatment and related services.
To balance the 2021-2023 budget, Rayfield said he expects lawmakers will need to use a combination of cuts to government services, tapping savings accounts and assistance from the federal government. He noted one state reserve account is known as the rainy day fund and “I would most certainly say that it’s raining.”
Not all the fiscal conversations in Salem are about cuts. Both the December budget brief from the Legislative Fiscal Office and the new iteration budget writers are now developing include $195 million for raises and other compensation increases for state employees. Some governors implemented pay freezes or furloughs to shore up budgets during the pandemic recession but Gov. Kate Brown chose not to seek any such concessions. State employees received approximately $200 million in pay increases in the current budget and Brown wants nearly the same amount in 2021-2023.
Rayfield said it would be irresponsible for the Legislature not to set aside that amount in anticipation of new contracts the governor is negotiating with the state’s powerful labor unions.
“You’d be surprised how much of that has to deal with step increases,” the automatic raises that public employees are guaranteed for an additional year of experience, Rayfield said. And if lawmakers do not approve the money, agency executives would have to lay off employees or hold jobs vacant, he said.