One great feature of producing quarterly forecasts is that we provide regular and frequent updates to the outlook for the state’s economy and revenues for policy makers. In theory, this allows for closer monitoring and fine tuning of the budget should the need arise. However one downside to quarterly forecasts can be that we focus predominantly on what has changed in just the past 3 months. At times we can lose the forest for the trees. This is largely a communication failure on our part when presenting and discussing the outlook.
For example, in taking with a number of people both inside and outside of state government in the past week, the general perception seems to be that state revenues aren’t doing too well. That’s not exactly the case. However it is true that revenues for next biennium, 2017-19, are forecasted to be a bit lower than 3 months ago. But revenues are still growing and expected to do so. The pesky stock market crash and lower corporate profits are driving down the revenue outlook even as the Oregon economy continues to operate at full throttle.
The graph below shows the structural revenues for the past five quarterly forecasts. What I mean by structural revenues is it shows just the actual taxes and fees coming into the General Fund or Lottery (net of prizes and expenses). This leaves to the side beginning balance/ending balance carry forward, interest borrowing costs, rainy day fund transfers and expenditures — all the budget-type items we track in our revenue tables. Structural revenues are our office’s prime directive and this clearly shows how our outlook has evolved over the past year.
Comparing the current forecast with the Close of Session 2015 one (that is the May ’15 forecast plus Legislative changes made last session) we see a small net increase in the 2015-17 outlook and a small net decrease in the 2017-19 outlook. The order of magnitude here is +$63m (0.3%) in the current biennium and -$125m (-0.6%) in the next. Overall not much change in the big picture. 2017-19 revenues are expected to be larger than 2015-17 due to an improving economy — more jobs, more income, and more business activity statewide.