The December state general fund and lottery revenue forecast, released this morning, is down $106.8 million from the September forecast and $306 million from the close-of-session forecast.

This decline, termed a “marginal downgrade” by state economist Mark McMullen, continues a pattern of slow erosion in the forecast, but still leaves the state with a $169 million ending fund balance.  The ending fund balance, originally $446 million, was created by the legislature as a first-line-of defense to buffer potential downturns in the 2011-13 forecast.  Any remaining monies in the state’s ending fund balance are intended to be returned to state agencies (not K-12), whose budgets were reduced to create the buffer.

Based on this forecast, there does not appear to be a likelihood of mid-year or mid-biennium cuts to K-12 when the legislature meets in February.  Naturally, future forecasts, including the next one in February, will bear watching.

It remains unlikely that the legislature will allocate an additional $56 million to K-12 when they meet in February, as promised at the close of session (if state revenues were sufficient).  This means that for 2012-13, districts are expected to receive $25 million less in state funding than they receive this year.

The decline in the 2011-13 forecast is attributable largely to instability in Europe, rather than performance of the Oregon economy.  For example, Oregon income tax revenues are up by $16 million for 2011, and a number of Oregon business sectors are growing.
Future forecasts are also affected by the declining forecast.  For 2013-15, the forecast is down nearly $300 million, which is a decline in projected growth from 15 percent to 13.9 percent.