Information provided by Oregon Department of Revenue
First, the good news: the economic recovery persists, with recent upward revisions to both output and job growth suggesting that the domestic economy remains on solid footing. Now, the bad news: growth continues to be lackluster, below historical averages and just strong enough to keep the economy moving in the right direction.
Much like the nation, Oregon’s economy continues to improve, however, unlike the rest of the country, Oregon’s private sector employment has actually accelerated in recent months. Since the labor market recovery began, Oregon’s private sector jobs have been expanding at a rate just under 2 percent. Since the end of 2012, private employment growth has improved to approximately 2.5 percent. This increase is largely due to improving economies in regions of the state outside of the Portland metropolitan area. Portland’s employment growth has remained steady, while the rest of the state, in particular the hardest hit areas of Bend and Medford, have stabilized and even begun adding jobs in the past year.
The recent acceleration in employment is expected to hold steady over the next two years before longer-run demographic trends weigh-in on growth. There is the potential for a temporary slowdown this fall as the tax law changes and sequester cuts cause a drag on underlying economic activity. However expectations overall are solidifying and our baseline economic outlook remains effectively unchanged. Furthermore, many forecasters are turning their attention more toward the quality of the recovery and the types of jobs being added and focusing less on probability of recession, which is considered lower today than a year ago.
In keeping with the stable economic outlook, expectations for General Fund revenue growth have remained largely unchanged as well. Along with underlying job growth, personal income taxes paid out of labor income are expected to accelerate somewhat during the 2013-15 biennium. Healthy income tax collections during July and August suggest that tax revenues are following this script for now. Although improved, overall revenue growth is expected to remain modest from an historical perspective. Personal income taxes based on investment income will grow slowly in the near term since many Oregonians cashed out gains in 2012 in anticipation of federal tax rate increases.
Tax revenue growth is expected to fall in between the rates Oregon has become accustomed to during past periods of economic expansion, and the slow gains we have seen in recent years. Although the outlook for the 2013-15 biennium remains on track, the final weeks of the 2011-13 biennium were a disappointment. A backlog of personal and corporate income tax refund payments were processed and issued shortly after the May forecast was released. As a result, the 2013-15 beginning balance is now expected to be smaller than it was at that time. Technical factors related to borrowing costs and the fact there was no corporate tax kicker in 2011-13 help to offset this lower beginning balance.
In terms of the major General Fund components, a modest improvement in the outlook for personal income taxes is offset by an expected decline in corporate tax collections. All other General Fund revenues are raised slightly due to a stronger outlook in estate taxes. Furthermore, the lottery outlook is raised slightly as stronger traditional sales, particularly in jackpot games, offset a minor reduction in the video lottery sales outlook.
The combination of these items is a decline of $37 million in total available resources for the 2013-15 biennium. The outlook for 2015-17 is raised $5 million and, on net, the 2017-19 revenue outlook is unchanged.