Oregon's latest two-year state general fund revenue projection is up slightly from earlier this year, though the state's leaders remain guarded about how stable its economic gains really are.
The state's quarterly economic and revenue forecast for 2015-2017, prepared by the state's Office of Economic Analysis and last issued in late August, projected that Oregon will collect about $18.029 billion through the end of that biennial period. That figure is up from about $18 billion in the September forecast, driven largely by a projected growth of nearly $40 million in corporate income taxes.
"Oregon's General Fund revenues are growing strongly," the report said. "Over the first four months of the 2015-17 biennium, personal income taxes, lottery sales and corporate taxes all grew at double-digit rates relative to last year. Although much of this growth was expected, gains in corporate taxes and lottery funds outstripped what was called for in the September forecast, leading to an upward revision to the outlook. Total available resources – combined general fund and lottery – are now expected to be $56 million larger over the current biennium than what was expected when budgets were drafted in the summer."
But the report also raised questions about the stability of Oregon's apparent economic strength and whether revenue could remain strong when the Federal Reserve allows interest rates to rise.
"The revenue outlook is stable, yet uncertain," the report said. "Volatility in equity markets is injecting a great deal of risk into the forecast. Oregon's budget depends heavily on personal income tax collections tied to realizations of capital gains. These collections are extremely volatile, with revenues subject to the sometimes unpredictable behavior of investors. Many analysts believe equity markets will take a step backward soon after monetary policymakers begin to raise interest rates this winter."
The report also notes, as it has previously, that the long-term revenue forecast is potentially subdued due to demographic changes that will challenge the entire country.
"Revenue growth in Oregon and other states will face considerable downward pressure over the 10-year extended forecast horizon," the forecast predicted. "As the baby boom population cohort works less and spends less, traditional state tax instruments such as personal income taxes and general sales taxes will become less effective, and revenue growth will fail to match the pace seen in the past."
Oregon Gov. Kate Brown released a statement Dec. 2 expressing guarded optimism about the economic forecast.
"The forecast is more than a number, it directly correlates to state government's ability to support the health of our schools, resiliency of our communities, and growth of our businesses large and small," Brown said. "While the forecast is stable through this biennium, I am watching carefully to make sure we are able to respond nimbly and appropriately should the landscape change."
The state's next economic forecast is slated for release in March.