State snaps losing streak.

Byline: The Register-Guard

The forecast for Oregon tax revenues is flat - flat on its back, to be sure, but at least the steady decline of the last two years has been arrested. The forecast provides reason to hope that the worst of Oregon's recession is past, and that the newly completed state budget won't have to be drastically revised.

The September forecast from the state Office of Economic Analysis predicts that the state can expect $9.8 billion in general fund revenues in the current two-year budget period. The projection is up $8 million from the May forecast - an insignificant change in the context of the multi-billion dollar state budget.

What is significant is the change in the state's economic direction. The latest forecast was the first since May of 2001 that did not show a substantial decline in state revenues. Projections for each of the past eight quarters showed declines, ranging from $126 million to $845 million. Each drop in expected state income forced a revision of the budget, which explains last year's record-setting five special legislative sessions and this year's record-setting 227-day regular session.

Eight consecutive quarterly declines is itself a record. Even during the recession of the early 1980s, a far deeper downturn in terms of unemployment, projected revenues fell for only six quarters running.

An end to this long streak is welcome news. The state's income flows primarily from personal income taxes - if state revenues are falling, Oregonians' incomes are falling as well. A flat projection indicates that Oregonians have stopped losing ground. What's more, revenue from the corporate income tax is up after a steep decline, suggesting that Oregon businesses are returning to profitability.

State Economist Tom Potiowsky said employment in Oregon will still be lower in 2003 than the year before, the third straight yearly decline. The number of jobs is expected to grow 1.1 percent in 2004, with stronger improvement the following year. If Potiowsky were a doctor, he wouldn't describe the patient as healthy - but for the first time in years he can say the patient isn't getting worse.

To prepare his forecast for the current budget period, Potiowsky must make assumptions about economic conditions in mid-2005. The further into the future a forecaster attempts to peer, the less reliable his forecast will be - particularly when he's attempting to predict something so volatile as income tax revenue. That's one reason the Legislature should shift to a one-year budget cycle. Shortening the forecast horizon to a single year would improve its reliability, lending greater stability to public finances.

But when the inevitable revisions to the forecast come, Oregonians can hope that they'll be on the positive side. We've had quite enough of the other kind.