Today the Office of Economic Analysis presented its third economic and revenue forecasts of the 2019-2021 biennium. The risk of a recession has slackened since the last forecast largely due to the easing of trade tensions and the fact that the Feds reduced interest rates; thereby giving markets more confidence. The chance of a recession this year are 1 in 4. However, keep an eye on the coronavirus. Recessions are largely widespread global psychological events and this could serve to kick start a recession if it continues to spread. It is already having an impact on particular supply chains and tourism.
Productivity, GDP and income growth in Oregon are outpacing the rest of the country. Oregon household income now averages above the US average; the first time since the 1960 census. Interestingly, the state has seen a recent spike in estate taxes driven by a few hundred wealthy deaths in the state. In fact, estate taxes are exceeding the forecast by some $87 million already in the biennium.
Despite slowing job growth we are seeing growth in a wide variety of revenue (personal income, liquor, gambling etc.) going to the state.
$17.6 million will be transferred to the PERS UAL because the legislature passed a measure years ago that if estate taxes exceed a certain threshold (10 year average), it gets transferred to this account to reduce employer unfunded liability. That law also applies to capital gains and repatriation of offshore funds. Also, reserves continue to accumulate and are slowly reaching their statutory caps of 15% of the General Fund.
Now to the numbers:
Fourth quarter personal income tax collections were up nearly $40 million (1.5%) from the December forecast and personal income is down $600 million (-0.2%) from the December forecast. Fourth quarter corporate income tax collections were down $39 million (-21.3 %) from the December forecast and up $121.9 million (10.2%) from the 2019 COS estimate. General Fund (GF) gross revenue is up $437.5 million (2.1%) from the 2019 COS estimate and net GF and Lottery resources are up $674.3 million (2.8%) from the 2019 COS estimate.
At this time, Oregon’s PERSONAL Kicker is NOT expected to kick for 2021. However, the corporate kicker is currently estimated to kick to the tune of $122 million for the 2021-2023 biennium.
Projected 2019-2021 projected combined net General Fund and Lottery resources are up $183.4 million (0.7%) from the December forecast. As previously mentioned, the state's reserves continue to grow and we have healthy levels of money in the Educational Stability Fund and Rainy Day Fund that will temper any substantial reductions in revenues to the state in the event of a recession.