May 2017 Economic & Revenue Outlook. Oregon Office of Economic Analysis Mark McMullen Josh Lehner

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1 May 2017 Economic & Revenue Outlook May 16 th, 2017 Mark McMullen Josh Lehner

2 Economic Update and Outlook

3 The Slowdown Is Here 3

4 Slowing Across Industries 4

5 Slowing Across Regions 5

6 Watch Me Work 6

7 Risk: Federal Policy Fiscal Policy General Impact Tax Rates Infrastructure Deregulation Immigration Larger OR Impact Tax Base Broadening Trade Wars Federal Lands Health Care Monetary Policy Rising Interest Rates 7

8 Economic Outlook 8

9 Revenue Update and Outlook

10 Slower Income Growth in 2016 Schedule E Social Security Interest Capital Gains Total Income Dividends Wages Pensions IRAs Proprietorships Broad-Based Slowdown: Matched Returns, Full-Year Tax Filers, % change (P) 46%--> -5% 0% 5% 10% 15% 20% 25% 10

11 PIT Withholdings Slow a Bit 11

12 Billions April Payments on Track $1.1 $1.0 $0.9 $0.8 $0.7 $0.6 $0.5 $0.4 $0.3 $0.2 $0.1 Still Processing Year-End Tax Payments Oregon Cumulative Personal Income Tax Payments March % April % April % 2017 $0.0 January February March April May June Latest Data: May 12, 2017 Source: Oregon Dept of Revenue, May % May % Forecast

13 Billions Refunds Coming Up Short Where Will Refunds Land? Personal Income Tax Refunds, Cumulative January February March April May June -$0.1 -$0.3 -$0.5 -$0.7 -$ $ $1.3 Latest Data: May 12, 2017 Source: Oregon Dept of Revenue, Forecast 13

14 Kicker 101 Kicker Base is Determined by the Close of Session Forecast for General Fund Less Corporate Taxes. Close of Session = May 2015 Forecast Legislative Actions 14

15 What Is Your Cut? Income Group Adjusted Gross Income* Rough Estimate of Kicker Size** Bottom 20% < $10,489 $5 Second 20% $10,490 - $24,488 $32 Middle 20% $24,489 - $45,159 $91 Fourth 20% $45,160 - $82,786 $191 Next 15% $82,787 - $165,174 $408 Next 4% $165,175 - $368,109 $1,002 Top 1% > $368,109 $4,505 Average $57,165 $210 Median $30-35,000 $85 * Based on 2014 actual tax returns ** Based on 2014 actual tax returns, PIT kicker amount ($408 million) and the forecast for tax liability 15 15

16 Kicker: Not A Done Deal Yet 16

17 Errors 17

18 Millions Estate Taxes Oregon Estate Taxes $50 $45 $40 $35 $30 $25 $20 $15 $10 $5 Monthly Collections 12 Month Average $0 Jul-01 Jul-03 Jul-05 Jul-07 Jul-09 Jul-11 Jul-13 Jul-15 Source: Oregon Dept. of Revenue, 18

19 Estate Taxes 250 Oregon Estate Taxes Index, FY 2007=100 Forecast --> Tax Collections 50 0 FY 00 FY 05 FY 10 FY 15 FY 20 FY 25 Latest Data: Fiscal Year 2016 Source: Oregon DOR, 19

20 Lottery Uncertainty 20

21 New Forecast: Marijuana Upside Usage Black, Gray, Medical market conversion Downside Price Supply Federal Government 21

22 Corporate Taxes: Are Declines Over? Corporate Taxes Are Expected to Stabilize Corporate Excise Taxes, $ millions, 4 QTR Sum May 2015 Forecast May 2017 Forecast Forecast ->

23 Pass-Through Income $9 $8 $7 $6 $5 $4 Oregon Income Reported by Full-Year Tax Filers, billions Rent, Partnerships & S-Corps Proprietorships 66% Above Pre-recession Peak 28% Above Pre-recession Peak $3 $ (P) 23

24 Forecast Changes

25 General Fund Forecast Summary Table R General Fund Forecast Summary (Millions) 2015 COS Forecast March 2017 Forecast May 2017 Forecast Change from Prior Forecast Change from COS Forecast Structural Revenues Personal Income Tax $15,713.5 $15,709.8 $16,020.8 $311.0 $307.3 Corporate Income Tax $1,100.0 $1,136.2 $1,175.7 $39.5 $75.7 All Other Revenues $1,184.6 $1,264.6 $1,285.1 $20.5 $100.5 Gross GF Revenues $17,998.1 $18,110.6 $18,481.6 $371.0 $483.6 Offsets and Transfers -$42.8 -$44.4 -$45.2 -$0.8 -$2.4 Administrative Actions 1 -$20.2 -$14.0 -$14.0 $0.0 $6.2 Legislative Actions -$ $ $158.3 $0.0 $0.6 Net Available Resources $18,309.1 $18,422.7 $18,792.9 $370.2 $483.8 Positive Factor Personal Income Taxes Corporate Excise Taxes Estate Taxes Insurance Taxes Negative Factor Court Fines, Fees & Assessments Confidence Intervals 67% Confidence +/- 0.9% $ % Confidence +/- 1.9% $ Reflects cost of cashflow management actions, exclusive of internal borrowing. $18.31B to $18.65B $18.14B to $18.83B Along with expenditure savings, this increases the ending balance for by $376 million 25

26 Ending Balances Help to Offset the Kicker in BI

27 Forecast Changes Difference from March Forecast, $ millions $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 -$50 -$100 -$150 -$200 -$250 -$ Personal Corporate Lottery Other Total

28 Biennial Revenue Growth 25% 20% 15% 10% 5% 0% -5% -10% -15% Personal Income Taxes Total Net Revenue

29 Reserves Gen. Fund Ending Balance Educ. Stability Fund Rainy Day Fund $2.0 10% Forecast --> $1.5 $1.0 $0.5 $0.0 Oregon Budgetary Reserves (billions) Percent of General Fund --> BN BN BN BN BN Source: BN BN BN BN BN BN 8% 6% 4% 2% 0% Effective Reserves ($ millions) Apr 2017 End ESF $356.8 $383.8 RDF $375.5 $388.8 Reserves $732.3 $772.5 Ending Balance $723.9 $723.9 Total $1,456.2 $1,496.4 % of GF 7.9% 8.1% 29

30 Contact (503) (503)