INFORMATIONAL MEETING

 

TAPE 61- 62, A-B

 

HOUSE REVENUE COMMITTEE

FEBRUARY 28, 2003   9:00 AM   STATE CAPITOL BUILDING

 

Members Present:                        Representative Lane Shetterly, Chair

                                                Representative Wayne Scott, Vice Chair

                                                Representative Joanne Verger, Vice Chair

                                                Representative Phil Barnhart

                                                Representative Vicki Berger

                                                Representative Pat Farr

                                                Representative Mark Hass

                                                Representative Elaine Hopson

                                                Representative Max Williams

 

Guest Members Present:            Senator Ryan Deckert, Chair

                                                Senator Ted Ferrioli, Vice Chair

                                                Senator Tony Corcoran

                                                Senator Bruce Starr

 

 

Witness Present:                        Tom Potiowsky, State Economist, Office of Economic Analysis

                                                Michael Kennedy, Revenue Economist, Office of Economic Analysis

 

 

Staff Present:                            Paul Warner, Legislative Revenue Office

                                                Kathy Tooley, Committee Assistant

 

TAPE 61, SIDE A

004

Chair Shetterly

Calls meeting to order at 9:10 a.m.

 

 

011

 

 

030

 

038

 

062

 

070

Tom Potiowsky

 

 

Potiowsky

 

Potiowsky

 

Potiowsky

 

Potiowsky

Released and discussed the March 2003 quarterly economic and revenue forecast, (Exhibit 1). 

 

Presented slide presentation on “Oregon’s Economic and Revenue Outlook”, (Exhibit 2).

 

Discussed economic outlook, methodology, which feeds into revenue forecast.

 

Described stabilization in business investment.

 

Described drop in consumer sentiment estimates, which feeds into consumer spending.

 

076

Potiowsky

Discussed federal funds rate drop and recovery’s affect on interest rates.

 

082

Potiowsky

Discussed national indicators of recovery which feed into the Oregon model.  Viewpoint is that it is not a double-dip recession, but a very weak, jobless recovery, but would not slip back into recession.

 

105

Deckert

What are indicators that support that?

 

101

Potiowsky

The economic indicators haven’t dropped to recession levels consistently; the Institute of Supply Management index has gone above 50 indicating expansion within 6 months.  However, the Iraq war could lead to recession.

 

112

Ferrioli

What indicators on the West Coast suggest Oregon is recovering?  Is there strength in other states’ markets?

 

120

 

 

 

 

150

 

 

165

Potiowsky

 

 

 

 

Potiowsky

 

 

Potiowsky

Corporate profits are picking up marginally. Discussed unique characteristics of Washington and California.  Oregon exports are up 13% on the year, and the value of the dollar is coming down helping the manufacturing sector. 

 

As business picks up it should not make the mistake of hiring back people too soon.  May even see unemployment creep up.

 

Described Oregon as a manufacturing-based economy, subject to volatility.

 

175

 

 

 

249

Potiowsky

 

 

 

Potiowsky

Continued presentation discussing expectations in:  employment; lumber and wood, high tech; construction; per capital income; and personal income growth.

 

Described upside and downside risk factors affecting the forecast and how it feeds into the Oregon Model.

 

421

 

500

Michael Kennedy

 

Kennedy

Described changes in methodology to develop a more accurate forecast.

 

Described the Personal Income Tax Liability Model and its components.

 

 

TAPE 62, SIDE A

 

030

Chair Shetterly

Question regarding “% of Totals for 2000”, (Page 12, Slide Top, Exhibit 2), with capital gains is down, how are some of the other numbers changing.

 

044

 

 

068

Kennedy

 

 

Rep. Corcoran

Just received 2001 data, which is much the same, except capital gains is down to 4%.

 

Discussed annual percentage change to each component of gross income.

 

095

Sen. Corcoran

Were these changes reviewed against prior forecasts to understand their accuracy?  If they had been taken into account, would it have made a difference in the ability to forecast?

 

102

Kennedy

Responded that he had not. Noted the model will be more pertinent to future biennium, and there are still issues with the methodology.  The model benefits by tying to economic factors and forces assessment of the future by component.  Thre are still issues in data lag.  The last gross taxable information is for 2001.  2002 is still a forecast in the model even though the year is complete.

 

142

Chair Shetterly

Could this be applied to 1999 and see if this does help get closer to the mark for 2001?

 

150

Sen. Corcoran

Specifically interested in retirement numbers.

 

158

Kennedy

What you would see is the dependence on the underlying forecasts.  Using the new methodology should be able to pinpoint what component caused discrepancy in the forecast.

 

168

Chair Shetterly

We’ll know better why we were wrong?

 

169

Kennedy

It will improve the accuracy, not eliminate errors in forecasting.

 

166

Rep. Verger

Do you feel you know enough of the retirement issue and its impact to make it a significant part?

 

184

Kennedy

Retirement demographics are fairly stable over time.

 

200

Rep. Hass

Would it make more sense to put in a range to within $100 to $200 million dollars, so plans could be made for the worst case?

 

204

Kennedy

That is correct and should have been the case. Today’s presentation is modified to take that into account.

 

225

Potiowsky

Prior approach has been to give one number to deal with.  Proposing to handle it this way from now on when there is volatility around a forecast.

 

226

 

255

Kennedy

Continued presentation forecasting withholding to be flat.

 

Questions and discussion interspersed.

 

278

 

300

Kennedy

 

Kennedy

Continued presentation regarding corporate signs of recovery.

 

Presented General Fund Forecast, difference in forecast of $245 million is entirely driven by personal income tax, cites increase in insurance taxes.

 

310

Kennedy

Described immediate risks:  5 months withholding remaining; 2 estimated payments remaining; estimated payments shortfall.  Discussed 2003 tax filing season and withholding issue.  This forecast does not have any expectation of a return for the biennium.

 

415

Chair

Short of a catastrophic event, this forecast tries to wash out downside of forecast?

 

 

TAPE 61, SIDE B

 

004

Kennedy

Answered affirmatively.  In all likelihood should not see more than $100 million either way.

 

010

Barnhart

There’s a 5% chance either way you could be wrong?

 

015

 

018

Kennedy

 

Kennedy

Answered affirmatively. 

 

Described variance of close of session vs. actual revenue forecasts track record, two negative episodes both were related to recessions, otherwise positive areas.

 

Questions and discussion regarding accuracy of forecasts.

 

60

Kennedy

General Fund Revenue Forecast 2003-2005 $10.4 billion vs. $10.9, which is tied into change in liability model.  Described areas Oregon had potential for future problems.

 

Discussion of variance.

 

085

Chair Shetterly

Stated for the record, that recent statements in the press, some attributed to me, show lack of confidence.  These are not statements critical to either of you or your staff.  You have a tough job.  I want to say on the record that we appreciate and understand that.

 

115

Chair Shetterly

Meeting adjourned at 10:15 a.m.

 

 

 

 

 

Tape Log Submitted by,

 

 

 

Kathy Tooley, Committee Assistant Reviewed by Kim Taylor James

 

Exhibit Summary:

1.       Potiowsky, “Oregon Economic and Revenue Forecast”, 14 pages

2.       Potiowsky-Kennedy, “Oregon’s Economic and Revenue Outlook”, 21 pages

3.       Martin-Mahar, “LRO Forecast Summary”, 6 pages