1. November 2011 Legislative Revenue Office 1

2.  Oregon & the U.S. remain mired in a very slow economic recovery.  Oregon tax collections have picked up from the recession lows and are tracking very close to forecast.  Growing uncertainty over Euro Zone finances and U.S. fiscal policy have caused forecasters to lower U.S. and global growth projections for 2012.  The lower national forecast translates into a modest downward revision in the 2011-13 General Fund revenue projection. Revenue projections beyond the 2011-13 biennium are also down reflecting the assumption of lower trend economic growth.  Although the economic forecast continues to call for slow growth, the risks of recession are rising. If a recession materializes the General Fund revenue forecast would be revised down sharply. 2

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8.  Key Assumptions  U.S. policy makers impose gradual long-term budget reductions  European policy makers avoid messy sovereign debt default  Business investment and exports lead U.S. to modest growth  Unemployment declines but remains high keeping inflation under control 8

9.  Stagnation  U.S. policy makers reach impasse on budget talks forcing across- the-board spending reductions  European policy makers fail to implement long-term sovereign debt plan leaving bond holders uncertain  Slowing world economy and uncertainty slow U.S. investment and exports  Unemployment drifts up while inflation and interest rates remain very low.  Back into Recession  China slows more than expected reducing overall world growth  The Euro Area economy enters sharp recession reducing U.S. exports and increasing risk premiums on sovereign debt  U.S. fiscal policy turns sharply contractionary  U.S. exports slow sharply and net business investment turns negative  Unemployment rises back above 10% while inflation remains subdued  Despite falling into recession, the rate of decline in the U.S. economy is restricted by the already low level of economic activity, especially housing 9

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11. 2011-13 BienniumDecember 2011 EstimateChanges from September General Fund$13,755.1-$84.3 Total Lottery Earnings$1,101.9-$22.5 Total General Fund/ Lottery Revenue $14,857.0-$106.8 11

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13. 2011-13 General FundClose of Session EstimateDecember 2011 Estimate Revenue$14,032$13,755 Total Ending Balance$446.3$169.3 Supplemental Ending Balance $299.3$22.4 Traditional Ending Balance$147.0 13

14. Projected 2011-13 Ending BalanceDecember 2011 Estimate Rainy Day Fund$45.9 Education Stability Fund$10.7 Total Reserves$56.7 14

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17.  Modest economic growth remains most likely scenario but stagnation and outright recession are major risks  Stagnation Scenario would reduce 2011-13 General Fund revenue by $300 to $500 million.  Recession Scenario would reduce 2011-13 General Fund revenue by $800 million to $1 billion.  Long-term U.S. and Oregon economic growth depends on restoring international competitiveness through productivity enhancing investments in physical capital, human capital and infrastructure i.e. there are no quick fixes  Oregon is in a good position to take advantage of a long run shift to business investment and exports as the primary U.S. economic growth drivers. 17