the school finance outlook for 2010-11 and beyond
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The School Finance Outlook for 2010-11 and Beyond. Legislative Revenue Office April 2010. Generic State Fiscal Outlook. - PowerPoint PPT PresentationTRANSCRIPT
The School Finance Outlook for 2010-11 and Beyond
Legislative Revenue Office
April 2010
Generic State Fiscal Outlook
• “Even if the economy enters a sustained recovery, the tight fiscal squeeze on public services is certain to persist for several years. Over the long term, an aging population and an outdated tax structure means that ______, like other states, is expected to face a mounting structural deficit, where annual growth in revenue is incapable of keeping pace with the annual cost of funding basic public services.”– State Tax Notes (3-22-10)
Oregon’s Fiscal Situation: Remainder of 2009-11
Biennium• Impact of the Great Recession on the
U.S. and Oregon economies
• Short term economic outlook
• The revenue and budget outlook for the remainder of 2009-11 biennium
• Longest contraction since 1929-33 (Dec 07 to July 09?)
• Real GDP declined $490 billion or 3.7% between the fourth quarter of 2007 and the second quarter of 2009
• Employment declined by 6.7 million or 4.9% during the recession
• Housing starts fell to 25% of pre-recession level
• CPI declined in 2009—first time since 1955
• Personal income fell 1.7% in 2009—biggest drop since 1938 and only the second annual decline of the post World War II period
The Great Recession: Impact on the National Economy
• 148,000 jobs lost between December 2007 and December 2009
– 40,00 lost manufacturing jobs
– 30,000 lost construction jobs
• Oregon’s unemployment rate went from 5.2% in December 2007 to 11.6% in June of 2009
• The number of unemployed in Oregon increased from 100,917 in December 2007 to 228,342 in May 2009
• Statewide housing starts dropped from 30,900 in 2005 to 7,600 in 2009—a decline of 75%.
The Great Recession: Impact on the Oregon Economy
State & Local Tax Collections
2007: Q4(in billion of $)
2009:Q2(in billions of $)
Percent Change
All State Taxes 759.9 712.5 -6.2%
Individual income 271.8 243.9 -10.3%
Corporate Income 50.5 43.7 -13.5%
General Sales 240.5 229.5 -4.6%
Property Taxes 12.7 12.8 +0.9%
All Local Taxes 514.9 533.5 +3.6%
Individual Income 20.0 18.6 -6.9%
Corporate Income 9.0 6.1 -31.8%
General Sales 64.7 63.0 -2.6%
Property Taxes 390.4 415.0 +6.3%
Impact of Great Recession on State and Local Taxes
Oregon Among Hardest Hit by Current Recession
(April-June 2009 Compared to 2008)
% CHANGE IN TAX % CHANGE IN TAX REVENUEREVENUE
RANK AMONG THE RANK AMONG THE STATESSTATES
All StatesAll States -16.6-16.6 ----
AlaskaAlaska -86.5-86.5 5050
New MexicoNew Mexico -30.8-30.8 4949
OregonOregon -27.3-27.3 4848
ArizonaArizona -26.7-26.7 4747
7
Oregon’s Short Term Outlook: Slow Recovery
-6%
-4%
-2%
0%
2%
4%
6%
2007 2008 2009 2010 2011 2012
OREGON PERSONAL INCOME
PORTLAND AREA CONSUMER PRICES
OREGON PAYROLL EMPLOYMENT
General Fund Revenue Trends(in millions by fiscal year)
Rise & Fall of Lottery Revenue(in millions)
2009-11 General Fund/Lottery Budget Balanced with New Revenue & ARRA
Funds(in millions)
*Includes $200 million trigger
State Reserve Fund Position: 2009-11 Biennium
(in millions)
Reserves February Forecast Projected Allocations
Projected Ending Balance
Rainy Day Fund $135 $126 $9
Ed Stability Fund $183 $77 $106
Total Reserves $318 $203 $115
Outlook for the 2011-13 Biennium
• Slow recovery out of deep hole
• Baseline revenue forecast
• Early estimates on 2011-13 budget gap
• Economic risks to outlook
• Specific budget risks
1500
1550
1600
1650
1700
1750
1800
PAYROLL EMPLOYMENT
PRE-RECESSION LEVEL
Long Road Ahead for Oregon Job Recovery (Quarterly in Thousands)
Early Look at 2011-13 General Fund/Lottery Budget
(Current Law Projections in Millions)_
Source: DAS
Early Look at 2011-13 General Fund/Lottery Budget
(Current Law Projected Change in Millions)_
Source: DAS
Projected 2011-13 General Fund/Lottery Budget
(% Change from 2009-11 Total Base)
Source: DAS
“New Normal”
• Economic recovery is slow and weak
• Heavy debt and lost wealth keeps consumer weak
• Business investment remains restrained because of tight credit
• Feds begin pulling back stimulus limiting recovery
• Economy eeks out real annual growth of 1.5-2%
• Recent strong productivity gains improve U.S. competitive position
• Emerging countries provide growing market for U.S. exports
• Businesses respond with increased capital investment
• Growth returns to near historical norm of 2.5 to 3%
2 Scenarios for U.S. Economy with Huge Implications for Oregon’s
Economy“New Mix”
Conclusions• Economic recovery not yet on firm
sustainable ground
• February rebalance leaves little margin for error for remainder of 2009-11 biennium.
• Baseline 2011-13 revenue growth roughly sufficient to maintain current reduced service level adjusted for “normal” expenditure growth factors
• Backfilling reserves and federal stimulus money presents biggest challenge to 2011-13 budget
• Reduced financial market earnings forces up PERS costs adding to already large current law 2011-13 budget gap