oregon revenue forecast feb 19

OFFICE OF ECONOMIC ANALYSIS

Economic and Revenue Outlook:March 2015

February 19th, 2015 Oregon Office of Economic Analysis

Mark McMullen

Josh Lehner


Office of Economic Analysis

2


OEA: Primary Forecasting Responsibilities

• Economic and Revenue Forecast• Quarterly by Statute (March, May/June, Sept, December)

• Next Forecast: Thursday, May 14th

• Demographic and Population Outlook (Jan)

• Adult Prison Population and Youth Authority • April, October

• Lottery Forecast (Quarterly)

• Other Forecasts: Cigarette and Tobacco, Criminal Fines and Court Fees, Secretary of State Fees, Other Funds Report

• Highway Cost Allocation Study, DHS Forecast Advisory

3


Economic and Revenue Forecast

OREGON PRELIMINARY ECONOMIC FORECAST

OREGON FINAL ECONOMIC FORECAST

PERSONAL INCOME TAX MODELS

CORPORATE INCOME TAX MODELS

Forecaster Judgement LEGISLATIVE & POLICY CHANGES

FINAL REVENUE ESTIMATE

U.S. Economic History and Forecast (Global Insight, Inc.)

Oregon Economic History

Oregon Corporate Income Tax History

Oregon Personal Income Tax History

Governor’s Council of Economic Advisors

DAS Advisory Committee

OREGON ECONOMIC MODEL Governor’s Council of Economic Advisors “Pre-Meeting”

Council of Revenue Forecast Advisors

Non-income tax revenue projections


Guiding Principles

• Current-law GF forecast, updated quarterly.

• Unbiased, most-likely forecast given prevailing economic conditions and assumptions.

• Stability of forecast over time.

• Continue to refine models, develop new data sources, employ expert input to improve forecast accuracy.

• For every forecast, provide users with a measure of the potential for actual revenues to deviate from projections.


Close of Session of Forecast

• COS forecast for the upcoming biennium is the mid-May forecast plus legislative changes during the remainder of session.

• Usually released with the September forecast in odd-numbered years.

• COS forecast used for budgeting the upcoming biennium and is the base for kicker calculations.


Economic Outlook

7


U.S. Growth Picking Up

8

0%

1%

2%

3%

2011 2012 2013 2014 2015

Job GrowthYear-over-Year Percent Change, 3 MMA

Oregon

U.S.

Source: BLS, Wall Street Journal, OED, Oregon Office of Economic Analysis

WSJ Consensus Forecastfor Next 12 Months


Energy Prices as Stimulus

9

2%

4%

6%

8%

10%

1960 1980 2000 2015

Energy ExpendituresShare of Disposable Personal Income

Source: BEA, Oregon Office of Economic Analysis

Current: 4.5%


Oregon’s Deeper Labor Market Recovery

10

-2%

-1%

0%

1%

2%

3%

4%

2011 2014 2011 2014 2011 2014

Returning to NormalOregon Labor Market Dynamics

Jobs Wages Labor Force

Year-over-Year change, 6 month average. Wages are inflation-adjusted average QCEW wages. Source: BEA, OED, Oregon Office of Economic Analysis


Total Employment Gap:Oregon is Halfway Back

11

-2%

0%

2%

4%

6%

8%

10%

Jan-07 Jan-10 Jan-13 Jan-16

Oregon Total Employment GapFull-Time Equivalent Jobs Relative to Full Employment

Unemployment Gap Participation Gap Underemployment Gap

Source: IMF, Oregon Employment Department, IPUMS-CPS, Oregon Office of Economic Analysis

Dec '071.0%

Dec '098.7%

Dec '144.3%

Forecast -->


Participation Rates Down

12

58%

60%

62%

64%

66%

68%

70%

72%

Jan-75 Jan-85 Jan-95 Jan-05 Jan-15

Oregon Labor Force Participation RateShare of Population 16+ with a Job or Looking for a Job

Source: BLS, Oregon Office of Economic Analysis

Forecast

Actual

Demographically Adjusted


Regional Performance Varies

13

0%

1%

2%

3%

4%

5%

6%

7%

8%

Bend Corvallis Eugene Medford Portland Salem Coast Eastern Gorge Southern

Metro Areas Rural

Oregon Employment Growth

1982-89 1992-00 2003-07 Current

Coast: Clatsop, Lincoln, Tillamook Eastern: Baker, Crook, Grant, Harney, Jefferson, Malheur, Morrow, Umatilla, Union, WallowaGorge: Gilliam, Hood River, Sherman, Wasco, Wheeler Southern: Coos, Curry, Douglas, Josephine, Klamath, LakeData: QCEW | Source: Oregon Employment Department, Oregon Office of Economic Analysis


Demographics are a Mixed Bag

14

-0.6%

-0.4%

-0.2%

0.0%

0.2%

0.4%

0.6%

44%

46%

48%

50%

52%

54%

56%

1975 1985 1995 2005 2015 2025

Oregon Working Age Population25-64 Years Old

PPT Change, rhs Share of Total Population, lhs

Source: Oregon Office of Economic Analysis

Forecast -->

0

10,000

20,000

30,000

40,000

50,000

60,000

0 10 20 30 40 50 60 70 80

Nu

mb

er o

f O

rego

nia

ns

Single-Year Age

Oregon Population by Age, 2015

Source: Oregon Office of Economic Analysis

Millennials(1981-2000)

1,065,79627%

Boomers(1946-64)

983,70825%

Gen Z(2001+)

714,77218%

Gen X(1965-80)

870,86922%

Silent

421,00411%


As Good as it Gets?

15

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

Jan-60 Jan-70 Jan-80 Jan-90 Jan-00 Jan-10 Jan-20

Oregon Nonfarm Employment GrowthYear-over-Year Percent Change

Expansion Average

Forecast


Revenue Outlook

16


A Very Big December for PIT

17

0%

2%

4%

6%

8%

10%

12%

14%

Oct Nov Dec Jan2014

Feb Mar Apr May June July Aug Sept Oct Nov Dec Jan2015

Recent Personal Income Tax Collections% change over year ago, 3 month moving sum

Preliminary


Forecast Evolution

18

$14.2

$14.3

$14.4

$14.5

$14.6

$14.7

$14.8

$14.9

$15.0D

ec '1

0

Mar

'11

May

11

Sep

'11

Dec

'11

Mar

'12

Jun

'12

Sep

'12

Dec

'12

Mar

13

May

13

Sep

'13

Dec

'13

Mar

'14

Jun

'14

Sep

'14

Dec

'14

Mar

15

Bill

ion

s

Forecast Release

2013-15 BN Personal Kicker Base

<--2% Kicker Threshold

Special Session$87 million

<--COS Forecast

$58.7 million


A Refresher

19

94

96

98

100

102

104

106

May '13 Close of Session Mar '15

Personal KickerStylized Example

Legislative ChangesEnacted During

Regular Odd-Year Session

Kicker Threshold 2%

Everything Above Close of Session Returned to OregoniansNot Just Above 2% Threshold

Forecast for Personal Income TaxKicker Base

(All GF ex. corporate taxes, central service fees and Gain Share payments to counties)


Which Straw?

COS Kicker Threshold

=$100 Million

$10.8 billionIn the Door

$4.3 billionStill to Come


The Incredible Shrinking Kicker

21

2015-17 ResourcesChange Relative to Dec ’14 Forecast

Beginning BalanceKickerGF Forecast ChangesLottery Changes

Net Change

+$88 million-$329 million+$205 million

+$15 million

-$21 million

2013-15 -$329m2015-17 -$18m2017-19 -$2m

Total -$349m


22

Capital Gains: Boom and Bust

0

5000

10000

15000

20000

25000

30000

35000

0

2,000,000,000

4,000,000,000

6,000,000,000

8,000,000,000

10,000,000,000

12,000,000,0001

98

0

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

20

20

20

22

Wilshire 5000 Stock Price Index (Right)

Oregon Capital Gains Realizations (Left)


Estimated Income Tax Payments: A Sign of Things to Come?

Tax Year

Dec-Jan

Estimated

Payments

($ mil) % change

Non-Labor

Income*

(% change)

Q2 Final PIT

Payments

(% change)

2008 268 -28.4% -35.1% -45.4%

2009 227 -15.2% -21.4% -2.8%

2010 253 11.5% 11.0% 17.9%

2011 268 5.6% 0.6% 3.3%

2012 345 28.8% 35.6% 25.1%

2013 346 0.5% -5.4% -7.0%

2014 416 20.0% 20.2% 26.2%*

* Interest, Dividends, Business, Capital Gains, S-Corp/Rental

* March 2015 Forecast


2.5

3.5

4.5

5.5

6.5

7.5

8.5

9.5

10.5

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

Personal Income Tax Collections (March 2014 Forecast)

PIT Collections Excluding Kicker

PIT Collections (December 2014 Forecast)

24

Personal Income Tax Forecast$ billions, 4 quarter moving sum

2013-15

$81.4

(million)

2015-17

-$147

2017-19

$214.3

2020-21

$181.1

2021-23

$46.8


25

Estate Taxes: Upward Trend?

$0

$5

$10

$15

$20

$25

Jul-01 Jul-03 Jul-05 Jul-07 Jul-09 Jul-11 Jul-13 Jul-15

Mill

ion

s

Oregon Estate Taxes

Estate Tax Collections Qtr Avg


Corp Collections: Real or Memorex?

26

100

150

200

250

300

350

400

450

500

550

600

Jan-90 Jan-95 Jan-00 Jan-05 Jan-10 Jan-15

Mill

ion

s

Net Corporate, 12 Month Sum


Corp Collections: Wait and See

27

100

200

300

400

500

600

700

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

March 2015 Forecast

December 2015 Forecast

Single Sales Apportionment Factor Enacted

M67 Minimum Tax & Credit Sunsets Enacted

Tax Haven Legislation

M67 Minimum Tax Reforms & Small Business Tax Cut

Approximate Peak in BETC Credits Taken

Corporate Excise Taxes, $ millions, 4 QTR Sum


28

March 2015 General Fund Forecast Summary

Positive

Factor

Negative

Factor

Personal

Income Tax:

Recent

Advanced

Payments

Court Fees

Estate

Taxes

Criminal

Fines

Video

Lottery

Sales

(Millions)

2013 COS

Forecast

December 2014

Forecast

March 2015

Forecast

Change from

Prior Forecast

Change from

COS Forecast

Structural Revenues

Personal Income Tax $13,558.2 $13,832.9 $13,914.3 $81.4 $356.1

Corporate Income Tax $1,056.6 $1,060.4 $1,060.9 $0.5 $4.3

All Other Revenues $1,027.9 $1,019.1 $1,025.8 $6.6 -$2.1

Gross GF Revenues $15,642.6 $15,912.4 $16,000.9 $88.5 $358.3

Offsets and Transfers -$120.8 -$73.2 -$74.1 -$1.0 $46.7

Administrative Actions1 -$18.2 -$3.3 -$3.3 $0.0 $14.9

Legislative Actions -$136.9 -$136.7 -$136.7 $0.0 $0.2

Net Available Resources $15,910.1 $16,174.8 $16,262.4 $87.6 $352.2

Confidence Intervals

67% Confidence +/- 1.6% $256.0

95% Confidence +/- 3.2% $512.0

1 Reflects cost of cashflow management actions, ex clusiv e of internal borrow ing.

2013-15 General Fund Forecast Summary

$15.74B to $16.26B

$15.49B to $16.51B

Table R.1


2929

Forecast ChangesDifference from December Forecast, $ millions

100.7

-108.9

220.4 208.5

74.4

-$150

-$100

-$50

$0

$50

$100

$150

$200

$250

2013-15 2015-17 2017-19 2019-21 2021-23

Personal Corporate

Lottery Other

Total

OFFICE OF ECONOMIC ANALYSIS30

10-Year Forecast

Table R.2

General Fund Revenue Forecast Summary (Millions of Dollars, Current Law)

Forecast Forecast Forecast Forecast Forecast Forecast

2011-13 % 2013-15 % 2015-17 % 2017-19 % 2019-21 % 2021-23 %

Revenue Source Biennium Chg Biennium Chg Biennium Chg Biennium Chg Biennium Chg Biennium Chg

Personal Income Taxes 12,118.2 15.8% 13,914.3 14.8% 15,489.7 11.3% 17,359.3 12.1% 19,228.8 10.8% 21,181.5 10.2%

Corporate Income Taxes 883.9 6.8% 1,060.9 20.0% 1,102.9 4.0% 1,045.5 -5.2% 1,103.6 5.6% 1,182.4 7.1%

All Others 1,153.9 -5.9% 1,025.8 -11.1% 1,003.7 -2.1% 1,036.2 3.2% 1,112.6 7.4% 1,178.5 5.9%

Gross General Fund 14,156.0 13.1% 16,000.9 13.0% 17,596.3 10.0% 19,441.0 10.5% 21,445.1 10.3% 23,542.4 9.8%

Offsets and Transfers (12.0) (74.1) (104.9) (101.9) (40.7) (43.7)

Net Revenue 14,144.0 13.0% 15,926.8 12.6% 17,491.4 9.8% 19,339.1 10.6% 21,404.4 10.7% 23,498.7 9.8%

Other tax es include General Fund portions of the Eastern Oregon Sev erance Tax , Western Oregon Sev erance Tax and Amusement Dev ice Tax .

Commercial Fish Licenses & Fees and Pari-mutual Receipts are included in Other Rev enues


3131

Biennial Revenue Growth

-12%

-8%

-4%

0%

4%

8%

12%

16%

20%

24%PIT TOTAL


Tax Structure: Volatility

32

-20%

-10%

0%

10%

20%

1995 2013

State Revenue GrowthGeneral Fund Approximation

(Severance, Estate, Corporate, Personal, General Sales, Alcohol and Tobacco Taxes, Corporate and B&O Licenses)

Source: Census, Oregon Office of Economic Analysis

Oregon

MedianState

AK

AZFLGA

ID

LA

MA

MD

MI

NC

NM

NV NY

OK

Guess Who?

VA

WY

MedianState

-

1

2

3

0% 20% 40% 60% 80%

Ove

rall

Rev

enu

e V

ola

tilit

yPersonal Income Taxes, Share of General

Fund Approximation (1995-2013 Average)

Revenue Volatility and Tax Structure

Volatility Measure = Standard Deviation of Growth / Average GrowthSource: Census, Oregon Office of Economic Analysis


Tax Structure: Risk vs Return

33

1.5%

1.7%

1.9%

2.1%

2.3%

2.5%

1990 1995 2000 2005 2010 2015

Eroding Tax BaseAll States Tax Collections as Share of Personal Income, 4 Qtr Avg

Source: Census, BEA, Oregon Office of Economic Analysis

Personal Income Tax

General Sales Tax


34

For More Information

Standard Contact:

155 Cottage Street NE

Salem, OR 97301

(503) 378-3405

[email protected]

www.oregon.gov/das/oea

Social Media:

www.OregonEconomicAnalysis.com

@OR_EconAnalysis

oregon revenue forecast feb 19

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