August 17th, 2010 5:33 pm | by HANK STERN News | Posted In: CLEAN UP, Politics, Legislature

Governor: Oregon's Lousy Economic Forecast to Worsen

Oregon budget problems

Gov. Ted Kulongoski said today that the quarterly economic forecast to be released next week for Oregon is expected to show a further decline in revenues of another $200 million to $500 million.

That lousy news from Kulongoski comes on top of the $577 million state budget shortfall that sprung up in the spring. And it ensures that the state's hemorrhaging budget will remain front and center in the fall race between the gubernatorial candidates seeking to replace Kulongoski, who's in the last months of his final term.

And the expected bad economic forecast to be released on Aug. 26 comes just as Congress sent federal aid to states designed in part to stave off education cuts

Kulongoski wrote school superintendents today in this letter (PDF) about "the probability of another round of budget reductions in September and uncertainty surrounding our revenues during the remaining nine months of this budget period."

The governor's office said it released the budget information after The Oregonian had obtained some of it in a public records request.

Here's the memo (PDF) that went out to state agency directors from budget analyst George Naughton:

On August 26, the Office of Economic Analysis will be releasing the September forecast of General Fund and Lottery Funds resources for the current and future biennia. As we are all aware, the June forecast for 2009-11 went down by $577 million General Fund, which the Governor covered through the use of his allotment authority reducing state agency expenditures. I am sending this e-mail to you because the early indications are that the September 2010 forecast will also be down.

There are two components of a revenue forecast. The first part is the actual returns the Department of Revenue receives every month from Oregon taxpayers. The second part is the overall expectations for the larger economy and how it is expected to perform. In June, the receipts coming in from the Department of Revenue were lower than anticipated, but the overall economic indicators were holding pretty steady. Over the last three months, however, the near and long term projections for the performance of the US economy have started to soften. We have all expected the US recovery to be fairly modest, but it now appears the recovery will be even weaker and more drawn out than previously anticipated.

The attached memo was sent to the Governor's Office yesterday, and lays out the expectation that the September 2010 revenue forecast will likely see a decline of between $200 and $500 million General Fund for the 2009-11 biennium. The actual projection has not yet been calculated, and it is possible the actual number could be either above or below this range.

But, if the state economist's projections hold, and there is no agreement between the Legislature and the Governor on how to resolve the deficit, the Governor will consider using his allotment authority for a second time to effect reductions that will bring the budget back into balance for the remainder of this biennium.

We will wait for the actual number to come out at the end of August, but I wanted you to have the information as it became available.

And here's the Aug. 11 memo (PDF) that went to Kulongoski's office from state economist Tom Potiowsky:
The official release of our September 2010 economic and revenue forecast is scheduled for August 26. Because of changes in the economic outlook over the past two to three months, I feel it is important to give you our sense of direction for general fund revenues.

Almost all forecasting groups have lowered their forecasts for the US economy for the second half of this year and for 2011. Many indicators, including housing starts, consumer spending, bank lending, job growth, and others, have been weaker than expected. Likewise for Oregon, the indication is that the recovery is weaker than our assessment in the last quarterly forecast.

We are still working through our models and collecting data, but the preliminary indication is that the general fund revenue forecast will be lowered. Given the information available, we estimate that the general fund revenue forecast will be down between $200 and $500 million. We stress that this a likely outcome and the final numbers could be outside this range.
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