Oregon Public Broadcasting

Oregon’s economy is showing signs of life, but the state is not out of the financial woods yet.  That was the message to lawmakers Thursday from state economist Tom Potiowsky.  Joining us now to talk about what this means for the state’s financial outlook is our Salem Correspondent, Chris Lehman. 

Hi Chris. Hi Beth.

Beth Hyams: Chris, these revenue forecasts come out every few months, and over the past year they’ve generally contained bad news.  Did that trend continue today?

Chris Lehman: In a way it did.  Yet again, economists revised downward the estimated amount of income tax revenue the state will take in over the coming budget cycle.  Today’s numbers project a $139 million drop in general fund revenue.  On the other hand, economists noted that the downward trend has slowed. 

This is state economist Tom Potiowsky.

Tom Potiowsky:  “There are signs finally that this recession is coming to an end, and that possibly a recovery is going to unfold.  Retail sales have generally been more positive than we’ve seen.  The stock market, definitely up quite a bit from the lows that we saw just last March, and it seems to be at least holding.  Credit risk spreads are starting to narrow a little bit.  That’s some indication that credit markets are starting to free up.”

Beth Hyams:  But Oregon’s jobless rate is still among the highest in the nation.  Did Potiowsky indicate when that might turn around?

Chris Lehman:  Yes, and that’s where some of the bad news part of the equation comes in.  Potiowsky said jobs will come back slowly, possibly not reaching pre-recession levels until 2013.

Beth Hyams:  Earlier you said the state is looking at a $139 million drop in revenue.  Does that mean lawmakers will have to come back to the capitol to make spending cuts?

Chris Lehman:  Not yet.  Basically the Legislature left itself a cushion, what they call an ending fund balance, of about $234 million.  So if you do the math lawmakers are still roughly $95 million ahead.  Of course, in a general fund budget of more than $13 billion, a $95 million cushion starts to look fairly uncomfortable.

Beth Hyams:  And there’s another factor hanging out there too.  A group is gathering signatures to try to overturn a pair of tax increases on businesses and upper-income earners.  What happens if those taxes are overturned at the ballot?

Chris Lehman:  In that case lawmakers would have to find ways to cut more than $700 million from the state budget.  No small task, of course.  But at this point that’s still just a hypothetical possibility. 

Signature gatherers have about another month to collect enough names to get the tax measures on the ballot.  If that were to happen, a special election would be held in January. 

So it might not be until early next year that we know the fate of those tax increases.  And by then, who knows what other economic news the state will be dealing with.