The Oregon State Capitol canceled a Cherry Blossom Festival scheduled in March due to COVID-19. (Saphara Harrell/Salem Reporter)

Cuts to schools and other public services as well as a reduction to the number of state jobs could be on the way as a result of the COVID-19 pandemic, according to a state economic forecast released Wednesday.

Even with financial reserves built up, state leaders said help from the federal government is needed to keep services available and state employees on the payroll.

The quarterly economic and revenue forecast from the Office of Economic Analysis shows the state faces a steep decline in revenue due to the sudden halt in economic activity to slow the spread of COVID-19.

The forecast expects revenue for Oregon’s general fund, the state’s largest discretionary pot of money, to drop by $2.7 billion for the current two-year budget cycle, a nearly 11% reduction from the previous budget cycle. For the upcoming 2021-2023 budget cycle, it is forecast to drop by $4.4 billion.

Oregon’s current two-year budget puts the general fund at $22.4 billion, about a quarter of the total $85.8 billion state budget. The fund draws from corporate and personal income taxes and is used to fund schools, human services, public safety and other programs.

However, the forecast pointed to one bright spot.

“Fortunately, Oregon is better positioned than ever before to weather a revenue downturn,” the forecast said.

Over Oregon’s decade-long economic expansion, tax revenue has steadily been deposited into the state’s Rainy Day Fund and Education Stability Fund, which serve as savings accounts for the state. According to the forecast, there is a combined $1.6 billion in the accounts.

Statements issued by Gov. Kate Brown and legislative leaders noted the state’s reserves. A spokeswoman for Brown pointed to a report from Moody’s Analytics that found that Oregon is one of five state best prepared to weather the crisis.

“Fortunately, our state is in a far better financial position than it was at the start of the Great Recession,” House Speaker Tina Kotek, D-Portland, said in a statement. “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.”

However, both Brown and Senate Majority Leader Ginny Burdick, D-Portland, said that the state will need additional federal support to continue providing services because of the ongoing economic impact of the outbreak.

Oregon state government was provided $1.4 billion from the federal government as part of the coronavirus relief package. However, Brown has complained that the money can’t be used for state budget shortfalls.

The forecast states that the number of government employees will shrink more than predicted in previous forecasts but will remain relatively stable. There are currently over 300,000 government employees in Oregon, according to the forecast. That number is expected to dip to 293,000 in 2021 before climbing back up. It expects the 41,000 state government jobs to decrease by half a percent next year before increase.

The forecast attributes the drop to lower personal incomes as well as fewer people moving to Oregon because of the pandemic and the economic uncertainty.

“Five or ten years down the road, we expect Oregon to have fewer residents, lower levels of employment, and less total income than we assumed pre-virus,” the forecast said.

Metro areas, such as the Willamette Valley, will be better suited for growth during the recovery because of their concentration of business and professional services, according to the forecast.

The economy will begin to rebound as social distancing measures are lifted and formerly cooped-up consumers begin spending money again, according to the forecast. However, it predicts the recovery to last through 2021 with double-digit unemployment remaining for years and the labor market not recovering until the middle of the decade.

“Even after pent-up demand is unleashed, and the initial bounce back in activity occurs, we know the economy will not be fully healthy,” said the forecast. “There will be fewer businesses continuing to operate as not all will survive, these firms will employ fewer workers, and households will be earning less income overall.”

 Contact reporter Jake Thomas at 503-575-1251 or [email protected] or @jakethomas2009.

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