1. The School Finance Outlook for 2010-11 and Beyond
Legislative Revenue Office
April 2010

2. Generic State Fiscal Outlook
“Even if the economy enters a sustained recovery, the tight fiscal squeeze on public services is certain to persist for several years. Over the long term, an aging population and an outdated tax structure means that ______, like other states, is expected to face a mounting structural deficit, where annual growth in revenue is incapable of keeping pace with the annual cost of funding basic public services.”
State Tax Notes ( )

3. Oregon’s Fiscal Situation: Remainder of 2009-11 Biennium
Impact of the Great Recession on the U.S. and Oregon economies
Short term economic outlook
The revenue and budget outlook for the remainder of biennium

4. The Great Recession: Impact on the National Economy
Longest contraction since (Dec 07 to July 09?)
Real GDP declined $490 billion or 3.7% between the fourth quarter of 2007 and the second quarter of 2009
Employment declined by 6.7 million or 4.9% during the recession
Housing starts fell to 25% of pre-recession level
CPI declined in 2009—first time since 1955
Personal income fell 1.7% in 2009—biggest drop since 1938 and only the second annual decline of the post World War II period

5. The Great Recession: Impact on the Oregon Economy
148,000 jobs lost between December 2007 and December 2009
40,00 lost manufacturing jobs
30,000 lost construction jobs
Oregon’s unemployment rate went from 5.2% in December 2007 to 11.6% in June of 2009
The number of unemployed in Oregon increased from 100,917 in December 2007 to 228,342 in May 2009
Statewide housing starts dropped from 30,900 in 2005 to 7,600 in 2009—a decline of 75%.

6. Impact of Great Recession on State and Local Taxes
State & Local
Tax Collections
2007: Q4
(in billion of $)
2009:Q2
(in billions of $)
Percent Change
All State Taxes
759.9
712.5
-6.2%
Individual income
271.8
243.9
-10.3%
Corporate Income
50.5
43.7
-13.5%
General Sales
240.5
229.5
-4.6%
Property Taxes
12.7
12.8
+0.9%
All Local Taxes
514.9
533.5
+3.6%
Individual Income
20.0
18.6
-6.9%
9.0
6.1
-31.8%
64.7
63.0
-2.6%
390.4
415.0
+6.3%

7. Oregon Among Hardest Hit by Current Recession (April-June 2009 Compared to 2008)
% CHANGE IN TAX REVENUE
RANK AMONG THE STATES
All States
-16.6 --
Alaska
-86.5 50
New Mexico
-30.8 49
Oregon
-27.3 48
Arizona
-26.7 47
Nearly all states have suffered considerable revenue loss in the severe recession. Oregon’s reliance on the personal income tax makes it especially vulnerable to economic downturns. For the period covering the most severe part of the recession, second quarter of 2008 to second quarter of 2009, Oregon state tax revenue declined 27.3%, only two states experienced a larger percentage decline.

8. Oregon’s Short Term Outlook: Slow Recovery

9. General Fund Revenue Trends (in millions by fiscal year)

10. Rise & Fall of Lottery Revenue (in millions)

11. *Includes $200 million trigger
General Fund/Lottery Budget Balanced with New Revenue & ARRA Funds (in millions)
*Includes $200 million trigger

12. State Reserve Fund Position: 2009-11 Biennium (in millions)
Reserves
February Forecast
Projected Allocations
Projected Ending Balance
Rainy Day Fund
$135
$126 $9
Ed Stability Fund
$183
$77
$106
Total Reserves
$318
$203
$115

13. Outlook for the 2011-13 Biennium
Slow recovery out of deep hole
Baseline revenue forecast
Early estimates on budget gap
Economic risks to outlook
Specific budget risks

14. Long Road Ahead for Oregon Job Recovery (Quarterly in Thousands)

15. Early Look at 2011-13 General Fund/Lottery Budget (Current Law Projections in Millions)_
Source: DAS

16. Early Look at 2011-13 General Fund/Lottery Budget (Current Law Projected Change in Millions)_
Source: DAS

17. Projected 2011-13 General Fund/Lottery Budget (% Change from 2009-11 Total Base)
Source: DAS

18. 2 Scenarios for U.S. Economy with Huge Implications for Oregon’s Economy
“New Normal”
“New Mix”
Economic recovery is slow and weak
Heavy debt and lost wealth keeps consumer weak
Business investment remains restrained because of tight credit
Feds begin pulling back stimulus limiting recovery
Economy eeks out real annual growth of 1.5-2%
Recent strong productivity gains improve U.S. competitive position
Emerging countries provide growing market for U.S. exports
Businesses respond with increased capital investment
Growth returns to near historical norm of 2.5 to 3%

19. Conclusions Economic recovery not yet on firm sustainable ground
February rebalance leaves little margin for error for remainder of biennium.
Baseline revenue growth roughly sufficient to maintain current reduced service level adjusted for “normal” expenditure growth factors
Backfilling reserves and federal stimulus money presents biggest challenge to budget
Reduced financial market earnings forces up PERS costs adding to already large current law budget gap