Stuck in Low Gear

Oregon's stagnant economic recovery is likely to shift the legislative focus to reforming the Public Employees Retirement System to relieve pressure on the state and local budgets.The latest quarterly revenue forecast drew a sigh of relief from lawmakers who won't face the prospect of immediate spending cuts. But the accompanying economic forecast confirmed what people feel — Oregon's economic recovery is stuck in low gear.

If nothing else, the forecast served as the opening act of the 2013 legislative session.

New House Republican Leader Mike McLane seized the moment to underscore that 160,000 Oregonians are out of work and may have slim prospects if the state economy continues to limp toward recovery. "Without stronger private-sector job growth," he said, "the next legislature will have difficulty funding education and other services at the levels Democrats promised to voters in the recent election."

"As 2012 winds down," said State Economist Mike McMullen, "Oregon's economic expansion persists, but remains stuck in low gear. Growth continues to come in fits and starts — a strong quarter or two followed by a weak quarter or two, with the underlying trend remaining slow and steady." 

The forecast, which Senate President Peter Courtney said shows "signs are positive," means lawmakers won't have to break out their budget axes. But the weak recovery is certain to fuel a more intense debate in the 2013 legislative session about stimulating the economy and restraining spending.

A focal point of that debate will be changes that Governor Kitzhaber seems prepared to advance to the Public Employees Retirement System (PERS), which is projected to soak up a sizable percentage of tax revenue growth in the next biennium.

Again, McLane was quick to point to PERS reforms. "House Republicans," he said, "will insist on major PERS reforms to direct more money to Oregon classrooms, while decreasing the strain on state and local governments." McLane also pledged to work in the spirit of co-governance with Democrats "to set aside reserves to protect Oregon against potential revenue declines in the future."

One source of immediate concern is the failure of Congress to strike a budget and tax deal that avoids plunging the nation over the so-called fiscal cliff, which economists warn could send the United States back into recession.

A slowing economy in China and continued debt worries in the European Union also have unsettled exporters and other businesses here, making them more cautious about hiring new workers.

How to stimulate Oregon's economy will be a hotly debated topic in the upcoming legislative session. Kitzhaber will argue that PERS reforms and cost controls on health care are needed to free up public and private resources that can go for more teachers and private spending. Incoming House Speaker Tina Kotek has pledged to work on affordable housing initiatives. Republicans will emphasize what they call pro-growth tax reform and leveraging natural resources in rural parts of the state.

There also will be debate over infrastructure investment, including whether and how to pay Oregon's $450 million share of the Columbia River Crossing project. Treasurer Ted Wheeler and others will forward ideas about non-traditional, multi-state approaches to investment in roads and other job-creating infrastructure.

While the forecast may not have been explosive, it certainly qualifies as the first shot in the next legislative cycle.