Oregon’s May economic forecast demonstrates the breadth and
the depth of the ongoing recession. Although the Oregon
employment figures show a marginal improvement, the sad fact
is that our state has no more private sector jobs than it
did in the year 2000. Moreover, our per capita income
continues to fall behind the national average and the rate
of negative change is accelerating.
forecast further demonstrates the inaccuracies of Oregon’s
forecasting methodology. Long term revenue predictions for
the past four years have consistently been grossly
overestimated. Short term predictions have been somewhat
more accurate and have reflected the reality of the economic
The most recent prediction for the second quarter of 2011
is for a fourteenth consecutive quarter of real revenue
loss. That reduction is equal to yet another $40 million.
The sum of the loss of state revenue for the eight quarters
beginning at the end of 2009 legislative session and ending
June 30, 2011 now exceeds $1.2 billion. This failed
prediction follows well more than a billion dollar
over-estimation of revenue in the previous 2007-09 budget
period. A billion dollar under-estimation of forecasted
revenue in the 2005-07 budget periods resulted in more than
a billion dollars in kicker tax refunds.
The forecast also rightly predicts that neither personal
income tax nor corporate kickers will create refunds this
year because the state income certainly does not exceed the
revenue predictions by more than two percent. Further, there
will be no contribution to the rainy day fund reserves
because there will be no ending balance to transfer.
Our ever-optimistic economist is now predicting that Oregon
General Fund and lottery revenue will suddenly cease its
fourteen quarter decline and is now expected to increase by
about $130 million during the next 2011-13 budget period.
This Legislature has done virtually nothing to date to
improve the business, investment or worker earnings in our
state. How or why this improvement will occur without
substantial job creation and improved per capita income is
not made clear.
The state budgeting process traditionally assumes the
accuracy of these forecasts and builds our budgets using
that predicted income. Deep and difficult budget reductions
are forced during the budget periods when the projected
income fails to occur. These reductions are too often
postponed while waiting for the next revenue projection and
the hoped for improvements in cash flow. The required budget
cuts are then greatly magnified near the end of the budget
period when the income fails to materialize and most of the
two year appropriations have already been spent.
This year feels like déjà vu all over again. This
intolerable budgeting procedure that is repeated each two
years will likely occur once again. The latest long-term
projected revenue increase is less than one percent of
current general fund and lottery revenue. Never-the-less,
the legislative leadership is already eager to spend this
new-found money to backfill unpopular budget reductions.
can hope that the money will materialize but have little
confidence that it will happen. In the likely event that
the money does not appear, the legislature will once again
be required to rebalance the budgets during the biennium by
reducing appropriations in mid-stream.
make matters even worse, the current budgets being
established provide for spending fifty three and one half
percent of the appropriations in the first year and forty
six and one half percent in the second year. The concept
appears to be either to allow the agencies one year to
establish policies to reduce their expenditures by seven
percent, or to hope for increasing revenue and more money to
spend in the second year. The $400 million ending balance
being built into the budget may help to offset either the
seven percent differential or declining revenues, but
certainly will not be sufficient to do both.
cannot imagine creating a family or business budget based on
those principles. Wouldn’t it be much better to base our
expenditures on revenue that we know we will have rather
than on income that we hope to have. Wouldn’t it be better
to set aside a little more, provide for level expenditures,
and judiciously add back more when and if the money
Remember, if we do not stand up for rural Oregon... no one