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Entries in Revenue forecast (5)


Inching Closer to the "K" Word

It's amazing how quickly you can forget something like the personal kicker, the obscure Oregon income tax provision that can suddenly rain on the parade of an economic recovery for state government.

State economists gave lawmakers this week their latest quarterly estimate of economic progress and state tax collections. The news was good, maybe a little too good. Net proceeds for the State were projected upward by $54 million as a result of more people working, especially on housing. That means no budget cuts to existing state agency budgets.

But the latest uptick in state revenue is precariously close — about $72 million — from the trigger that would require the return of the entire surplus of $290 million or more to state personal income taxpayers, leaving an unanticipated hole in budget planning.

The personal and corporate income tax kickers were instituted by lawmakers to prevent lawmakers from spending "surplus" revenues that exceeded by 2 percent projections on which spending bills were based. The kickers were akin to a financial chastity belt to avoid legislative spending sprees during economic good times that couldn't be sustained in the inevitable economic bad times. 

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Will Oregon's Economic Slump End?

Oregon, like the rest of the country, is stuck with a stubbornly slow economic growth rate, said state economists during August's revenue forecast, and it's behind the national curve for recovery. But there are some bright spots that hint at an end to the slump.

Growing slowly

Oregon's unemployment rate by region, July 2011 (Office of Economic Analysis)Oregon experienced its third straight quarter of job growth, the longest growth streak since 2007. The bad news is the rate of growth is tiny – just 0.7 percent in the second quarter. Normal job growth is almost twice that rate.

The bad economy has caught up with the public sector, which employs around 18 percent of Oregon's workforce. According to the Office of Economic Analysis, budget shortfalls in the last few years are now converting to layoffs, especially in local government and education. That's  put a drag on overall job growth in the near term.

The other major factor affecting job growth is the continuing failure of the housing market, according to economists.

Other economic factors help to paint a bleak picture. In the first half of 2011, estimated GDP growth was 0.8 percent.  Personal income growth in June was only 0.1 percent and consumer spending fell 0.2 percent.  Chief Economist Mark McMullen told legislators Oregon's economy could suffer as consumer pessimism from the East Coast moves westward.

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Lawmakers Anticipate Busy February Session

Anticipating a busy 2012 session, lawmakers will hold three more sets of "legislative committee days" before February to tee up issues as they nervously await two more revenue forecasts that could determine whether budget-cutting will be a focus of their attention.

Here are three examples of what we already know will be on the agenda:

Ways and Means leaders Sen. Richard Devlin, D-Tualatin, and Rep. Dennis Richardson, R-Central Point, may need to make budget adjustments in February.STATE REVENUE: Taking stock of a volatile state budget is an obvious reason for annual sessions. This time, the stakes will be very high as the state struggles to emerge from a stubborn recession.

August's forecast, released two weeks ago, showed state tax revenue declined by almost $200 million from projections at the end of the legislative session last June. While new State Economist Mike McMullen did not predict an "echo recession," he noted a loss of consumer confidence following congressional wrangling over the federal deficit.

The $200 million drop in revenue can be managed with the reserve legislators wrote into the budget, but deeper declines could mean more cuts.

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Revenue Forecast Shows No Major Changes

Legislators received mixed news this morning about the state's economy. An uptick in jobs and personal income means the the state's revenue over the next two years should be higher than it is now. But state economists predicted the current budget cycle will close down slightly on June 30.

For 2009-11, the "total combined resources" budget, including general funds and lottery money, is down $40.2 million from the previous forecast in March. That deficit may be manageable without cutting budgets by absorbing it in the agency "ending balances."

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Driving Toward the Finish Line in Salem

A key date occurs this week in the legislature's bid to close down by its June 30 target date. On Thursday, May 12, economists will present the final state revenue forecast before the end of the session. That forecast will fuel the drive to the finish line. 

Most observers expect the forecast to bring a bit of good news in the form of an increase in state revenue that will make it easier for legislators to reach final decisions on state agency budgets.

Traditionally, the mid-May forecast is the signal for a mad dash toward the end of the legislative session – and, remember, when legislators come to Salem, the only act they are required to perform is to produce a balanced budget for the next biennium.  Of course, most legislators want to do much more than "just" produce a budget, but this year budget decisions will be particularly controversial as a stubborn recession has limited the availability of state tax dollars.

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