Revenue Forecast (11/20/19)
Today the Office of Economic Analysis presented its second economic and revenue forecasts of the 2019-2021 biennium. The general outlook is that there has not been any significant changes since the previous forecast for the State of Oregon but at the US level there is still a fear of recession. A recent poll indicates of economists across the nation showed that the fear of recession has declined from 35% to 30% in the last few months but most agree that the US will enter a recession next year. The upside is that consumers appear to be still willing to spend which is currently propping up the US economy. In Oregon there has been a sharp slowdown in employment growth. This slowdown has reached every corner of the state. The causes are largely due to slower sales growth, rising business costs, uncertainty at the federal and state level, a tight labor market and one notable mass layoff at a food processing plant in the Mid-Willamette Valley.
The one big upside to the tight labor market has been an appreciable increase in Oregon’s medium income. The tight market has resulted in up-ward pressure on incomes and as a result Oregon’s medium income is above the national average for the first time since 1980.
Bottom line, Oregon’s revenue outlook remains stable but also remains susceptible to an expected recession. The key will be how deep and how long that recession lasts. So now to the numbers:
Third Quarter personal income tax collections were up $13.1 million (0.5%) from the September forecast and personal income is up $3.7 billion (1.7%) from the September forecast. Third Quarter corporate income tax collections were up $9.2 million (4.2 %) from the September forecast and is up $135 million (11.3%) from the 2017 COS estimate. General Fund (GF) gross revenue is up $148.6 million (0.7%) from the 2019 COS estimate and Net GF and Lottery resources are up $490.8 million (2.0%) from the 2019 COS estimate.
As a result, Oregon’s PERSONAL Kicker is NOT expected to kick for 2021. However, the corporate kicker is currently estimated to kick to the tune of $135.1 million for the 2021-2023 biennium.
Projected 2019-2021 projected combined net General Fund and Lottery resources are up $166.8 million (0.7%) from the September Forecast. Currently the state has healthy levels of money in the Educational Stability Fund and Rainy Day Funds that will temper any substantial reductions in revenues to the state in the event of a recession.
One thing that I mentioned in the previous forecast was that the 2021-2023 biennium was expected to see a 3.5% reduction in available General Fund and Lottery Resources. This forecast shows that $207.8 million will be added to the budget which should slightly temper the predicted reduction.