UPDATE ON Oregon’s Revenue Situation

1. Legislative Revenue Office November 2011 UPDATE ON Oregon’s Revenue Situation

2. Oregon & the U.S. remain mired in a very slow economic recovery. Oregon tax collections have picked up from the recession lows and are tracking very close to forecast. Growing uncertainty over Euro Zone finances and U.S. fiscal policy have caused forecasters to lower U.S. and global growth projections for 2012. The lower national forecast translates into a modest downward revision in the 2011-13 General Fund revenue projection. Revenue projections beyond the 2011-13 biennium are also down reflecting the assumption of lower trend economic growth. Although the economic forecast continues to call for slow growth, the risks of recession are rising. If a recession materializes the General Fund revenue forecast would be revised down sharply. Overview

3. Oregon’s Labor Market:Job Gains Tough To Come By(Quarterly Payroll Employment in 1,000s)

4. Oregon Only About 1/5 of Way Back to Pre-Recession Employment Level(Through September 2011)

5. Schools Are Taking Major Employment Hit(Oregon Employment)

6. Oregon Withholding Receipts Reflect Modest Expansion(Quarterly Withholding Receipts Compared to Prior Year)

7. Third Quarter Collections Tracked September Forecast Closely(in millions)

8. Economic Outlook: The December Forecast • Key Assumptions • U.S. policy makers impose gradual long-term budget reductions • European policy makers avoid messy sovereign debt default • Business investment and exports lead U.S. to modest growth • Unemployment declines but remains high keeping inflation under control

9. Downside Risks Are Substantial • Stagnation • U.S. policy makers reach impasse on budget talks forcing across-the-board spending reductions • European policy makers fail to implement long-term sovereign debt plan leaving bond holders uncertain • Slowing world economy and uncertainty slow U.S. investment and exports • Unemployment drifts up while inflation and interest rates remain very low. • Back into Recession • China slows more than expected reducing overall world growth • The Euro Area economy enters sharp recession reducing U.S. exports and increasing risk premiums on sovereign debt • U.S. fiscal policy turns sharply contractionary • U.S. exports slow sharply and net business investment turns negative • Unemployment rises back above 10% while inflation remains subdued • Despite falling into recession, the rate of decline in the U.S. economy is restricted by the already low level of economic activity, especially housing

10. General Fund Revenue Growth Trend(% Change from Prior Biennium)

11. December Revenue Forecast Changes(in millions)

12. Forecast Change from September to December(in millions)

13. The General Fund Ending Balance(in millions)

14. Uncommitted Reserves(in millions)

15. LOTTERY HAS STABILIZED BUT GROWTH IS SLOW(Lottery Earnings in Millions)

16. Housing Market Starting to Squeeze Property Tax Revenue(in millions)

17. Modest economic growth remains most likely scenario but stagnation and outright recession are major risks • Stagnation Scenario would reduce 2011-13 General Fund revenue by $300 to $500 million. • Recession Scenario would reduce 2011-13 General Fund revenue by $800 million to $1 billion. • Long-term U.S. and Oregon economic growth depends on restoring international competitiveness through productivity enhancing investments in physical capital, human capital and infrastructure i.e. there are no quick fixes • Oregon is in a good position to take advantage of a long run shift to business investment and exports as the primary U.S. economic growth drivers. Conclusions