INFORMATIONAL MEETING

REVENUE FORECAST MARCH 2005

TAPES 45 A-B, 46 A

005

Chair Deckert

Calls meeting to order at 9:02 a.m. Announces March forecast, welcomes House Revenue Committee members.

021

Paul Warner

The Supreme Court last night issued a ruling on Bobo vs. Kulongoski (EXHIBIT 1). This involved 2001 legislature. Medicaid money from federal government was counted as general fund dollars. Legislature pulled it from general fund. Consequence was kicker refund for biennium was reduced by $113 million. Supreme Court sided with Circuit Court, overruled Appeals Court. Legislature acted properly in pulling local dollars out. This will have no impact on economic forecast. It removes one of the economic forecast risks.

REVENUE FORECAST MARCH 2005

065

Tom Potiowsky

Briefs committee on process by which Office of Economic Analysis creates the quarterly economic forecasts. Directs members’ attention to Oregon’s Economic and Revenue Outlook, Release of March 2005 Quarterly Economic & Revenue Forecast (EXHIBIT 2).

Begins with slide 2: Economic and Revenue Forecast

119

Potiowsky

Slide 3: Unemployment Rate by Region, December 2004

129

Potiowsky

Slide 4: U.S. Business Investment Drops Nine Consecutive Quarters – UP Seven

163

Potiowsky

Slide 5: Oregon’s Total Exports

Slide 6: Oregon Index of Leading Indicators

186

Potiowsky

Slide 7: 64,000 jobs lost; 3,000 left to gain back.

224

Rep. Butler

After the revision, Oregon is still 3,000 jobs short. What should the gain back be?

231

Potiowsky

Responds, doesn’t have the exact number, but state has a way to go to meet that benchmark.

239

Potiowsky

Slide 8: Total Non-farm Employment (Annual Percentage Change)

255

Potiowsky

Slide 9: Manufacturing Industry Employment (Annual Percentage Change)

272

Potiowsky

Slide 10: Private Non-Manufacturing Industry Employment (Annual Percentage Change)

284

Potiowsky

Slide 11: Comparison of Last Three Forecasts

294

Potiowsky

Slide 12: Oregon Outlook Summary

327

Rep. Butler

With personal income steady, does income tax collection go up?

330

Michael Kennedy

Responds, the national figure includes wages and salaries.

315

Chair Deckert

Asks questions concerning a previous slide.

327

Potiowsky

Refers to press packet (EXHIBIT 3) which highlights risk factors. Risks include China’s economy, declining dollar, inflation and energy due to low snow pack. Estimates 25% likelihood of any of these risks affecting the economy. Higher energy costs are of the most concern.

423

Rep. Boquist

Questions the decrease in manufacturing strength.

429

Potiowsky

High tech sector is very mature and it will likely follow the national trend for manufacturing. There will probably be more outsourcing. Employment won’t return to its previous peak till 2011. Unknown are technological changes.

459

Kennedy

Begins review of personal and corporate income tax forecast, general forecast.

Slide 13: Revenue Forecast

023

Kennedy

Slide 14: 2003 Tax Year Statistics

045

Kennedy

Slide 15: Recent Forecast Performance

060

Kennedy

Slide 16: 2004 Tax Year

068

Kennedy

Corporate Income Tax …

Slide 18: Recent Forecast Performance

076

Kennedy

Slide 19: Oregon Corporate Profits ($Billions)

094

Kennedy

Slide 20: General Fund Revenue Forecast (2003-2005) Biennium

Total 2003-05 revenue forecast has been revised up $96 million, ending balance is $187 million.

111

Kennedy

Slide 21: Kicker Update 2003-05

118

Kennedy

Slide 22: GF Forecast Variance by Forecast

129

Kennedy

Slide 23: Potential Variance from March Forecast

150

Kennedy

Slide 24: General Fund 2005-07 Forecast

Bottom line is, with increase in beginning balance plus increase in revenue projection, total resources for next biennium are about $202 million higher than in December 2004 forecast.

187

Kennedy

Comments about risks.

192

Chair Deckert

Questions what legislative actions OEA watches when compiling forecasts.

212

Kennedy

Everything in terms of tax law changes.

218

Chair Deckert

Questions concerning bonus depreciation.

221

Potiowsky

Responds, revised GDP figures showed 14% expenditure increase on business computers and equipment. There was a definite bump-up and it was probably related to bonus depreciation reserves.

231

Rep. Boquist

Asks for comments on impact of a potential 100% Bonneville Power Admin. increase, and of a possible second 9/11 terrorist attack.

240

Potiowsky

Bonneville situation is a definite risk, it would hurt the economy badly, particularly in high tech. This worry is longer term, not immediate. As for another terrorist attack, it would be easier to react to a second one. But the closer to home, the bigger the impact.

267

Kennedy

Continues slide presentation.

Slide 25: General Fund Revenues ($Billions)

297

Rep. Butler

It appears Oregon is approaching capacity to expand. Is this true?

299

Kennedy

Oregon is not at capacity, in terms of office space and labor force.

315

Kennedy

Slide 26: General Fund Revenue Growth

330

Kennedy

Lottery Revenue Forecast …

Slide 28: Lottery Revenues, 2003-05

359

Kennedy

Slide 29: Slot (Line) Games and VLT Sales

395

Kennedy

Slide 30: Lottery Revenues, 2005-07

418

Kennedy

Slide 31: Extended Lottery Forecast ($Millions)

020

Kennedy

Slide 32: Lottery Resource Available to the State (Millions)

Slide 33: For more information …

025

Rep. Boquist

In regard to assumed long-run sales impact of 12% vs. growth rate of 2%, how realistic is the 12% figure?

030

Kennedy

Responds, Lottery has looked at West Virginia’s lottery as fairly comparable. OEA has taken middle-of-the-road estimate and it could be 5- to 20 percent.

047

Chair Deckert

Questions concerning commission rate structure.

055

Rep. Butler

Asks how lottery revenues compare nationally.

066

Kennedy

It’s difficult to tell because it is so variable. State’s share is very low relative to other states.

075

Chair Deckert

Asks, how is Oregon doing on diversifying the economy?

084

Potiowsky

Oregon’s economy is more diversified than before. Manufacturing is more diverse, but all of manufacturing was hit by the recession. Oregon has positive growth, even though it booms and falls more than other states. High-tech has spread into other industries, for example, logging, which doesn’t equate to more employment.

110

Potiowsky

Oregon has a niche in nanotechnology (pertains to building microscopic machinery).

117

Rep. Hass

Asks, of the 61,000 jobs gained back, are employees earning more or less than those who lost jobs?

123

Potiowsky

Average earnings are a little less than jobs lost.

135

Rep. Galizio

Where would you advise policymakers to invest?

145

Potiowsky

State is worried about outsourcing and how to compete better in the world. Arguments about outsourcing are similar to arguments on unfair trade practices. U.S. needs to improve its higher education system in order to compete internationally.

179

Chair Deckert

Adjourns meeting at 10:09 a.m.