This morning our office released the May 2013 quarterly economic and revenue forecast. The full document, files and slides may be found over on our main website. You should also be able to follow along online in Hearing Room A.

Overall the outlook remains fundamentally unchanged, as seen in the first graph below. Our office projects that the economic growth will accelerate somewhat in the coming 2-3 years as three main things are happening. First, the two main drags weighing on recovery so far – housing and government – are lessening, which will boost growth. Second, the sentiment is changing for businesses and consumers alike and is now being reflected in the risks to the outlook for most economic forecasters. Third, balance sheets are in strong positions and continuing to improve, which should businesses and consumers feel more confident about their future prospects, will result in increased sales and economic activity.

The improved sentiment in economic forecast can been seen in this second graph illustrating the Wall Street Journal’s economic forecasting survey results. So far, most economists are sticking to their baseline forecasts and leaving growth rates unchanged, however the risks to the outlook have shifted. As shown in the green bars (measured on the right axis), so far in 2013 economists believe upside risks outweigh downside risks by about 60-40. This same pattern is true of our own Governor’s Council of Economic Advisors. The Council believes the baseline outlook is our best look, however there certainly is more upside risks than in recent years.

This improvement in the economy, particularly the projected pickup in employment growth, is built into the outlook. So far in recovery, Oregon’s private sector employment has increased at approximately a 2% annual rate, however our office expects this to increase to around 2.6% in the coming 2-3 years. Even so, these rates remain below the 3-3.5% rate Oregon has seen in past expansions. To the extent that some of these upside risks come to fruition – lower energy costs resulting in increased manufacturing activity, a stronger housing rebound, an increase in population, migration or the labor force participation rate – would likely increase the growth path, which would also increase the revenue outlook.

In terms of General Fund revenues for 11-13, these have increased $126.3 million, while Lottery resources are up $2.4 million. The increases in Lottery are due to stronger than forecasted sales in recent months. Our office built in weakness in sales in early 2013 following the expiration of the 2% payroll tax cut and sales were weak when compared with a year ago, however still above our baseline forecast. In terms of the General Fund for 11-13, the changes were nearly all in Personal (+$107.8 million) and Corporate (+$16.3 million). Personal tax collections are currently running ahead of forecast. Final payments this tax season are currently tracking just a bit ahead of forecast (and about 25% ahead of a year ago), however refunds are tracking low – which is a positive from a state revenue perspective. Corporate collections are projected to be a bit higher than in the March outlook, however this increase does puncture the 2% kicker threshold. Here is how this increase is characterized in the forecast document:

The rapid growth in corporate tax collections seen at the beginning of the year came to a sudden halt in April, leaving corporate collections very close to the kicker threshold (102% of the Close of Session forecast).  The May outlook assumes that revenues will come in $2.7 million above the threshold, generating a kicker payment of $20.3 million. Although a corporate kicker is incorporated into the baseline outlook, it is far from a sure thing.  The Department of Revenue is working through a processing backlog of refunds due to be recorded before the end of the fiscal year.  Should corporate revenues over the last six weeks of the biennium fail to match their level of last year (as they have in recent weeks), no kicker payment will be required.

The following graph takes a look at the source of the revenue changes since the last Close of Session forecast back in May 2011. The dark blue bars on the left illustrate the composition of the General Fund while the red bars on the right show both the total dollar amount of the forecast change and the percentage increase this represents. Based on our office’s historical errors, this current biennium is somewhat of an anomaly. Personal and Corporate income tax collections are off, on net, about $20.5 million, or -0.2%. All other General Fund revenues are up $237 million or 25%. This is largely a reflection of the rebalance plan put in place after the February 2012 annual session. At that time the General Fund forecast had declined by approximately $300 million and the Legislature moved to back fill some of those projected shortfalls. In this case, our 2 year ahead forecast (May 2011) turned out to be more accurate than our 1 year ahead forecast, which is not usually the case. In addition the other revenues that are considerably above Close of Session are generally due to some administrative or policy changes when discussing the liquor apportionment (bottle surcharge) and state court fees. All told, given the current forecast, the smallest error is on the largest – by far – component of the General Fund.

Finally, the last graph shows the evolution of the 2013-15 revenue outlook over the past 11 quarters. In terms of the revenue outlook, it largely follows the overall economic outlook in terms of upside and downside risk. Again from the document:

Although the baseline revenue forecast has not changed significantly, risks to the forecast are becoming skewed to the upside. Despite a relatively weak long-term outlook, a year or two of strong growth remains possible. In particular, if Oregon’s traditionally strong migration trends and labor force gains reappear, additional jobs and tax revenue can be expected.

 The primary downside risk facing the near-term revenue forecast is the uncertain future of the nationwide economic expansion. Should federal government austerity or economic weakness abroad derail the U.S. economy, the expected growth in Oregon’s tax collections will not materialize.

For much more information on the Oregon economy and state revenues, please refer to our full forecast document, over on our main site. In the coming week or so I will pull some of the information from the document and highlight it here on the blog.

This morning our office released the March 2013 quarterly economic and revenue forecast. The full document, files and slides may be found over on our main website.

As shown in the graph below, our office’s economic outlook has really been unchanged for the past 5 forecasts. While they remain qualitatively the same, each of those adjustments translate into around $100 million in revenue, which from a budgeting perspective is a significant amount.

Resources for 2011-13 are revised higher and now are about $90 million above the close of session forecast. This means the k-word now has the possibility of coming into play. Corporate revenues are about $4 million above close of session, making the corporate k-work a distinct possibility. The personal k-word threshold is about $176 million away. To reach it, we would need this coming April be like 2008 – taxes filed based on calendar year 2007 – but right now we are not expecting that level of revenue. This near-term upward revision is due to both recent tracking (2012q4 came in stronger) and also building in a larger pull-forward effect due to federal tax changes. We have always had a pull-forward impact in the outlook, however based on the information we have received from our revenue advisors plus conversations with other states, we have now increased this impact.

The table below shows how the outlook has changed for both the 2011-13 and 2013-15 biennia. If you were to ask if the 2013-15 General Fund was up or down, the answer is a somewhat confusing both. The underlying revenue outlook is down $68 million, however available resources are up about $93 million. This is due to the way the ending balance works and how it is carried forward into future biennia. If there is an ending balance, an amount equal to 1% of appropriations gets transferred to the rainy day fund. All other money above and beyond this 1% gets transferred to the beginning balance of the next biennium. So by raising the 2011-13 General Fund outlook by $161 million, this increases the ending balance by $161 million, which then goes into the 2013-15 beginning balance (the three stars). Since the ending balance for 2011-13 was already larger than 1% of appropriations, any revenue increases in the current biennium that do not get spent or redirected before the end of the fiscal year get translated into additional resources for the next budget period.

Lottery available resources are up slightly in 2011-13 due mostly to stronger video lottery sales during the holiday season, however the outlook is revised somewhat lower due to the expiration of the payroll tax cut hitting consumers’ disposable income.

All told, recent forecasts have shown that revenues are coming in today at or slightly above the expected rate which provides a larger ending balance for this budget period should this April tax filing season bring surprising bad news. Also the outlook for 2013-15 has stabilized in recent quarters as the Governor and now the Legislature craft the budget for the next biennium

Just a reminder that there are always lots of good items in the full forecast document, so you should read it if interested. I’ll be pulling some portions out and highlighting them on the blog in the coming weeks, in particular a more thorough look at the Lottery outlook, student loan debt and new regional economic graphs.

• simplex, simplicis, single
• duplex, duplicis, double
• triplex, triplicis, triple
• quadruplex, -plicis, quadruple
• quīnquiplex, -plicis, quintuple
• sesiplex, -plicis, sextuple
• septemplex, -plicis, septuple
• octoplex, -plicis, octuple
• nonaplex, -plicis, nontuple(?)
• decemplex, -plicis, decemtuple(?)
• centuplex, -plicis, centuple(?)
• sēsquiplex, -plicis, 1 and 1/2 … ple (?)
• multiplex, -plicis, manifold

Proportional Adjectives

These are the adjectival forms of numeral adverbs.

• duplus, -a, -um, twice as large
• triplus, -a, -um thrice as large
• quadruplus, -a, -um, four times as large
• decemplus, -a, -um, ten times as large
• centiplus, -a, -um, 100 times as large

Temporal Adjectives

• bīmus, -a, -um, two-years old
• trīmus, -a, -um, three-years old

• biennis, -is, lasting two years
• triennis, -is, lasting three years

• bimēstris, -is, occurring every (or lasting) two months
• trimēstris, -is, occurring every (or lasting) three months

Partitive Adjectives

• bīnārius, -a, -um, two-parted
• ternārius, -a, -um, three-parted

Other Numeral Adjectives

• prīmārius, -a, -um, of the first rank
• bīnārius, -a, -um, of the second rank
• (note, these are the partitives, but with a distinct meaning)

Temporal Numeral Nouns

• biduum, -ī, two days
• triduum, -ī, three days
• biennium, -ī, two years
• triennium, -ī, three years

Other Numeral Nouns

• ūniō, -ōnis, unity
• bīniō, -ōnis, a pair (often of dice)

This morning the Oregon Office of Economic Analysis is releasing the June 2012 Economic and Revenue Forecast. All documents, including a copy of the slides, are available on our main website. What follows is a very brief summary of the forecast in graphs and tables.

This first graph illustrates the revenue changes for the 2011-13 biennium revenue since December 2010. As stated, the underlying forecast changes (the blue bars) are relatively minor this quarter as two important things have happened: the economic outlook has stabilized and actual revenue collections have matched forecast well, especially considering we just went through an April. Being an income tax state, Aprils are vital to understanding the economy (via tax return data on income) and state revenues. So far for the biennium, one April is in the books without any major surprises, however there is one more April to go.

Where the real changes occur in the graph are in the second red bar, the 2012 Reblance Plan. The details are included in this file HERE (PDF page 13, document page 7) – warning, large PDF.

The table below shows these same changes. The three yellow, highlighted cells tell the story. The final, effective change this forecast has is the reduction of $17.9 million to the General Fund ending balance, plus the $0.2 million increase in Lottery Funds.

Lottery proceeds continue to grow slowly. Traditional Lottery (jackpot games, keno, scratch-its, etc) have been a source of strength in terms of Lottery revenue in the past year, partially due to the large run-up in Mega Millions. Video Lottery has continued to grow, albeit at a very slow rate relative to historical growth seen in expansions. The forecast calls for continuation of the same pattern, however with Video sales gradually improving over the next few years.

Finally, on the economy, the following table highlights the industry strength and weaknesses this recession when examining regional employment trends. This is taken from previous research shown on this blog (see HERE and HERE). It’s important to note that many of the more rural areas not only had concentrations in industries that experienced severe downturns (construction) but also in industries that are lagging this recovery (state and local government and construction, again). The regions that have experienced a (partial) recovery have diverse industry mixes, namely professional and business services, information, and trade, transportation and utilities.

In sum, this forecast is essentially unchanged relative to the March forecast in terms of the underlying economic and revenue outlook. Stay tuned to the blog for more research and economic outlook posts in the future. Full forecast documents and slides are available available on our main website.

The Democrats are banking on a delayed payment to public schools, which actually pushes the payment into a completely different biennium. I just finished my comments on the Supplemental Budget and immediately got a text from a friend back home telling me I did a good job with my comments.

There it is, the bipartisan vote here tonight was a no vote on the Supplemental Budget.

#supplemental #budget #no #vote #apportionment #biennium #delayed #payment #15th #District #Rep #David #Taylor

For the current biennium ending June 30, 2011 (FY2010-11), the deficit is projected to be $1.203 Billion which is primarily the result of $1.156 billion in lower than expected revenues, combined with the $91 million deficit from the previous biennium, and lower than expected spending of $44 million.  As explained in the forecast documents, most forecasters agree that the “Great Recession” is over because the country has seen positive real GDP growth in the third quarter of 2009.  This growth was accurately forecasted last February.  However, job losses and income projections were not as accurate, causing the change in the November forecast.

The state works on a two year budget cycle or on a biennial basis with the current biennium scheduled to end on June 30, 2011. The state constitution requires that the state’s budget be balanced for the current biennium. If the Legislature fails to balance the budget for the current biennium or if the Governor deems unilateral action is necessary, the Governor has the statutory authority to unallot (take back state money that was authorized to be spent, but that has not yet been legally committed) when the Commissioner of the Minnesota Management and Budget Department determines that the budget will be in deficit after taking into consideration the state’s budget reserve.

With the recent deficit news, the main purpose of the 2010 legislative session will be to balance the forecasted budget deficit and to pass a state bonding bill.  The session will begin on February 4, 2010 and is set to adjourn by constitutional mandate on May 17, 2010. After May 17, the Governor may call a special session of the legislature, if necessary.

Solving the $1.203 billion budget deficit can be done by legislative action, unallotment by the governor, or a combination of the two.  After the forecast release, the Governor issued a press release calling the deficit “significant, but solvable.”  Governor Pawlenty went on to request “that legislative leaders start committee hearings immediately to craft budget reductions that could be enacted promptly at the beginning of the legislative session.”  He also left unallotment, prior to the legislative session, as a possible partial solution as he “directed his cabinet members to begin working with legislators to discuss that potential unallotment [of local government aid] and other possible solutions.”

Additionally, Governor Pawlenty ordered state government agencies to place a hold on spending, targeting 3 percent of unspent operating funds in the current budget period. 

The governor’s press release lays out a possible scenario, through implication,  on how the deficit may be resolved.  First, it appears that the governor will likely unallot a portion of the Local Government Aid payments that are due to be made at the end of this calendar year.  Second, it appears that he will allow the legislature to act prior to further unallotments.  He may either make his own proposal for balancing the budget and present it to the legislature for action, or he may “request” that the legislature develop its own solution (as can be inferred from his Press Release).  Finally, if the legislature is not making sufficient progress in solving the deficit problem, the governor, as he did at the end of last session, may act unilaterally by unalloting.  If the governor proposed a budget solution to the legislature, that solution would likely be a roadmap to where the unallotments would be made.

One potential problem with this scenario, is that there is currently a lawsuit challenging the validity of the unallotment process followed by the governor earlier this year.  If the courts intervene and find the unallotment process invalid, the governor and legislature would have to agree to a solution, which would appear very difficult, if not impossible prior to the elections.  It is also possible that a legislative/governor fix could be delayed until the next legislative session with a new array of legislators and a new governor. 

Reaching a legislative solution that meets the governor’s requirements will be difficult because the governor will not support anything that can be portrayed as a tax increase.  This is consistent with the position he took last session and with his appeal to many prospective GOP presidential electors.  At the same time, the legislature and its leadership have been just as adamant that a solution to the deficit requires a balanced approach of tax increases, spending reductions, and finding more government efficiencies. 

To further complicate matters, in this election year, with various officials vying for political party support, they will be less likely to be swayed to the “political center” in search of a compromise for risk of damaging their respective endorsement chances among the party faithful.

Also, there are fewer “easy” budget balancing options.  For example, the budget reserve was depleted at the end of the 2009 session when it was used for the prior deficit as a prerequisite to the governor’s unallotment actions.  Another factor to consider is that as of January 1, 2010 there is only 75% (18 months) of the biennium remaining and much of the spending has either been committed or will not be immediately available because of notice requirements or system changes. This typically leaves “grant” programs the most exposed for potential budget cuts.  If for some reason a budget fix is not enacted prior to the elections, this challenge becomes even more pronounced.

In addition to the challenges posed by the current biennium, the next biennium will likely be even more vexing.   For the 2012-2013 biennium, the projected structural shortfall has now climbed an additional $995 million to $5.426 billion. These projections assume current law and do not take into consideration inflation or any statutory changes that may take place during the 2010 legislative session. The important takeaway from this planning estimate is that the deficit is seen to be long-term and will not resolve itself without more permanent systemic changes. For example, although one-time shifts or the use of budget reserves may be helpful in solving a budget deficit in one biennium, those temporary solutions will not help with the next biennium.

Unlike the 2010-2011 Biennium, there is no constitutional mandate that the state budget be balanced in the outlying biennium. So, it is possible that the legislature may adjourn with a balanced 2010-2011 budget, but that the 2012-2013 budget projections would still show a deficit. This is not out of the realm of possibility as that is what has happened the past two sessions. 

Before the legislature will take final action in addressing the deficit another forecast will be released in February.  Let’s hope that the economy will bounce back quicker than expected and be reflected in that forecast.