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. 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.
The release of today’s forecast is a crucial moment in the short- and long-term budget politics for Oregon. On December 1, Gov. Brown will release her two-year budget proposal to the state legislature and, in early 2021, the Ways & Means Committee will release its budget framework. These documents rely on the December revenue forecast as a starting point for determining the deployable resources to respond to the pandemic and other priorities identified by the legislature. Some lawmakers announced today they wish to see immediate budget action. House Speaker Tina Kotek (D-North Portland) called on the governor in a press release to declare a state of catastrophic disaster, which allows the legislature to convene in a remote special session. The request states a desire to dedicate some of the state’s reserve account to support individuals and small businesses during the pandemic’s winter months. Notably, the governor has not responded to the request and it remains unclear if a declaration is currently on the table.