A student at Chiloquin Elementary School plays a game to help with new vocabulary words. School districts across Oregon could be facing rare midyear budget cuts due to a loss in state revenue expected from federal tax cuts. (Photo by Alex Baumhardt/Oregon Capital Chronicle)
Oregon schools could face rare multi-million dollar losses and budget cuts in the middle of the school year because of new federal tax policies.
Lower than expected state revenue due to congressional Republican’s summer tax and spending law that will extend to the state, as well as rising unemployment, are causing state leaders to prepare for a 2.5% to 5% reduction — potentially hundreds of millions of dollars — in state funding to Oregon’s 196 school districts over the next two years.
The state’s general fund, made up largely of income tax revenue, supplies two-thirds of Oregon school funding. That means less money for schools when income taxes decline and fewer people are working.
School district leaders and advocacy organizations on Wednesday called on the Legislature to help them by tapping Oregon’s $1.2 billion education stability fund, meant to help stabilize education spending in a budget emergency, during the short legislative session scheduled to begin in February.
Voters amended the state constitution in 2002 to create the fund, an investment account seeded quarterly with a portion of state lottery proceeds. It can be used during economic downturns with approval of three-fifths of the Legislature, or 18 senators and 36 representatives.
At a news conference hosted by the Coalition of School Administrators and the Oregon Association of School Business Officials, Umatilla School District Superintendent Heidi Sipe said she and other superintendents will need emergency funding to weather changes through the current school year and prepare for leaner years ahead.
The Legislative Fiscal Office requested each state agency conduct a budget exercise for the Legislature to consider as it prepares its response to the state’s fiscal outlook under the new tax policy, Liz Merah, a spokesperson for the Oregon Department of Education, said in an email.
“The governor is not recommending any cuts that would impact the core services that the state provides. Even in a challenging fiscal environment, ODE’s focus remains unwavering: supporting Oregon’s students, families and schools,” she said.
It’s the first time since the 2008 financial crisis and recession that Oregon schools have had to change course on their budgets in the middle of the school year.
During that time, Sipe said, she was forced to freeze hiring for open positions and cut some classes and programming, making “emergency survival decisions” to keep schools open.
“These cuts resulted in lost learning opportunities, and a measurable decline in student success that took years to reverse,” she said.
By 2013, Oregon had some of the lowest graduation rates in state history, and among the lowest graduation rates in the nation.
“This figure didn’t reflect the failure of our students, or staff’s dedication, it was a predictable outcome of sustained financial distress,” Sipe said.
Lawmakers last tapped the Education Stability fund in the 2019-21 two-year budget cycle, to help schools navigate new expenses during the COVID pandemic.
Revenue shortfall
In July, state lawmakers approved a record $11.4 billion investment in Oregon’s K-12 schools. Days later, the Republican’s summer tax and spending law passed and in August, state economists forecast a two-year state budget shortfall of $888 million. That’s because Oregon’s tax law automatically mimics any tax changes passed at the federal level.
Lawmakers at the end of the Oregon legislative session in July set aside $472 million from the state’s general fund to provide a buffer for expected revenue losses, but that leaves a remaining $373 million shortfall, and schools are among the largest expenses for the state’s general fund.
The state’s next revenue forecast, scheduled to be released Nov. 19, is expected to paint an even more strained economic situation as unemployment figures rise, meaning less state income tax will be collected.
New unemployment claims filed with the state are up nearly 8% this year — a high since 2021 — and the state’s jobless rate was 5% in August, a high that hasn’t been hit since the pandemic, according to the Oregon Employment Department. August is the latest month for which data is available because of the ongoing government shutdown.
Rising costs and cuts
Oregon schools are looking at scenarios ranging from a 2.5% to 5% cut, “from various state funding sources that support Oregon schools,” over the next two years from, according to a news release from the school administrators coalition and the school business officials’ association.
For small districts, like Umatilla in eastern Oregon, each 1% reduction in state spending on schools could equal a loss of roughly $200,000 a year, Sipe said.
For the state’s second largest district, Salem-Keizer, each 1% reduction in state funding amounts to a loss of $4 million a year, or $8 million over the biennium, according to Superintendent Andrea Castañeda. A 5% cut could leave Salem-Keizer schools short $40 million over the next two years.
Meanwhile, staff salaries and pension costs — 95% of Salem-Keizer’s operating budget — are expected to grow by $50 million this year, Castañeda said. Rising costs coupled with less money will create a fraught situation for the district, she said, and she is already looking to cut $25 million from the budget next year.
Portland Public Schools, the state’s largest district, is also staring down a $50 million budget shortfall for the upcoming school year, according to reporting in Willamette Week.
Rising costs of the Public Employee Retirement System are also dogging district budgets across the state, according to Krista Parent, director of the school administrators coalition, and Jackie Olsen, executive director of the school business officials’ association. Parent said the first 30% of any biennial state school fund allocation goes to paying schools’ PERS obligation.
Olsen called PERS reform the “elephant in the room” and said that though reforms are needed, any changes to how much schools are compelled to contribute to the system won’t have an immediate impact on the emergent budget issues.
“PERS reform, I think, is such a hot topic and something that is so big, I don’t think that we have an easy solution for that, nor do I think that that is anything that I have any recommendations for, or even know how that would solve some of those problems long-term,” she said.
Commented
Sorry, there are no recent results for popular commented articles.