Rep. Dennis Richardson: Oregon Rebalance and Revenue Forecast

I am State Representative Dennis Richardson and I write this newsletter for Oregonians interested in what can be done to make Oregon a better place to live and work. This edition focuses on two subjects, the Rebalance of the current 2009-11 budget and selecting a reliable Revenue Forecast for the 2011-13 budget.

Rebalance. Oregon’s current 2009-11 State Budget, hopefully, has been backfilled with enough money for key programs to finish this biennium.  In last week’s newsletter I mentioned a potential shortfall of $163 million.  Fortunately, we will need to backfill “only” $77 million at this time.  The difference may or may not be needed, depending on various considerations, including the June 2011 Revenue Forecast (which will be released on May 12th).  Allocating $77 million to “Rebalance” the current budget will have consequences.  Every dollar spent to back-fill the current budget is a dollar not available for the 2011-13 budget.

2009-11 has not been a good biennium for Oregon. There has been a $1.1 Billion reduction in spending due to overly-optimistic revenue forecasts from the 2009 legislative session. Today’s $77 million backfill is required to maintain vital services and programs that would have been shut down by such a large reduction in their budgets so late in the biennium. (Click here.)

Why have Oregon’s tax revenues dropped so low?  Oregon’s General Fund revenue primarily comes from personal income taxes and, for more than ten years, Oregon’s unemployment rate has exceeded the national average.  For more than a year now, Oregon’s official unemployment rate has hovered around 10.6%.  When those who have accepted part-time jobs are added to the list, the number of Oregon workers who are either unemployed or underemployed climbs to 20%.

The message is clear.  When Oregon workers are not working they are not earning.  Consider this fact. According to the Legislative Fiscal Officer, there are 16,000 fewer Oregonians working today than in 2000.  Think about it.  Oregon’s population grew by 409,550 between 2000 and 2010, and there are 16,000 fewer Oregonians working today than ten years ago. No wonder Oregon’s forecasted income tax revenues have plummeted. (Click here)

Revenue Forecast for 2011-13. With the Rebalance of the 2009-13 Budget, we can now turn our attention to balancing a budget for 2011-13. The series of reduced revenue forecasts that plagued 2009-11 have also progressively lowered the 2011-13 Revenue Forecasts.

The May, 2007 Revenue Forecast estimated General Fund revenues for 2011-13 would be $17.7 billion, and by the March, 2011 Forecast the estimated revenues for 2011-13 had dropped by $4 billion to the current forecasted revenues of $13.77 billion.

Why are these Quarterly Revenue Forecasts so important? To create a State Budget the Co-Chairs of Ways & Means must first agree on how much revenue the state can expect to receive during the next two-year budget period. From the graph of Quarterly Revenue Forecasts for 2011-13 above, we see that if last year’s March 2010 Forecast estimate for 2011-13’s revenue were used to set the revenue amount for the next two-year budget, it would have over-estimated expected revenues by nearly $1.3 billion more than the estimate contained in the March 2011 Forecast that was released last week.

Since Oregon’s Revenue Forecasts are vital to the budgeting process, and since 93% of Oregon’s revenues come from personal and corporate income taxes, let’s consider the State Economist’s history of forecasting Oregon’s employment recovery.

Every Quarterly Forecast for the past three years has opined a rapid and substantial recovery in the months that were to follow it.  Every forecast was consistently optimistic and each was consistently wrong.  Seeing the same 45% upswing after every forecast brings to mind the upbeat song from the 1930’s, “Happy Days Are Here Again.”  Unfortunately, singing the song with every forecast did not make it so.  Why should we assume last week’s forecast for an immediate strong recovery is any more reliable than the previous eleven Quarterly Revenue Forecasts?  (Note: The State Economist and his staff are highly trained and they use the best tools available to develop their Forecasts.  This newsletter is not a criticism of their work.  The problem we face is the inherent inaccuracy of forecasting; consequently, a revenue forecast fails to provide the reliability needed to create a stable State Budget.)

The challenge we now face is this: The Ways & Means Committee leaders must agree on a reasonable and rational revenue figure to use for determining how much can be spent during the 2011-13 biennium. If the right figure is selected, there will be enough money available to fund full school years for our students, to pay for health and human services programs for our most vulnerable citizens and to pay for prison costs and patrol officers to ensure public safety.

If we choose a revenue figure that is too high—as was the case for the 2009-11 State Budget, we invite another biennium of cuts and chaos for our agencies, programs and schools. The dilemma is real. Just in the three months since the December 2010 Forecast, the estimated General & Lottery Funds revenues have dropped by another $109 million. (Click here.)

Since so much depends on the selection of the right revenue amount to use for crafting the 2011-13 Budget, and since the State Quarterly Forecasts have been overly-optimistic by $4 billion in the past three years, I do not feel overly confident about using the most recent Revenue Forecast as the template for planning the State’s General Fund expenditures for the next two years.

In some states, the legislators are given a vote on which level or forecast should be used as the budget’s starting point. I will do the same thing here for 2011-13. Each of the Oregon’s 30 Senators and 60 State Representatives will be sent a survey, along with this newsletter and its links to the March 2011 Forecast (Click here.), and the Legislative Revenue Office’s LRO Forecast Summary (Click here.)

Here’s the information upon which the 2011-13 Revenue decision must be made. The March 2011 Revenue Forecast states the combined General and Lottery Funds’ revenues for 2011-13 will be $14.902 billion (down $109 million from the amount forecasted last December).

After adjustments we have a net revenue forecast of General Funds and Lottery Funds of $14.892 billion.

Historically, the Legislature merely accepts the most recent Revenue Forecast ($14.892 billion) and budget against it, assuming it to be reliable.  My question is this:  Do you believe we should use the standard Forecast number again for 2011-13 or should we budget against a different number—either a more optimistic or a more prudent revenue level?

In addition to asking this question of the 90 Oregon legislators, I am also asking for your opinion. (Please note, the revenue figure selected for budgeting purposes has nothing to do with the “Oregon Kicker.”)

What do you think the prudent level of revenue should be for 2011-13? Please remember the consequences we have suffered in the past as a result of the “Happy Days Are Here Again” syndrome. Should we stay with the State Economist’s most recent Revenue Forecast or should we increase or decrease it?

Since we all must live with the consequences of this important decision, please share your opinion. What you think is important to me. (To Take This One Question Survey, Click Here.)

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Posted by at 11:34 | Posted in State Budget | 31 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Steve Plunk

    The State Economist has obviously failed to make anywhere near an accurate projection. I dare say I could have done better. Perhaps it would be best to take those numbers and always add in a safety factor that would make it more pessimistic. In business we do it, we hope for the best yet prepare for the worst.

    The economy is in a perpetual stall with energy prices holding us back along with the fear of more Obama regulations. Until we do something to lower energy prices and get government off the backs of small business we can expect anemic job growth.

  • Brodhead

    I think unemployment will be reduced as the baby boomer retires. By 2015 unemployment should go below 6% nationally. between 10 million and 15 million boomers will have left the work force by then. But I would have to say that long term revenue forecasts would tend to be much less dramatic than what is listed in your Op-Ed.

    I am not certain of Oregon, but the boomer demographic will have a huge effect on housing, stocks, and loss of federal revenue over the next 20 years.

    Our manufacturing base has been replaced by retail jobs selling Chinese made products.

    http://www.BrodheadForCongress.com

    • Notworking

      You forget that new people are being born and they want jobs, too. The rate will not be below 6% by 2015. Absolutely impossible.
      Check back and we will see, but you are wrong.
      How nice to see that the only way we can get better employment is for people to retire.
      What a great laser focus on jobs by the admin.
      Wonderful.

      • Brodhead

        There is the baby Boomer wake to deal with!

        http://www.boomerswake.com/2008/11/welcome-to-boomers-wake.html

      • Brodhead

        There is the baby Boomer wake to deal with!

        http://www.boomerswake.com/2008/11/welcome-to-boomers-wake.html

      • Brodhead

        Here read this article. if you are a demographics person, this will help you visualize what I am certain of!

        Welcome to the Boomer’s Wake!
        A baby boomer is defined by Wikipedia as person who was born during the post World War 2 baby boom between 1946 and 1964, and are currently in their 50’s and 60’s.

        Being the largest population group in the United States, the boomers play a major role in setting the political agenda, driving the economy and using up the planet’s resources.

        Why do we pay attention to demographics?

        Studying demographics helps tell the future, because there are pretty consistent trends that occur when a person moves through various age groups. In a very simple analysis of typical trends and consumption at various ages, we see the following:

        Age 1-10 – Childhood – diapers, baby products, early education, etc…

        Age 11-20 – Jr. high, high school and college years – clothing, games, music, movies, fast food, etc…

        Age 21 – 30 – Young adult – technology, alcohol, social causes, entertainment, starter jobs, new cars, starter homes, etc…

        Age 31 – 40 – Career and family – home upgrades, kids, entertainment, vacations, larger cars, peak borrowing, heavier income tax contribution, etc…

        Age 41 – 50 – Disposable income – high salaries, reduced debt, peak spending, teenage kids, empty nest, retirement contributions, comfort, etc..

        Age 51 – 60 – Investors/Leaders – Retirement investment, real estate investment, business investment, charity, travel, medical procedures, etc…

        Age 61 – 70 – Retirement focused – fixed income, medical issues, retirement deductions, downsize homes, leisure, etc…

        Age 71+ – Senior years – medicare and social security dependency, retirement homes, charity contributions, etc…

        Given the predictability of behavior of people in a particular age group, look at how easy it is to explain our recent history and give us a crystal ball into the future.

        By the end of the ’50s, the boomers became teenagers. This explains the massive explosion of music, movies, diners. i.e. Happy Days and hula-hoops.

        In the ’60s and ’70s, the boomers were in their 20’s and were very socially active, fighting against the war and going to Woodstock.

        In the ’80s, the boomers were hitting their prime and the economy started to roar. Real estate and the auto industry thrived as the suburbs exploded.

        In the ’90s, the boomers were peaking financially and the stock market started to peak as well.

        And now that the boomers are starting to retire in this decade, converting themselves from earners and consumers to retirees, it is not a coincidence that the stock market and economy has stalled considerably. Those who study demographics know it happened right on schedule, starting in 2007 when the first baby boomers hit retirement age.

        So if economic activity booms when the majority is in their 30’s and 40’s, but slows when they reach their 60’s and 70’s, it would seem that we are now facing an insurmountable economic slowdown for years to come. And if you throw in the financial ramifications of funding medicare and social security in the next decade, we are facing an enormous economic burden. But don’t worry…

        Here comes the calvary!

        The good news from an economic perspective is that the baby boomers had kids in large numbers. Their kids are known as echo boomers, or Gen Y. This is an almost equally large population of people born in the 80’s and 90’s. Echo boomers are between 15 and 28 years old right now and given the predictable trends we mentioned earlier, they are just getting through college and starting their careers. So when they reach their 30’s and 40’s, they will become truly significant earners and tax payers, but unfortunately, this will not occur for about 10 years.

        So…

  • AZbound

    I just wonder why Intel chose to locate its newest plant in Arizona?? Could it possibly be that Oregon is a lousy state for business? High taxes, regulations, uneducated work force, etc.?
    There must be something going on.
    Maybe our new governor could talk them into expanding here.
    Maybe not.

    Well, it was fun…

  • Fakeposter

    I won a small government contract to seed these kind of sites with fake posts lending support to the admin and other Dems. The pay is not that great, but it is at least better than my unemployment.
    Too bad this site won’t get me much money. I need to show them (my bosses) that people are actually reacting to my false posts.
    Can you guys help me out here and react a bunch to my post supporting the higher taxes needed to stimulate Oregon’s moribund economy???
    Thanks.

  • Kriticul_airer

    TO: Rep. Dennis Richardson
    FROM: Former Oregon Business Owner

    You really don’t know?… “Why have Oregon’s tax revenues dropped so low”… go ask your 2009 Democratic colleagues… maybe they will fill you in.

  • Ozymandius

    We need to prepare for a lower revenue and budget accordingly. If more money comes in, we need to set some aside for the future and return the balance to the people, to keep the economy going, rather than suddenly find excuses to spend it. We are in the predicament we have today precisely because federal and state governments looked at large revenues during boom years as an endless cash trough, spent all the surpluses, and made future budgets based on the foolish assumption that a short term increase in revenue could be projected into an ever bigger long term increase. That is crazy! If I get a promotion and pay raise today of 10%, I don’t assume that every year I will get 10% more money and mortgage away my future. If I put that extra 10% this year into savings instead, I have a much better financial future than if I spend it. Same should happen with governments!

  • Ron Marquez

    Take the March 2011 revenue forecast and reduce it by 10%. Then take 3% right off the top and set it aside in a “true” rainy day fund. The remaining pot is the 2011-2013 biennial budget.

    Try it, you’ll like it.

  • Britt Storkson

    Rep. Richardson: You could end public-private partnerships and save about $1 Billion. Public-Private partnerships are simply a way to funnel public money to private individuals and are clearly unconstitutional (Oregon State Constitution Article XI, sections 6, 9). Yet I haven’t heard even on legislator propose that. Why?

  • Britt Storkson

    Rep. Richardson: You could end public-private partnerships and save about $1 Billion. Public-Private partnerships are simply a way to funnel public money to private individuals and are clearly unconstitutional (Oregon State Constitution Article XI, sections 6, 9). Yet I haven’t heard even on legislator propose that. Why?

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