Revenue Forecasts Show Less State Income

Courtesy: Oregon Department of EmployLate last month, state economists confessed to Oregon's legislature that their predictions about the amount of tax revenue collected by the state were too optimistic, and in fact, the state would collect about $377 million less than they had forecast in June.

Of course, in June, the state economists admitted the same, and that time their predictions were off by $577 million. State economists go into confessional with legislators every quarter, and they almost always admit they were wrong. In all, the revenue forecast has dropped by $1.06 billion since the first forecast for this budget cycle, which economists released in June 2009.

The revenue losses have come almost entirely from personal income tax collections. More than 10 percent of Oregon's workforce is jobless, and that number has been above 10 percent for more than a year. If people don't have jobs, they don't pay taxes.

Corporations do pay taxes, however, and thanks to Measure 67, which voters passed in January, corporations are paying more taxes than ever. Some are paying taxes even if they don't make a profit (which might account for the sustained rate of job losses, but that's another story). The economists are predicting the state will collect slightly more in corporate taxes than they had originally forecast - about $40 million, which is only two-hundredths of a percent of the state's starting budget for the 2009-11 biennium.

In February, when the state legislature came together for a month-long special session, it passed a couple of budget-saving measures. One measure slashed the legislature's own budget, from office supplies to the number of days it could meet in a year, in order to save on per-diem expenses.  One was a fix to the Business Energy Tax Credit, or BETC, a program for renewable energy projects that was so expansive, legislative leaders were worried it would bankrupt the state. The governor wasn't as concerned, however, so he vetoed that savings measure.

The other savings measures stuck, and those adjustments resulted in $100 million in savings, which partially counteracted the decline in personal income tax revenues. So while the state economists were off by $377 million in their predictions about tax collection, the total adjustment was $261.8 million down.

After state economists emerged from their quarterly confessional with House and Senate members, legislative leaders and the governor announced they would fix the $261.8 million budget gap without legislative action. That means there won't be a special session this fall. There are rumors that if the next confessional, scheduled for December, is any worse, we might see a special session right before the legislature convenes for its regularly scheduled session in February.

There was one prediction the state economists made that required more attention: that this will be the longest and slowest recovery Oregon's economy has ever seen. Over the next couple of months, we at CFM will examine the short-term and long-term impacts of such a recovery. Stay tuned.