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Economy up, but revenues not.

Byline: David Steves The Register-Guard

SALEM - Despite some of the most encouraging signs yet that Oregon is slowly recovering from the recession, Tuesday's economic and state government revenue forecast didn't predict a boost in tax revenue to help balance the state budget for the next two years.

State Economist Tom Potiowsky said the chances of a "double dip" recession are now remote. While the state's unemployment rate has remained at or near 10.6 percent for months, he said corporations are starting to invest some of the profits they've accumulated during the slow recovery into expanding work forces as well as equipment and capital improvements.

Potiowsky said Oregon's economy has "made the turn" from recession to recovery - in fact, Oregon is in the second year of recovery, although "it still doesn't feel like it," he said.

"Now the question is strength. What is the relative strength of this recovery?" asked Potiowsky, who answered that question with: "We're looking at a relatively mild recovery period."

For the legislators and advocates of various spending programs in the Capitol hearing room when Potiowsky delivered the forecast, the most pressing issue was what Potiowsky projected for upcoming state government revenue collections.

For the July 2011 to June 2013 biennium - the spending cycle that lawmakers and the governor are just starting to budget for - total combined general fund and lottery resources are now expected to come in at $14.9 billion. That's down $109 million, or 0.7 percent, from the $15 billion economists projected in late November.

Potiowsky attributed the drop not to an underperforming economy, but to the effect of a tax policy approved in December by Congress. It authorized the extension of several tax breaks, many of them for businesses. Because Oregon's income tax is linked to the federal code for 2011 and beyond, those tax credits and deductions are the main reason for the anticipated state revenue drop, Potiowsky said.

One effect of the drop is that Oregon corporate income taxpayers no longer are in line for a possible kicker tax credit. The kicker comes into play if income taxes exceed by 2 percent or more what the Legislature anticipated when it wrote the budget two years earlier. Given the sharp drop in personal income from the levels forecast in 2009, individuals were never expected to get a kicker for 2009-11.

Gov. John Kitzhaber said the revenue forecast is consistent with the analysis used to draft his spending proposal for 2011-13.

"The worst is over, but Oregon's recovery will take time," Kitzhaber said. He said the forecast underscores his long-standing message that the slow growth for state revenue will not keep up with future spending needs for Oregon's education, criminal justice and health care systems as they are currently designed.

"Now is the right time to integrate and streamline state services like health care and education to deliver better outcomes and reduce costs," he said.

For the current budget, which expires June 30, revenue now is expected to match the level of spending set last year by lawmakers and then-Gov. Ted Kulongoski.

That means schools, universities and people who rely on safety-net services likely won't face any abrupt cutbacks during the next four months.

In November, economists called for 2009-11 general fund revenue to be $13.625 billion; on Tuesday, the scarcely adjusted figure was $13.624 billion - a virtually imperceptible difference of $1.5 million.

"That's a huge relief," said Rep. Peter Buckley, an Ashland Democrat and his party's House budget chief.

Buckley's Republican counterpart in the evenly split House, Central Point Republican Dennis Richardson, said that while the revenue forecast provided a reprieve from additional adjustments in the short term, it underscores the necessity of making tough choices for how Oregon provides for such basics as education, health and human services and public safety in the years to come.

"Today's numbers support the conclucion that Oregon is not going to have a robust recovery," he said.

For lawmakers and the governor, the problem lies in how to make government more efficient, or what anticipated costs to cut, in order to create a spending plan for 2011-2013 that fits within expected revenue.

Buckley, Richardson, and Senate budget chief Richard Devlin, D-Tualatin, plan to spend the next six weeks building a budget based on the spending blueprint issued this month by Kitzhaber and the amount of revenue available in Tuesday's forecast.

Kitzhaber's plan spends $1.2 billion more than is available in the current biennial budget, but falls $3.5 billion short of the cost of keeping up with rising enrollment, caseloads, inmate populations, state government and school district employee pay and benefit increases, and other increases in order to match the level of services for general fund programs as approved by the 2009 Legislature.
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Title Annotation:City/Region; The state's latest forecast for the Legislature to use in setting its budget dips slightly from earlier projections
Publication:The Register-Guard (Eugene, OR)
Geographic Code:1U9OR
Date:Feb 16, 2011
Words:794
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