Oregon Budget Likely to Get HitBy Nation's Downturn, Report Says

SAN FRANCISCO - A weakening national economy will take a bite out of Oregon's budget, even though the state has avoided the worst of the real estate bust, state economists predicted in a forecast report released Friday.

The state's latest quarterly revenue forecast includes a $183.1 million decrease in projected general fund revenues for the 2007-2009 biennium, which runs through June 2009. That revenue forecast is now $12.9 billion.

"The primary reason for the revision is the continued weakening of the national economy, with the baseline scenario involving a recession in the first half of 2008," the report said.

The state's Office of Economic Analysis also lopped $143 million from its baseline general fund revenue projection for the 2009-2011 biennium, reducing it to $15.7 billion.

Despite the slowdown from the national economy, the state's economists found that Oregon remains relatively free from the turmoil affecting housing markets elsewhere in the nation.

"Although housing foreclosures are up, Oregon has one of the lowest rates in the country," the forecast report said. "We also have one of the lowest proportions of subprime mortgages. On the other hand, Oregon is relatively high in the proportion of variable-rate mortgages."

The forecast projects a slowing Oregon economy in 2008 with mild growth returning in 2009, but notes that that projection is subject to risk and uncertainties.

Oregon does not have a sales tax, and its state budget is highly reliant on personal income tax collections, which have in the past been highly volatile, leading to a protracted budget crisis in 2003.

Lawmakers sought to address that volatility last year by creating a rainy-day fund that was seeded by suspending corporate income tax "kicker" refunds.

That action helped spur upgrades to the state's bond ratings from Standard & Poor's and Moody's Investors Service last year to AA and Aa2, respectively, while Fitch Ratings revised its outlook to positive on its AA-minus rating. e_SRitq

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