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Revenue LR - November 29, 2021

by Josie Koehne

December Revenue Forecast

On November 17, the Oregon Office of Economic Analysis presented the shockingly strong December revenue Forecast in a joint session with the House Revenue and Senate Finance & Revenue committees. Personal and corporate income tax collections continue to set records. See the presentation and video.

The actual 3rd quarter revenue tallies came in well above the very rosy September forecast, breaking a new revenue record. Rather than returning to a normal economy as anticipated, we have a very hot economy that has been exceptionally favorable for bringing tax revenue to Oregon. Spending, wages, and prices are up as employers are scrambling to find workers as by now, fewer wage earners are going back to work than anticipated. There are 70,000 fewer job openings and 10,000 more people on unemployment, relative to pre-pandemic levels. Part of this is that workers have more savings due to federal dollars and Covid policies, and part is that workers are getting higher wages, reducing pressure on finding work. There are thousands of job openings that cannot be filled! Employees are working more hours and at higher pay. Average wages in Oregon are 15% higher today than before the pandemic, but the real, or inflation-adjusted average wage is up 8%. The supply chain and especially labor is a bottleneck for companies who can’t keep up with pent-up demand. As they wait for parts and employees, they are passing their higher costs on to consumers. Inflation is rising, but it is expected to level off once more post-covid jobs are back in business. Fortunately, the wage gains are mostly going to lower income wage-earners. Unfortunately, with the lack of low-income housing, many workers are still unable to afford the high rents for the few units available.

Corporate profits are up 3%, and will be 5% once inventory is restocked. Stock prices are up, expecting future earnings, and tax collections are way up as well, with delayed, late-filer Oregon tax payments coming in, in the 3rd quarter. There is exceptionally higher demand, with higher prices paid for warehousing, transportation, construction, manufacturing and wholesale sectors. Income increased mostly in rural areas in the eastern and southeastern counties and population growth occurred in the central and north central areas of the state, but there was little in-migration.

All this adds up to greatly increased personal income tax revenue, mainly from tax withholdings from more higher income wage-earners. Revenue from higher corporate excise tax rates were the biggest gains. Here are the 2021-2023 forecast figures:

Total Net General Funds and Lottery Resources is $29.283 billion.

  • Compared to Close-of-Session (COS) estimates, personal income tax (PIT) revenue is up 2.6%, by $531.1 million. Another PIT kicker of $558.3 is expected starting in 2024.

  • Corporate tax revenue growth is up 44% for 2021(!) with $250.3 million from the Corporate Activity Tax (CAT), an 18.6% increase and is projected to be dedicated to K-12 education spending in 2023-25. Corporate income is expected to be much less next year due to CAT revisions and the ability to apply carry-forward tax liability (capital gains) to future years.

  • General Fund gross revenue is up $808.6 million (3.5%) from the 2021 COS estimate.

  • Net GF and Lottery resources are up $1.549 billion (5.6%) from the 2021 COS estimate

  • The projected ending balance is up $1.478 billion from all sources from the 2021 Close-of-Session estimate.

  • Since the last revenue forecast in September, this forecast is up $751 million from all revenue sources.

The analysts expressed concern that the economy is so hot that we could come to a sudden crash should interest rates be raised to combat inflation, causing a big and sudden cooling of the economy as borrowing capital becomes less affordable for businesses.

There are large and increasing reserve funds (Rainy Day Fund and the Educational Stability fund) of $1.4 billion now, increasing to $2 billion by the end of the biennium, due to new policies.

All in all, this year’s revenue is better than we’ve ever seen from all revenue sources including Other Funds at $22,513 million, a 26.3% increase over last year. We can all be grateful this Thanksgiving that Oregon’s General Fund is on solid ground, as we might need it for services in the near future should the economy take a sudden downturn.

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