Executive Summary

The future of state General Fund revenues and federal discretionary spending in Oregon is not bright. The May Oregon Economic and Revenue Forecast projects state General Fund and lottery revenues for the next biennium will fall some $600 million below current spending needs, and over the next two biennia the resources available will be less than the Legislature anticipated at the beginning of the legislative session. Adding insult to injury, a new analysis of President Bush’s proposed budget by the Economic Policy Institute shows that federal discretionary spending in grants-in-aid to the State and to local governments in Oregon will fall short of current needs both next year and 10 years from now, when the Bush-proposed tax cuts are fully implemented.

The forecasts show:

• Oregon’s real, per-capita General Fund revenue is expected to decline by 2.7 percent between 1999-01 and 2001-03.
• The May General Fund and lottery forecast for the 2001-03 biennium anticipates that the state will collect $593.2 million less than is necessary to provide the same level of services provided this biennium (1999-01).
• Available general fund revenues for the 2003-05 biennium will be $340 million, or 2.7 percent, less than what was forecasted last December. Revenue for the 2005-07 biennium will be down by $435.7 million, or 3 percent from the December 2000 forecast.
• Federal domestic discretionary spending in Oregon is estimated to be $1.3 billion in federal fiscal year (FFY) 2001.
• Relative to the FFY 2001 baseline, FFY 2002 federal aid to the State and to local Oregon governments will decline by nearly $102 million, or 7.2 percent. Ten from now projected federal discretionary spending in Oregon will be nearly $224 million, or 11.8 percent, less than the current services spending.

Needed (and Possible) Corrections:

• Reclassify the state receipt of federal Medicaid Upper-payment Limit (MUL) payments.
• Pay the debt this biennium that Oregon owes to federal retirees as the result of a lawsuit the retirees won against the state years ago.
• Suspend the kicker completely with a three-fifths vote.
• Use tobacco settlement funds wisely, not unsustainably.
• Avoid making significant or back-loaded large tax cuts.
• Scale back the size of the proposed federal tax cuts.