Earlier this morning lawmakers received an economic forecast on which to begin building the FY 23-25 budget. A short summary from OBI is below, and the key takeaways are:
Stronger than expected economic and revenue growth
Oregon projected to experience soft landing as inflation eases, rather than recessionary period
FY 23-25 revenue is projected to be down, due to one-time Federal funds expiring and kicker payout
Economists are watching out years 2025 and beyond for impacts of population decreases
The March quarterly revenue forecast came out this morning. State economists report that they have seen stronger than expected economic output since the last forecast, in December 2022. Economists are now forecasting a “soft landing” with positive, albeit slower, growth going forward.
Slow Growth, Soft Landing Forecast for 2023
The March forecast shows surprisingly strong economic and revenue growth in Oregon over the last few months. Economists had projected slowing growth and the onset of a mild recession due primarily to inflation and continuing interest rate increases from the Federal Reserve. While these factors remain, the state is seeing continued job strength and incoming tax revenue. In fact, economists expect tax revenue to exceed revenue forecast in December by $487 million. This will generate higher current biennium ending balances, higher reserves and a larger kicker payout in 2024. With this forecast, the baseline General Fund revenue outlook for the 2021-23 biennium is forecast to be $5.5 billion ahead of the 2021 close-of-session forecast, which was used for the state’s current two-year (2021-23) budget.
Ending Balance and Reserves
The growth seen in every quarterly forecast since the 2021 close-of-session forecast now means that the current biennium ending balance is expected to be $4.63 billion. Additionally, the state Rainy Day Fund is expected to be $1.34 billion, and the Education Stability Fund is expected to be $708 million, resulting in a total effective ending balance and reserves of $6.68 billion.
The gross general fund revenue now forecast for the 2023-25 biennium, which will begin on July 1, is expected to be $25.3 billion, which is more than $3 billion below revenues now expected for the current biennium. The reason for the significant decline is the expected payout for the personal kicker, which will occur in 2024 (see below). It should be noted, however, that the $25.3 billion projected for the 2023-2025 biennium is $2 billion above what was used by lawmakers to budget for the 2021-2023 biennium.
Based on continued revenue growth above earlier forecasts, state economists are now projecting a personal kicker of $3.94 billion to be paid/credited in 2024 and a corporate kicker of $1.55 billion, which would go into state education reserve accounts. Importantly, given the strong ending balance and reserves noted above, the large kicker payout should not impede lawmakers from adequately funding policy priorities.
Go here to read the full forecast.