Upheavals make Oregon revenue difficult to predict, economists tell legislators
Friday, February 16, 2018
The 2017-19 general fund forecast is up $145 million since the 2017 close of session forecast, according to the Oregon Office of Economic Analysis quarterly report. The long-term outlook is cloudy, though.
“Over the past few weeks, we have had two seismic events,” State Economist Mark McMullen told legislators Friday morning.
The effects of the Federal Tax Cuts and Jobs Act are still being sorted out. Although the act reduces tax rates, it could spur more economic activity. The Legislature is considering bills that would allow Oregon to collect more corporate money under the new tax law.
The state’s public K-12 schools consume nearly 40 percent of general fund and lottery revenue, and such revenue forecasts help legislators plan spending in the coming biennium.
Because Oregon is heavily dependent on personal income taxes, the stock market correction earlier this month helps state revenue in the short term as stockholders cash in gains. The reduced gains going forward, though, are expected to create an annual drag of about $100 million on Oregon’s economy, McMullen said.
It will be a year or more before the effects of the tax law start to show themselves, McMullen told legislators. Stock market movement this year will depend on how aggressively the Federal Reserve raises interest rates.
Economic forecasts “are always extremely uncertain, and this is taking it to another level,” McMullen said.
Overall, Oregon is in the mature stages of an expansion with a low probability of recession, testified Joshua Lehner, economist with the Office of Economic Analysis.