Transcript Legislative Revenue Office November 2011 UPDATE ON OREGON’S REVENUE SITUATION OVERVIEW      Oregon & the U.S.

Legislative Revenue Office
November 2011
UPDATE ON OREGON’S REVENUE
SITUATION
1
OVERVIEW





Oregon & the U.S. remain mired in a very slow economic recovery.
Oregon tax collections have picked up from the recession lows and
are tracking very close to forecast.
Growing uncertainty over Euro Zone finances and U.S. fiscal policy
have caused forecasters to lower U.S. and global growth projections
for 2012.
The lower national forecast translates into a modest downward
revision in the 2011-13 General Fund revenue projection. Revenue
projections beyond the 2011-13 biennium are also down reflecting
the assumption of lower trend economic growth.
Although the economic forecast continues to call for slow growth, the
risks of recession are rising. If a recession materializes the General
Fund revenue forecast would be revised down sharply.
2
OREGON’S LABOR MARKET:
JOB GAINS TOUGH TO COME BY
(QUARTERLY PAYROLL EMPLOYMENT IN 1,000S)
Oregon Employment
1750
1700
1650
1600
Oregon Employment
1550
2007/1
2007/2
2007/3
2007/4
2008/1
2008/2
2008/3
2008/4
2009/1
2009/2
2009/3
2009/4
2010/1
2010/2
2010/3
2010/4
2011/1
2011/2
2011/3
1500
3
OREGON ONLY ABOUT 1/5 OF WAY BACK TO
PRE-RECESSION EMPLOYMENT LEVEL
(THROUGH SEPTEMBER 2011)
160,000
140,000
120,000
100,000
Jobs Lost in Recession
Jobs Gained in Recovery
80,000
60,000
40,000
20,000
0
Oregon Payroll Employment
4
SCHOOLS ARE TAKING MAJOR EMPLOYMENT HIT
(OREGON EMPLOYMENT)
Change from Oct 2010 to Oct 2011
0
-1000
Government
Employment
Local Education
Employment
-2000
-3000
Change from Oct 2010 to
Oct 2011
-4000
-5000
-6000
5
OREGON WITHHOLDING RECEIPTS REFLECT MODEST
EXPANSION
(QUARTERLY WITHHOLDING RECEIPTS COMPARED TO PRIOR YEAR)
% Change in State Withholding Receipts
10.0%
8.0%
6.0%
4.0%
2.0%
% Change in State
Withholding Receipts
2011:3
2011:2
2011:1
2010:4
2010:3
2010:2
2010:1
2009:4
2009:3
2009:2
2009:1
2008:4
2008:3
-4.0%
2008:2
-2.0%
2008:1
0.0%
-6.0%
-8.0%
6
THIRD QUARTER COLLECTIONS TRACKED SEPTEMBER FORECAST CLOSELY
(IN MILLIONS)
Net Personal Income Tax
Revenue
Sept Forecast
3rd Quarter Collections
Net Corporate Income Tax
Revenue
$-
$500
$1,000 $1,500
7
ECONOMIC OUTLOOK:
THE DECEMBER FORECAST

Key Assumptions




U.S. policy makers impose
gradual long-term budget
reductions
European policy makers
avoid messy sovereign debt
default
Business investment and
exports lead U.S. to modest
growth
Unemployment declines
but remains high keeping
inflation under control
6.0%
5.0%
4.0%
3.0%
Oregon
Personal
Income
U.S. CPI
2.0%
1.0%
Oregon
Payroll Jobs
0.0%
8
DOWNSIDE RISKS ARE SUBSTANTIAL

Stagnation




U.S. policy makers reach impasse
on budget talks forcing acrossthe-board spending reductions
European policy makers fail to
implement long-term sovereign
debt plan leaving bond holders
uncertain
Slowing world economy and
uncertainty slow U.S. investment
and exports
Unemployment drifts up while
inflation and interest rates
remain very low.

Back into Recession






China slows more than expected
reducing overall world growth
The Euro Area economy enters sharp
recession reducing U.S. exports and
increasing risk premiums on
sovereign debt
U.S. fiscal policy turns sharply
contractionary
U.S. exports slow sharply and net
business investment turns negative
Unemployment rises back above 10%
while inflation remains subdued
Despite falling into recession, the
rate of decline in the U.S. economy is
restricted by the already low level of
economic activity, especially housing
9
GENERAL FUND REVENUE
GROWTH TREND
(% CHANGE FROM PRIOR BIENNIUM)
General Fund Revenue
25.0%
20.0%
15.0%
10.0%
General Fund Revenue
5.0%
0.0%
-5.0%
-10.0%
10
DECEMBER REVENUE FORECAST CHANGES
(IN MILLIONS)
2011-13 Biennium
General Fund
Total Lottery Earnings
Total General Fund/ Lottery
Revenue
December 2011 Estimate
Changes from September
$13,755.1
-$84.3
$1,101.9
-$22.5
$14,857.0
-$106.8
11
FORECAST CHANGE FROM SEPTEMBER
TO DECEMBER
(IN MILLIONS)
General Fund/Lottery Revenue
$2011-13 2013-15 2015-17 2017-19 2019-21
$(50)
$(100)
$(150)
$(200)
General Fund/Lottery
Revenue
$(250)
$(300)
$(350)
12
THE GENERAL FUND ENDING BALANCE
(IN MILLIONS)
2011-13 General Fund
Revenue
Close of Session Estimate
December 2011
Estimate
$14,032
$13,755
Total Ending Balance
$446.3
$169.3
Supplemental Ending
Balance
$299.3
$22.4
Traditional Ending Balance
$147.0
$147.0
13
UNCOMMITTED RESERVES
(IN MILLIONS)
Projected 2011-13 Ending Balance
December 2011 Estimate
Rainy Day Fund
$45.9
Education Stability Fund
$10.7
Total Reserves
$56.7
14
LOTTERY HAS STABILIZED BUT GROWTH IS SLOW
(LOTTERY EARNINGS IN MILLIONS)
$1,400
$1,200
$1,000
$800
Dedicated Lottery
Discretionary Lottery
$600
$400
$200
$2009-11
2011-13
2013-15
15
HOUSING MARKET STARTING TO SQUEEZE
PROPERTY TAX REVENUE
(IN MILLIONS)
School District Property Tax Revenue
$1,600.0
$1,400.0
$1,200.0
$1,000.0
$800.0
School District Property Tax
Revenue
$600.0
$400.0
Projected Growth Rates
2011-12: 2.17%
2012-13: 2.42%
$200.0
$2009-10 2010-11 2011-12 2012-13
16
CONCLUSIONS

Modest economic growth remains most likely scenario but stagnation
and outright recession are major risks




Stagnation Scenario would reduce 2011-13 General Fund revenue by
$300 to $500 million.
Recession Scenario would reduce 2011-13 General Fund revenue by
$800 million to $1 billion.
Long-term U.S. and Oregon economic growth depends on restoring
international competitiveness through productivity enhancing
investments in physical capital, human capital and infrastructure i.e.
there are no quick fixes
Oregon is in a good position to take advantage of a long run shift to
business investment and exports as the primary U.S. economic
growth drivers.
17