Oregon Economic and Revenue Forecast 2020-02-12¢  Oregon Economic and. Revenue Forecast....

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Transcript of Oregon Economic and Revenue Forecast 2020-02-12¢  Oregon Economic and. Revenue Forecast....

  • Oregon Economic and Revenue Forecast

    March 2020 Volume XL, No. 1

    Release Date: February 12, 2020

    Katy Coba Kate Brown Prepared By: Chief Operating Officer Governor Office of Economic Analysis DAS Director Department of Administrative Services

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    Department of Administrative Services Katy Coba

    DAS Director Chief Operating Officer

    Office of Economic Analysis Mark McMullen, State Economist

    Josh Lehner, Senior Economist Kanhaiya Vaidya, Senior Demographer

    Michael Kennedy, Senior Economist

    http://oregon.gov/DAS/OEA http://oregoneconomicanalysis.com http://twitter.com/OR_EconAnalysis

    http://oregon.gov/DAS/OEA/ http://oregoneconomicanalysis.com/ http://oregoneconomicanalysis.com/ http://twitter.com/OR_EconAnalysis http://twitter.com/OR_EconAnalysis

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    Foreword

    This document contains the Oregon economic and revenue forecasts. The Oregon economic forecast is published to provide information to planners and policy makers in state agencies and private organizations for use in their decision making processes. The Oregon revenue forecast is published to open the revenue forecasting process to public review. It is the basis for much of the budgeting in state government.

    The report is issued four times a year; in March, June, September, and December.

    The economic model assumptions and results are reviewed by the Department of Administrative Services Economic Advisory Committee and by the Governor's Council of Economic Advisors. The Department of Administrative Services Economic Advisory Committee consists of 15 economists employed by state agencies, while the Governor's Council of Economic Advisors is a group of 12 economists from academia, finance, utilities, and industry.

    Members of the Economic Advisory Committee and the Governor's Council of Economic Advisors provide a two- way flow of information. The Department of Administrative Services makes preliminary forecasts and receives feedback on the reasonableness of such forecasts and assumptions employed. After the discussion of the preliminary forecast, the Department of Administrative Services makes a final forecast using the suggestions and comments made by the two reviewing committees.

    The results from the economic model are in turn used to provide a preliminary forecast for state tax revenues. The preliminary results are reviewed by the Council of Revenue Forecast Advisors. The Council of Revenue Forecast Advisors consists of 15 specialists with backgrounds in accounting, financial planning, and economics. Members bring specific specialties in tax issues and represent private practices, accounting firms, corporations, government (Oregon Department of Revenue and Legislative Revenue Office), and the Governor’s Council of Economic Advisors. After discussion of the preliminary revenue forecast, the Department of Administrative Services makes the final revenue forecast using the suggestions and comments made by the reviewing committee.

    Readers who have questions or wish to submit suggestions may contact the Office of Economic Analysis by telephone at 503-378-3405.

    Katy Coba DAS Director Chief Operating Officer

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    Table of Contents

    EXECUTIVE SUMMARY .………………………………………….……...…….…….....……………….. 1

    ECONOMIC OUTLOOK ……………………………………………………………….……………….….. 2

    U.S. Economy ……………………………………………………………..….………………………. 2

    Oregon Economy ……………………………………………………………...……………………… 4

    Oregon Labor Market …………………………………………….……………..………................... 6

    Leading Indicators ……………………………………………………………..……………………... 9

    Short-term Outlook ………………………………………………………………..………………….. 10

    Forecast Risks ………………………………………………………………..…………................... 12

    Alternative Scenarios ………………………………………………………..………………………. 14

    Extended Outlook ……………………………………………………………..……………………… 15 REVENUE OUTLOOK …………………………………………………………………………………….. 21

    General Fund Revenues, 2019-21 ………………………..……………………………………...… 22

    Extended Outlook ………………………………………..…………………………………………... 24

    Tax Law Assumptions …………………………………..………………………………................... 24

    Alternative Scenarios ……………………………………..………………………………………….. 25

    Corporate Activity Tax ……………………………………………………………………………….. 25

    Lottery Outlook …………………………………………..………………………………................... 26

    Budgetary Reserves …………………………………..………………………..………................... 28

    Recreational Marijuana ………………………………..………………………..………................... 29

    POPULATION AND DEMOGRAPHIC OUTLOOK …………………………………………………….. 31

    APPENDIX A: ECONOMIC ……………………………………………………………………………….. 34

    APPENDIX B: REVENUE …………………………………………………………………....................... 42

    APPENDIX C: DEMOGRAPHIC ………….………………………………………………....................... 57

  • EXECUTIVE SUMMARY

    March 2020

    U.S. economic growth has settled in around its potential in recent quarters. The outlook is stable and the risk of recession is receding. The trade war deescalated with the signing of the Phase One trade deal between China and the U.S. and financial markets calmed following the Federal Reserve’s shift in policy.

    Local and national strength lies in the labor market where ongoing job gains are more than enough to meet labor force and population gains. Encouragingly the more-plentiful, and better-paying job opportunities are generating a supply side response. Workers continue to come off the sidelines and join the labor force.

    One risk to the U.S. and global outlook is the potential human, social, and economic impacts of the coronavirus. Economically the worst case scenario is fears over the virus are a coordinating event that serves as a recession catalyst. Other direct impact channels, however small here in the U.S., include supply chain disruptions, lower volumes of trade, reduced Chinese tourism, and increased financial market uncertainties.

    Oregon’s stronger long-run economic growth historically is tied to migration and faster working-age population gains. The primary risk to the local outlook is the available labor supply, particularly as recent population estimates indicate migration is slowing more than expected. To the extent Oregon’s labor force and employment gains no longer outstrip the typical state in a mature expansion, the state must rely more upon its industrial structure and productivity gains to drive faster overall economic growth.

    While growth has slowed across many economic indicators, the same cannot be said for Oregon’s primary sources of tax revenue. They continue to outstrip the performance of the underlying economy. The primary forecasting challenge for the current biennium is to determine what portion of the recently strong tax collections is due to temporary factors that will fade away.

    Even without the onset of recession, revenue growth is facing major headwinds during the current biennium. State and federal tax policies, a big kicker refund and slower economic growth will all weigh on General Fund revenues in the near term.

    The longer the revenue boom persists, the more likely it becomes that permanent factors are playing a significant role in boosting tax collections. As such, revenue estimates for the current biennium have been steadily revised upward over the past two years.

    Even so, given that job gains and population growth have both taken a step back, some moderation in state revenue growth is likely going forward. It is also likely that the unprecedented surge in collections that occurred during the last tax filing season was due in part to taxpayers shifting their payments response to federal tax law changes, and other temporary factors.

    Together with state and federal tax law changes, the uncertain economic outlook is currently injecting a considerable amount of risk into the revenue forecast. Both April tax filing seasons are yet to come this biennium, leading to a wide range of possible outcomes. Despite this uncertainty, this forecast reflects a relatively stable outlook, with General Fund collections increasing by just over one percentage point.

    Fortunately, Oregon is better positioned than ever before to weather a revenue downturn. Automatic deposits int