The Oregon Economic and Revenue Forecast released today is full of mostly good news, but also hints at less good news just around the corner.
Better than expected revenue projection this bienniums, based on job growth and higher wages, have trimmed the state’s projected 2017-2019 budget hole to $1.4 billion, but warning signs abound that Oregon’s economy is cooling off as the nation may be inching toward a new recessionary cycle. A trade war could accelerate an economic slowdown in Oregon.
State economists say Oregon’s economy remains solid, but a "pervasive slowing of job growth” is sure to intensify calls for deeper spending cuts in the next biennium. Governor Brown and Democratic legislative leaders acknowledge there is a structural gap between Oregon’s revenues and spending levels, but there isn’t consensus on how to bring them into alignment.
Here is how state economists predict the short-term outlook for Oregon:
"While Oregon’s economic expansion continues, growth has clearly slowed. In recent years, the state has enjoyed robust, full-throttle rates of job gains in the 3-3.5 percent range, or nearly 5,000 jobs per month. No longer is this the case. Oregon is expected to continue to see healthy job gains – a bit more than 3,000 per month or just more than 2.1 percent over the course of the 2017-19 biennium, but the state is now past its peak growth rates for this expansion. Importantly, such gains remain strong enough to hold unemployment down and account for ongoing population growth.”
One piece of news that may please personal income taxpayers, but add to the distress of legislative budget-writers is the likelihood that Oregon’s unique “kicker" will be triggered. If actual revenues exceed 2 percent of what is projected in the state budget, all revenues above the projected total will be rebated to personal taxpayers. Based on current numbers, that would mean around $400 million going back into taxpayer pockets as refunds when they file their tax returns for 2017 next year.
Here is some of the other good news contained in the forecast:
- Oregon’s average wage gains are in the 3-4 percent range, which have helped to bring wage levels in the state closer to the national average – the highest relative level they have achieved since the 1980s when many timber mills were shuttered.
- Labor participation rates have sharply increased for workers between the ages of 35 and 50 since 2015 – and grew 10 percent for workers nearing 65 years of age.
- Oregon household incomes are on the upswing, which can be expected as labor markets tighten.
- Rising household incomes have, in turn, kept the state’s housing affordability crisis and poverty rates from getting worse.
- Oregon’s unemployment rate has plunged, making the 3-month decline in the first quarter of 2017 the largest ever recorded in state history.
- Ten economic sectors have recovered from Great Recession job losses and now are at all-time high employment levels. They include food manufacturing, education, health care, professional services, leisure and hospitality and retail. Oregon’s manufacturing sector has returned to growth in recent quarters, but job levels have not.
- Nationally, US exports have rebounded, while consumer spending slowed in early 2017.
- Most of the indicators used to mark up-or-down economic movement are in positive territory. One of the exceptions is income tax withholding levels from Oregon paychecks.
Release of the May Economic and Revenue Forecast provides the baseline numbers and starts the final countdown on state budget approval before the regular legislative session ends around July 4. The forecast also signals the final political push for a spending and revenue package that can pass.
Elements of a possible deal have surfaced, but so far the deal doesn’t appear to have been closed. Brown says there has been continuing engagement with business leaders on an acceptable budget deal. She also has proposed a massive sell-off of surplus state assets to reap as much as $5 billion to buy down the unfunded liability of the Public Employees Retirement System. Agreement on filling Oregon’s Medicaid budget hole are also close to completion..
Senator Mark Hass, D-Beaverton, has unveiled his proposal to replace the current Oregon corporation income tax with a broader-based gross receipts tax. House Democratic leaders have come up with a corporate activity tax that also would replace the current corporate tax regime.
The next six weeks will be intense in Salem. Fortunately, today’s revenue forecast didn’t make the situation even tenser.