The latest quarterly economic report, which was released this week, created a shock by forecasting healthier state tax receipts than anticipated, even as Oregon continues to crawl out of a deep recessionary hole. State economists explained why and warned the road to recovery won’t be short.
“Overall the current state of the economy is much better than feared at the time of the previous forecast in June,” state economists said. “But the economic outlook in the years ahead is only improved modestly. It takes time, even under the best of circumstances, to regain lost ground due to recessions. 2020 so far is anything but the best.”
“Overall the current state of the economy is much better than feared at the time of the previous forecast in June.”
In the June economic report, economists forecasted a 21 percent loss of jobs and 4-year recovery. The latest report pegs job losses at closer to 14 percent and foresees a 3-year recovery.
State tax collections have held up, according to the economic report, because of an infusion of federal coronavirus financial relief and minimal impact on higher-income households with members who continued to work remotely during the lockdown. Lower-income households and minorities have borne the brunt of the recession, widening pre-existing economic disparities. “Given widening economic inequality, high-income households have an increasingly disproportionate impact on aggregate economic indicators like spending and income,” state economists say.
In their presentation to lawmakers, state economists said the CARES Act infused $14 billion into Oregon’s economy – $7 billion in recovery rebates and enhanced unemployment benefits and $7 billion in Paycheck Protection Program loans for businesses to retain employees.
According to a chart in the presentation, lower-wage workers suffered more than a 25 percent loss in jobs because of the economic lockdown contrasted to less than a 10 percent loss for middle- and higher-wage workers. Job losses were greater among Hispanic and Black workers than their white counterparts. Minority and white workers have parallel job recoveries, but minority job loss still remains near 10 percent. “The labor market is in bad shape, but not as bad as first feared,” economists said. The current jobless rate in Oregon stands at 7.7 percent.
Personal income tax collections so far in 2020 are approaching $7 billion, exceeding 2019 collections. The nearly $700 million in corporate tax collections in 2020 is slightly higher than 2019 collections. State economists predict personal income tax liability will reach $10 billion as early as 2025 and continue to grow to $14 billion in the next five or so years. The majority of lockdown-related layoffs appear to be temporary, economists speculated.
Oregon Lottery proceeds “bounced back overnight” when cars and restaurants reopened, reflecting higher incomes and “pent-up demand for gaming and a lack of other entertainment options”.
The latest forecast doesn’t fully take into account the economic impact of devastating wildfires, but it implies there could be some positive effects with new housing starts to replace destroyed structures, generating 2,100 related construction jobs.
State officials reported this week the cost of fighting multiple wildfires in Oregon could reach $100 million. Half of that could be defrayed by a FEMA grant and some of the rest may be covered by insurance. Oregon Congressman Peter DeFazio announced $5 million in emergency relief funding to help the Oregon Department of Transportation remove trees and repair highways damaged by wildfires.
The bottom line, economists say, is Oregon decision-makers will head into the 2021 legislative session without a huge budget hole. They forecast a $1.7 billion ending balance in the 2019-2021 biennium, as well as nearly $1.4 billion in reserve funds. They warn the full effects of the recession may still lie ahead.
“The fact of the matter is that the economic pain has yet to be fully reflected in Oregon’s revenue data,” economists say. “To the extent the pandemic, wildfires, drought, or protests and clashes of violence impact this advantage remains to be seen, but they all represent downside risks to the outlook. On the other hand, should telecommuting and remote work increase as a result of the pandemic and changing business practices, Oregon stands to take advantage.”