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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
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
OFFICE OF ECONOMIC ANALYSIS
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
OFFICE OF ECONOMIC ANALYSIS
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.
OFFICE OF ECONOMIC ANALYSIS
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.
OFFICE OF ECONOMIC ANALYSIS
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
OFFICE OF ECONOMIC ANALYSIS
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%
OFFICE OF ECONOMIC ANALYSIS
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
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 -->
OFFICE OF ECONOMIC ANALYSIS
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
OFFICE OF ECONOMIC ANALYSIS
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
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%
OFFICE OF ECONOMIC ANALYSIS
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
OFFICE OF ECONOMIC ANALYSIS
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
OFFICE OF ECONOMIC ANALYSIS
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
OFFICE OF ECONOMIC ANALYSIS
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)
OFFICE OF ECONOMIC ANALYSIS
Which Straw?
COS Kicker Threshold
=$100 Million
$10.8 billionIn the Door
$4.3 billionStill to Come
OFFICE OF ECONOMIC ANALYSIS
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 -$349m
OFFICE OF ECONOMIC ANALYSIS
22
Capital Gains: Boom and Bust
0
5000
10000
15000
20000
25000
30000
35000
0
2,000,000,000
4,000,000,000
6,000,000,000
8,000,000,000
10,000,000,000
12,000,000,0001
98
0
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
20
16
20
18
20
20
20
22
Wilshire 5000 Stock Price Index (Right)
Oregon Capital Gains Realizations (Left)
OFFICE OF ECONOMIC ANALYSIS
Estimated Income Tax Payments: A Sign of Things to Come?
Tax Year
Dec-Jan
Estimated
Payments
($ 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
OFFICE OF ECONOMIC ANALYSIS
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
OFFICE OF ECONOMIC ANALYSIS
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
OFFICE OF ECONOMIC ANALYSIS
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
OFFICE OF ECONOMIC ANALYSIS
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
OFFICE OF ECONOMIC ANALYSIS
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
OFFICE OF ECONOMIC ANALYSIS
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
OFFICE OF ECONOMIC ANALYSIS
3131
Biennial Revenue Growth
-12%
-8%
-4%
0%
4%
8%
12%
16%
20%
24%PIT TOTAL
OFFICE OF ECONOMIC ANALYSIS
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
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
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