Quarterly Revenue Forecast Remains at Record Levels
The September Economic and Revenue Forecast came out Aug. 31. Here are the highlights:
Bottom line: Gross general fund revenue for the 2021-23 biennium, which began on July 1, 2021, is now expected to be $27.9 billion. This exceeds the $23.3 billion forecast in June 2021 as the legislative session ended and just before the biennium began. The forecast now projects a 2021-23 ending balance of $3.71 billion and reserve funds of approximately $1.75 billion, for a total of $5.46 billion in total effective reserves.
Growth slows: The forecast continues to show economic and revenue growth in Oregon. However, as predicted, the pace of growth has moderated sharply due largely to inflation and monetary tightening. The outlook for growth has moderated as well. This breaks the two-year trend of unprecedented growth that we have seen since the September 2020 Revenue Forecast. Actual tax collections were slightly ahead of the last forecast, which appeared in June. As a result, the baseline general fund revenue outlook for the 2021-23 biennium increased “only” another $600 million since the June forecast but is still an astounding $4.6 billion ahead of the 2021 close of session forecast.
Volatility: The state economist confirmed that the economic outlook is uncertain and potentially volatile. While the state is projecting a soft landing/slow growth scenario over the next two years, the forecast noted that most economists consider a recession about as likely as a period of slow growth. All major state revenue instruments – personal income taxes, corporate and business income taxes, capital gains taxes – showed continued growth through the September forecast, albeit at a much slower pace. Payroll-related taxes remain strong due to continued wage growth and labor demand. Business tax collections also remained strong.
Of course, revenue growth has been driven to a significant degree by inflationary factors that increase wages and sales income. Returns also have been inflated by bracket creep, in which inflation increases tax rates for many higher-income payers. Finally, state economists noted that realized capital gains have been at an unprecedented and unsustainable level over the last two years, a phenomenon that may have been driven by a belief that federal capital gains tax rates would rise. These factors create a volatile outlook for future returns. They also suggest that flat growth, or even a decline, in state revenue could occur.
Kicker and future challenges: State economists now project a personal kicker of $3.46 billion in 2024 and a corporate kicker of $1.01 billion, the latter of which would go into state education reserve accounts. For the 2023-25 biennium, the growth we have seen over the last two years is expected to reverse as nonwage forms of income, capital gains and corporate profits normalize, wage growth slows and kicker payouts are made. Expected general fund revenues for the 2023-25 biennium have decreased $625 million from previous forecasts and now stand at $25.5 billion. Notably, this projection still exceeds the 2021-23 general fund budget by more than $2 billion. Current reserves of $5.46 billion will mitigate any potential budget and service shortfalls and, of course, should challenge any consideration of new taxes or tax increases.
A link to the full revenue forecast can be found here.
Environmental Reviews: Gov. Kate Brown has asked the Legislative Review Board for money to speed up environmental reviews for the semiconductor industry. According to The Oregonian, Brown has asked for $357,000, which is enough to hire four Department of Environmental Quality specialists for six to nine months.
Dam Removal: A report commissioned by Washington Gov. Jay Inslee and Sen. Patty Murray concludes that breaching four lower Snake River dams is not feasible in the near future, the Portland Business Journal reports.
Tech Apprenticeship: The Hillsboro School District has launched an advanced manufacturing apprenticeship program for high school students, Oregon Public Broadcasting reports.
Lumber Prices: The Oregonian takes a look at the sudden rise and fall of lumber prices during the COVID pandemic.
Metallica Grants: The Metallica Scholars Program, funded by the band of the same name, pays for tools used by students studying the trades, including some at Clackamas County Community College. Oregon Public Broadcasting has a nice story about it.
Interim Task Force and Rulemaking Update
Retail crime: Organized retail crime is an increasingly dire problem for retailers across the nation, and Oregon is no exception. The phenomenon involves highly organized groups of people committing theft on a broad scale. OBI is participating in a task force that will bring together the state attorney general, district attorneys, law enforcement agencies, unions and retailers to increase communication in order to identify common problems, share information and identify organized criminal networks. The task force will meet monthly beginning Sept. 20. A similar effort is underway in Washington state.
Development Rules: The Land Conservation and Development Commission issued its final Climate Friendly and Equitable Communities (CFEC) rule in August. CFEC is one component of Gov. Brown’s executive order 20-04 to reduce greenhouse gas emissions. The rule creates areas where personal vehicles are prohibited; prioritizes spending on bicycle, pedestrian and transit infrastructure; and limits personal vehicle use by restricting parking associated with new developments. The rule also restricts commercial development to limit “auto-dependent uses” like drive throughs and freight loading areas. The Department of Land Conservation and Development will hold a webinar on the rule for local jurisdictions on Sept. 7, but the webinar is not open to the public. Affected organizations and jurisdictions are evaluating how to respond to the rule’s restrictions, which will increase cities’ planning costs by millions of dollars and and hamstring development.
Bridge Health Care Plan: The Bridge Health Care Program Task Force has tentatively approved its final report but continues to await the completion of an actuarial analysis. The analysis is expected to be completed this fall. The task force was formed to address the potential loss of Oregon Health Plan coverage for thousands of people following the COVID pandemic, during which Oregon used federal funds to keep people enrolled. The report represents the task force’s preliminary recommendations for designing a bridge health care plan.
Air Permitting: The Department of Environmental Quality is contemplating foundational changes to the air permitting program that will substantially increase regulatory cost and complexity. The new rules would increase the cost of compliance by tens of thousands of dollars for permit holders and be much more resource-intensive for DEQ to implement. OBI, along with a broader coalition of partners, submitted extensive comments on the proposed rule. Extensive and costly air dispersion modeling would be required even for very minor changes at facilities such as routine replacement of equipment or the installation of a new HVAC system to improve indoor air quality. New fees would be imposed on regulated entities, starting with an $18,000 payment to review the facility’s modeling results. Meanwhile, DEQ has requested a budget increase of $6.3 million for 18 permitting positions to implement the new rules.
DEQ has not identified air quality problems that justify these fundamental changes, and the changes are unlikely to improve air quality. DEQ admits that, in the vast majority of cases, no additional permit provisions would be required except for the new modeling requirement. OBI is working with key legislators to ensure they’re aware of the potential burden on regulated entities and the fact that the $6.3 million budget request is necessary only to accommodate the extensive changes to the air permitting program. DEQ plans to take the proposal to the Environmental Quality Commission in November.
Clean Cars: Formal rulemaking has begun to phase out the sale of petroleum-dependent vehicles through the Advanced Clean Cars II Rulemaking. As with the Clean Trucks Rule adopted in November 2021, DEQ is moving forward in adopting an electric vehicle sales mandate that echoes a California rule. The Clean Air Act allows states to adopt rules identical to those promulgated in California. However, the rule must copy the California regulation, leaving the rulemaking process little flexibility. The rule will impose a sales mandate for electric vehicles (EV) and hybrid plug-in EVs beginning with model year 2026. Thirty Five percent of the total number of vehicles sold in Oregon must be EVs and low emission vehicles. The percentage of EV sales increases each year over a 10-year period with a 100% sales requirement by 2035. This is an ambitious undertaking given that Oregon has been slow to invest in EV charging infrastructure, EV inventories are low and the vast majority of vehicles being manufactured are petroleum dependent. DEQ Director Richard Whitman has indicated that the rule will go to the Environmental Quality Commission for adoption in November.
Recycling Modernization: Committees formed to implement the 2021 Recycling Modernization Act have begun to meet. Paloma Sparks represents OBI members through her seat on the rulemaking advisory committee. Meanwhile, a technical workgroup has been formed to determine which items will be on the statewide collection list and how other items might be recyclable. These two committees, as well as a broader Recycling System Advisory Council, cover many of the same issues and engage in similar discussions. The Recycling Modernization Act requires all producers to belong to a Producer Responsibility Organization, and the rules currently under development will cover such issues as materials, recycling needs, local government costs, and producer fees. California recently adopted a similar law, which we are reviewing to identify areas of misalignment between the two states.
Paid Leave Oregon: The paid family and medical leave insurance program, now referred to as Paid Leave Oregon, is preparing to adopt its final round of administrative rules, which is related to benefits. OBI has participated in the rulemaking advisory committee and submitted comments. The rules were significantly improved to reflect OBI’s comments prior to being published as proposed rules. OBI continues to worry about several issues that will create confusion for employers and employees who are also covered by the Oregon Family Leave Act and the federal Family and Medical Leave Act. OBI hopes to introduce legislation in the 2023 session to address this issue. Contributions to support the program will begin in January in the form of a 1% payroll tax, of which employees will pay 60% and employers 40%. Employers who opt to provide an equivalent plan are not required to remit contributions but must apply to the Paid Leave Oregon program soon so that the equivalent plan can be approved. The Oregon Employment Department will collect applications through a new and modernized system. Employees will be eligible to take advantage of benefits beginning in September 2023. Contact Paloma Sparks if you need more information.
Student Success: Having held meetings across the state during the spring and summer, the Joint Task Force on Student Success for Underrepresented Students in Higher Education – aka the Student Success Task Force – has formed three workgroups. They include work groups focusing on student support and wraparound services, financial aid and affordability, and systematic accountability and continuous improvement. Morgan Beltz will monitor meetings of the latter two groups, which will begin in early September. The groups will make recommendations to the full task force in November.
Manufacturing Profile: Georgia-Pacific Juno Fiber-Recovery Plant
The recently completed Manufacturing and Innovation Roadshow visited Georgia-Pacific’s Juno facility in Toledo, which extracts paper fiber from household trash. The plant is a commercial-scale proof of concept for technology that has been more than a decade in development. Many paper products contain coatings or are too contaminated with food and other substances to be recycled by conventional means. Such products historically have ended up in landfills. Juno technology harvests such previously wasted material from household trash.
Read more about the Toledo plant and Georgia-Pacific’s plans for the future on OBI’s website. You can also check out profiles of several other employers, including wineries, wood products manufacturers, metalworking companies and more.
Watch Recent Webinars
Paid Leave Oregon Webinars
OBI has held three webinars so far on the Paid Leave Oregon program, which will become effective in 2023. Additional webinars will occur as program development continues. Previous webinars:
- Program Overview: A webinar providing an overview of the program has been offered twice. Watch the June 22 webinar here and the July 14 overview here.
- Equivalent Plans Overview: A webinar providing an overview of program rules governing equivalent plans can be found here.
Managing Claims Costs with Return to Work Services
Watch a recording here.
Experts with SAIF explained how employers can manage the post-injury process, get their employees back to work and mitigate claim costs using the Return to Work services team at SAIF and the Employer-at-Injury and Preferred Worker Program benefits. The webinar was offered through OBI’s CompSAFE program.
OSHA Heat and Smoke Rules
Watch a recording here.
Experts with Oregon OSHA provided an overview of the recently adopted heat and smoke rules and answered questions from OBI members.
Union Organizing Dos and Don’ts
Watch a recording here.
Attorney Nicole Elgin with Barran Liebman LLP explained what managers and supervisors should know, do and not do when confronted by a union organizing drive.
Oregon Business Plan Update
Watch a recording here.
Oregon Business Council President Duncan Wyse delivered a midyear progress report on the Oregon Business Plan and answered questions from webinar participants.
Student Success Act Implementation
Watch a recording here.
Officials with the Oregon Department of Education joined OBI to discuss the implementation of the 2019 Student Success Act, which generates roughly $1 billion per year for education through the state’s corporate activity tax.
Volunteer Expo: The Standard’s 14th annual Volunteer Expo is back in person. It will take place on Thursday, Sept. 8, in downtown Portland’s Pioneer Square from 11 a.m. to 2 p.m. Nonprofits such as Portland Homeless Family Solutions, Ronald McDonald House and Portland Opera will be there to match volunteers with volunteering opportunities. Check out the event’s Facebook page for more information. If you’re not able to attend but would like to volunteer, you can find opportunities here.