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ARE WE PREPARED FOR THE NEXT DOWNTURN??

Explore Oregon's history of revenue volatility, impact of past recessions, and strategic reserve policies for the next downturn. Learn about key income tax sources, reserve funds, and measures to cope with uncertainties ahead.

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ARE WE PREPARED FOR THE NEXT DOWNTURN??

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  1. ARE WE PREPARED FOR THE NEXT DOWNTURN?? HISTORY SOURCES OF VOLATILITY RESERVE POLICY SCENARIOS LEGISLATIVE REVENUE OFFICE

  2. GENERAL FUND REVENUE: HISTORY OF VOLATILITY (% CHANGE COMPARED TO PRECEEDING BIENNIUM)

  3. STATE SCHOOL FUND:HISTORY OF VOLATILITY(IN MILLIONS OF $)

  4. OREGON AMONG HARDEST HIT BY 2001 RECESSION(FY2002 COMPARED TO FY2001)

  5. SOURCES OF VOLATILITY • CYCLICALLY SENSITIVE GOODS BASED ECONOMY • RELIANCE ON HIGHLY ELASTIC INCOME TAXES • KICKER MECHANISM • INITIATIVES

  6. STATE TAXES BY SOURCE(PERCENT OF STATE TAX COLLECTIONS IN FISCAL YEAR 2006)

  7. LARGEST SOURCE OF VOLATILITY: OREGON’S HIGH INCOME TAXPAYERSPercent of Total Liability for Top 1% of Full-Year Filers

  8. PLENTY OF RISKS AHEAD • HOUSING WEAKNESS TRIGGERS NATIONAL RECESSION • ENERGY PRICES SPIKE EVEN MORE • INTERNATIONAL TENSIONS ESCALATE • WORLD TRADE IMBALANCES FORCE PAINFUL ADJUSTMENTS IN U.S. • FINANCIAL MARKETS TURN DOWN SHARPLY

  9. COPING WITH VOLATILITY:RESERVE FUNDS • EDUCATION STABILITY FUND (2002) • RAINY DAY FUND (2007)

  10. EDUCATION STABILITY FUND • STATUS: CONSTITUTIONAL • REVENUE: 18% OF LOTTERY UNTIL CAP REACHED THEN 15% INTO CAPITAL MATCHING FUND • TRIGGERS: (DECLINING EMPLOYMENT OR REVENUE 2% BELOW FORECAST OR EMERGENCY)+ 3/5 VOTE • USES: PUBLIC EDUCATION • CAP: 5% OF GF REVENUE

  11. RAINY DAY FUND • STATUS: STATUTORY • REVENUE: ONE-TIME CORP KICKER CREDIT + UP TO 1% OF GF APPROPRIATIONS IN PRIOR BIENNIUM (ENDING BALANCE)+INTEREST • TRIGGERS: SAME AS ESF/WITHDRAWALS CANNOT EXCEED 2/3 PER BIENNIUM • USES: GENERAL PURPOSE • CAP: 7.5% OF GF REVENUE

  12. PROJECTED RESERVE FUND BALANCES: TREND SCENARIO(IN MILLIONS OF $)

  13. NEXT DOWNTURN: “TYPICAL” RECESSION

  14. NEXT DOWNTURN: SEVERE RECESSION

  15. CONCLUSIONS • RESERVE FUNDS ESPECIALLY IMPORTANT IN OREGON DUE TO VOLATILITY • STATE HAS SIGNIFICANTLY IMPROVED ABILITY TO MANAGE DOWNTURN SINCE 2001-02 RECESSION (BOND RATING UPGRADE) • CURRENT RESERVES LIKELY TO BE CAPABLE OF ABSORBING “TYPICAL” DOWNTURN • RESERVE POSITION WILL HELP CONSIDERABLY WITH 2001-02 TYPE DOWNTURN BUT WILL NOT ELIMINATE MAJOR FISCAL PROBLEMS • POSSIBLE CHANGES TO RDF: • STATUS • LONG-TERM REVENUE SOURCES

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