Oregon State Economist Says Steep Decline Is Leveling Off

SAN FRANCISCO - The Oregon state economist last week reduced his 2009-11 general fund revenue forecast by $139.1 million, or about 1%, excluding the impact of new taxes.

The forecast shows that Oregon - which has the nation's fourth-highest unemployment rate at 11.9% - continues to suffer economically, but the decline has slowed markedly in recent months. Past forecast revisions required double-digit cuts to revenue forecasts.

"We have started to level off from previous steep revenue losses, which is good news and indicates the recovery is on its way," said Gov. Ted Kulongoski, a Democrat. "However, this report also indicates that the recovery before us will be long and slow, which calls for continued discipline and prudence on behalf of all state government and the Legislature."

Kulongoski and lawmakers balanced their shrinking budget by cutting spending growth, raising taxes and spending most of the state's reserves during the legislative session that ended in June.

Including tax hikes, the state's revenue picture brightened significantly from the last forecast on May 15. Personal income tax collections are forecast to be $11.4 billion in the 2009-11 biennium, up $390.9 million from the May forecast. Corporate income taxes are forecast to reach $831.6 million, up $221.9 million from earlier projections.

All told, the state economist, Tom Potiowsky, raised his revenue projection to $13.4 billion from $12.5 billion. That's an increase of $919.1 million, or 7.3%, from the May forecast.

The improvement in the revenue forecast is more than accounted for by $733 million of personal and corporate income tax increases and $225 million of spending from the state's rainy-day fund.

The Legislature also passed significant increases in vehicle license fees and gas taxes to fund new transportation infrastructure projects earlier this year.

The revenue gains may be vulnerable to efforts to roll back the tax increases at the ballot box. Groups such as Oregonians Against Job-Killing Taxes and Oregonians Against Highway Robbery are collecting signatures for ballot initiatives that would repeal tax increases approved during the legislative session that ended in June.

"The greatest risks to our economy and state budget are the $733 million in income and corporate tax increases passed this year," said House Republican Leader Bruce Hanna, R-Roseburg. "These permanent, job-killing tax increases will hurt small businesses and make Oregon even less competitive."

Hanna and Republicans are in the minority in both houses of the Legislature, and they were powerless to block Democratic tax increases during the legislative session.

But anti-tax groups have had success with Oregon's mostly Democratic voters in the past. Voters rejected a 2007 measure that would have increased tobacco taxes to fund health care, and in 2003 and 2004 voters rejected temporary tax increases to balance the state budget during the jobless recovery from the 2000-2001 recession.

"While our budget remains balanced today, the potential for ballot measures during a special election in January puts that in greater jeopardy, creating a significant hole in the state budget that would result in serious cuts to education, public safety and human services," Kulongoski said.

Oregon's general obligation bonds are rated Aa2 by Moody's Investors Service and AA by Fitch Ratings and Standard & Poor's.

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