Nov 14, 2018
Today, the Office of Economic Analysis presented its sixth of eight economic and revenue forecasts of the 2017-2019. This forecast is somewhat critical in that it is used to develop the Governor’s Recommended Budget for the 2019-2021 biennium which will be released in early December.
For the current biennium, revenues continue to beat predictions and as a result, the tax kicker in 2019 has been increased for the 2nd time from the previous forecasts. As you will recall, the kicker is provided in the form of an income tax rebate. One of the primary drivers for the kicker was the Federal Tax Cut that was enacted earlier this year. However, this return of money will also cause some strain on budget writers who are predicted to face nearly a $1 billion structural shortfall in meeting current service levels.
The forecast anticipates a slowdown in the economy during the next biennium but the big question is when that slowdown will occur, how much of a slowdown and how long it will last. The Feds will continue to increase interest rates and there is a delay to the economy with those adjustments. 2019 will continue to see growth, but in 2020 they expect the economy to begin to slow down, with 2021 and 2022 getting even slower. While the Oregon Office of Economic Analysis is not calling for a recession in the Oregon economy yet, some see a full-blown recession within that time frame.
The good news in light of potential recession is that Oregon has saved nearly 10% of the what is being spent in the current biennium, placing the state in the position to be able to draw from those savings when the inevitable recession actually occurs.
The numbers:
Projected 2017-19 net General Fund Resources is up $59.5 million (0.3%) from the September forecast. Projected 2017-19 Lottery resources are up $16. million (1.1%) from the last forecast. Combined net General Fund and Lottery resources are up $75.5 million (0.3%) from the June forecast.
Personal income tax revenue was up $675.3 million (3.8%) from the Close of Session (COS) estimate. Corporate tax revenue was up $62.7 million (21.3%) from the September forecast and is up $229.6million (21.3%) from the COS forecast. Net GF and Lottery resources are up $1.339.8 billion (6.3%) from the COS forecast.
As a result, both the Personal and Corporate Kickers will kick even more than previously predicted. The June forecast predicted a $555.3 million kicker. The September forecast predicted a $686 million kicker. Today’s forecast predicts a personal kicker of $724.4 million personal kicker. The Corporate Kicker, which is directed to education rather than back to corporations will see an infusion of $229.6 million.
Written by:
Cindy Robert, Rainmakers Government Strategies