Revenue Forecast: Budget Deficit Smaller than Expected

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John Marshall
Associated Oregon Industries
Oregon’s Largest Business Lobby

The bad news out of the just-released state economic and revenue forecast is that Oregon’s economy is still in recession and, as a result, state tax revenue is still dropping.  The good news is that the revenue decline is not as bad as was earlier anticipated.  The 2009-11 state general fund and lottery revenue dropped another $524 million from the March estimate.  When federal stimulus and state reserve funds are added to the equation, the 2009-11 state budget shortfall now totals $1.8 billion – well below the $4.4 billion the legislature’s budget writers were estimating earlier.

The budget shortfall is the difference between available 2009-11 revenue and the “Essential Budget Level (EBL).”  EBL represents the amount of financial resources necessary to provide the same level of state government programs and services in 2009-11 as was provided in the 2007-09 biennium.  The increase in the EBL is driven primarily by human services caseloads, medical cost inflation and state employee salary and benefit rollup costs.

According to the forecast summary, the villain in this economic decline is clearly job losses.  “For Oregon, the projected job loss during this recession is the second largest downturn, only bested by the 1980-1982 recession periods.  The unemployment rate for March 2009 reached 12.1 percent, matching the highest seasonally adjusted unemployment rate during the early 1980’s recession.  In the first quarter of 2009, almost all sectors either continued to lose jobs or had slower employment growth,” the forecast summary stated.

The legislature’s agenda in the remaining month and a half of its session will be to decide how to balance the 2009-11 state budget in the face of a nearly $2 billion shortfall.  Democratic leaders, holding super majorities in both chambers, are considering balancing the budget with both cuts and tax increases.  The extent of the budget cuts and the size of the tax increases will likely be unveiled within the next week or so.