State economists with the Oregon Office of Economic Analysis released their updated economic and revenue forecast today to a joint virtual meeting of the legislative revenue committees. In September, the economists described a “shocking” revision to their forecast from the initial days of the pandemic. Today’s forecast largely maintained those revisions but emphasized the growing uncertainty due to the recent surge of COVID-19 cases.
Considering the high degree of uncertainty in the world today, the economists spent a significant amount of time briefing the committees on the assumptions made in developing the forecast. In particular, the forecast assumes that Congress will pass a federal financial assistance package in the first quarter of 2021 and the widely available deployment of a COVID-19 vaccine by the summer or fall of next year. Additionally, the forecast assumes a full return to in-person schooling for the 2021-22 school year, allowing more parents to return to the labor force. If these assumptions do not materialize, the expectation is a downward revision of the forecast. Ultimately, the message from the economists was the pandemic is controlling the economy and our ability to improve treatments and prevention will determine the trajectory and timing of the recovery.
On Friday, November 13, Gov. Kate Brown announced the state would begin a partial lockdown, characterized as a “freeze,” to slow the spread of infections and bend the epidemic curve. The “partial” nature of the lockdown means new closures and limits on some establishments and restrictions on social gatherings. The economists said they did not build this “freeze” into the forecast but anticipate only a small impact on the overall outlook so long as the restrictions are not persistent.
The economists project $124 million in additional resources for the current two-year budget cycle and $165 million for the budget cycle beginning on July 1, 2021. Although forecasted revenues remain below their pre-pandemic amounts, the increase represents stability in the overall revenue outlook. The increase in resources is primarily due to the rise in the income tax payments estimated from corporations ($54 million in 2019-21 and $99 million in 2021-23). The economists described the increase as a continuation of long-term revenue trends responding to state and federal tax policy. In particular, the increase in tax payments could be attributed to Oregon’s adoption of the single sales factor tax policy and the expanded tax base for corporations from the 2017 federal tax law.