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Oregon outlook: Legislature, Budget, Trump, Trade

December 19, 2016

Prosperity-projectBy Oregon Prosperity Project
As Oregon legislators gathered for Legislative Days, a key preparatory step toward the 2017 Legislative Session, one word worked its way into virtually every hearing: revenue. Talking about money in advance of a Legislative Session is far from unusual, but the urgency to have a serious revenue discussion is heightened as work on the 2017-19 budget begins.

The short-term factors influencing the state budget are well known. Health care and pension costs are soaring. Voters told legislators to increase funding for veterans and education programs focused on career preparedness and graduation rates. Even though Oregon has one of the nation’s strongest economies and revenues are increasing, the gap between projected 2017-19 revenues and the amount needed to maintain current services is more than $1.7 billion.

Unfortunately, the long-term budget picture is even bleaker, in part because pension costs are projected to consume an even bigger chunk of available revenue. The Senate Interim Finance and Revenue Committee invited three leading Oregon economists to discuss long-term factors that could influence the economy and state budget at a hearing.

Tim Duy from the University of Oregon, Andrew Dyke of the consulting firm ECONorthwest, and Economic Consultant Bill Conerly agreed that short-term risks of a recession are low, even though the current recovery is relatively old by historical standards. Economic fundamentals are more important than the longevity of a recovery, they said, and the U.S. economy appears sound with employment, income, and production all increasing. At the state level, Oregon continues to be one of the nation’s leading economic performers.

All of that sounds good, but it does raise an important question. If it’s this difficult to produce a balanced state budget when the economy is humming, what will happen when it sputters? Oregonians have seen the effect of recessions often enough to know the answer. Just as Oregon outperforms the nation in good times, it often crashes harder in bad times.

Each of the past two recessions hit soft spots in Oregon’s economy. The early 2000s recession was led by the bursting of the high-tech bubble, and Oregon relies heavily on technology employers. The housing collapse played a leading role in the 2008-09 recession, and that economic sector also has outsized influence in Oregon.

There is at least one scenario on the horizon that could have a similar effect on Oregon. The election of Donald Trump as President has created uncertainty around U.S. trade policy, and Oregon is one of the most trade-dependent states. In fact, the uncertainty over exactly what economic policies President-Elect Trump will pursue is the biggest question looming over the state and national economies.

The bottom line: Economic fundamentals are strong and barring policy changes with negative consequences for Oregon, conditions during the 2017-19 budget cycle should be relatively favorable. But all recoveries eventually end, and it’s easy to identify potential future threats. All of which means, if finding revenue now is difficult, just wait until the 2019-21 and 2021-23 budgets. “It could get a lot worse,” Conerly said.

There might never be a better time to do the hard work of rebuilding the state’s fiscal foundation, evaluating both expenses and revenues.

  
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Bob Clark December 20, 2016

It would be really nice if the Mr. T administration didn’t tie the federal transportation monies its sends to Oregon to such weak transportation solutions as light rail as in “light” in capacity to transport mass numbers of people effectively and economically.

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