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Oregon Tax Revenue Holds Steady
May 29, 2008
Author: CFM Staff
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Oregon Democratic legislative leaders breathed a sigh of relief today as the latest economic forecast showed virtually no change in state tax revenues. However, House Republican Leader Bruce Hanna, R-Roseburg, said a flat economy is a signal to cut state spending and enact tax incentives to encourage investment and new jobs.
The quarterly economic forecast presented today in Salem to state lawmakers tracked closely with previous assessments in projecting flat economic growth and even a mild, relatively short recession. Since earlier forecasts took that into account, there was little change in the latest projections for state tax revenue in this biennium, which ends June 30, 2009.
The forecast for General Fund revenue in the current biennium is $1.3 billion, an increase of $91 million from the March 2008 forecast. State economists noted the small uptick was caused by "unique circumstances" in the personal income tax, such as federal stimulus checks, and isn't a reflection of improving economic conditions. Minus those unique circumstances, the economists said there would have been a mild downward revision of tax revenues.
Economists say Oregon is faring better during this economic downturn because the nation's weak dollar has translated into higher exports for Oregon manufacturers. The value of the U.S. dollar has dropped over the last four years, and this week the Canadian dollar was nearly equal on exchange rates to its U.S. counterpart. They also say the national housing slump is less severe in Oregon, though the effects of that slump have devastated the forest products industry.
Oregon's employment rate has grown for 19 months in a row, though growth has slowed substantially in the last six months. In the first quarter of 2008, jobs grew by 0.9 percent, compared to 2.7 percent in 2006. Oregon's housing market has experienced fewer foreclosures, less price depreciation and relatively smaller build-up of inventory. A report this week said Portland's home prices have dropped 4 percent in the first quarter of the year, compared to 14.1 percent nationally.
State economists warned of looming risks. A deviation in projected revenues of around $350 million, they said, might force lawmakers back to Salem in an emergency budget session. Such a deviation could occur if consumer confidence continues to lag, inflation picks up or the cost pressures of higher food and energy prices weigh down the economy.
That threat prompted Hanna to issue a statement saying "Oregon's stagnating economy is unacceptable." He called for a 5 percent across-the-board state General Fund spending cut and a hold on filling state employment vacancies. Hanna also criticized what he termed "excessive pay raises" to state managers, which he said "sends the wrong message to taxpayers and working families."
"Rather than devoting the 2009 session to raising taxes and increasing spending," Hanna said, "the legislature must focus on gearing our tax system to improve the economy and create new jobs."
Faced with the loss of more House seats in the 2008 election, Hanna and other GOP leaders are warning that Democrats could gain enough votes to pass a series of tax increases that Republicans would be unable to block.
Senate President Peter Courtney, D-Salem, saw a more positive spin to the economic forecast. "Today is a good day," Courtney said, "made possible because beginning in the 2007 session and continuing in February, Democrats and Republicans have worked together to chart a responsible course that will allow us to continue to avoid economic storms."
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