LOC News
State Releases December Revenue Forecast
On Wednesday, the state’s Office of Economic Analysis (OEA) issued its December revenue forecast, and LOC members can watch the presentation or view the meeting materials on the Legislature’s website. The forecast was presented to a joint meeting of the revenue committees chaired by Representative Nancy Nathanson (D-Eugene).
The last several quarterly forecasts have seen state revenues coming in above expected levels, and that trend continued in the latest forecast. During the last quarter, the state had its single largest day ever for both personal income tax withholdings and corporate tax payments. Across all sources, revenues for the 2021-23 biennium are now projected to be more than $750 million greater than the level anticipated in the September forecast.
Much of this increase is driven by very strong labor market and rising wages. While Oregon is still 73,000 jobs below the peak pre-pandemic employment levels, total wages are 8% above the same time. That means that even though less people are working, there is actually more income subject to the state tax. Recent labor gains have also pushed many higher income filers into higher tax brackets.
The greatest downside risk identified in the forecast was inflation. Josh Lehner, an economist with the OEA, noted that the most recent data points to a 6% increase in consumer prices over the last year, a faster increase than we have seen in 30 years. Higher incomes and a supply constrained economy have meant that businesses have passed along price increases and even increase profit margins. Mr. Lehner indicated most economists project that inflation will continue for at least the next six months, but there is less consensus on what happens after that.
What inflation has meant for the average worker is that real wages adjusted for inflation have been relatively flat - though there is some good news for lower income workers, in that their wages have increased faster than inflation. There is a similar effect on the state budget; while revenues are higher, the state’s costs are also higher, which could actually have a negative impact on the state budget overall.
As always, the forecast concluded with a discussion of state reserves. Between its Rainy Day Fund, Education Stability Fund, and ending fund balances, Oregon is projected to have about $4 billion in state budgetary reserves at the end of the biennium. This represents a very healthy 16.5% of the state’s General Fund.
Contact: Mark Gharst, Lobbyist - mgharst@orcities.org or 503-991-2192
Last Updated 11/19/21