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OREGON’S NEW REVENUE SYSTEM AND THE CHANGING ECONOMY: IMPLICATIONS FOR SCHOOL FINANCE LEGISLATIVE REVENUE OFFICE OREGON’S REVENUE SYSTEM • HOW HAS THE SYSTEM CHANGED? • WHAT ARE THE CHARACTERISTICS OF THE NEW SYSTEM? • WHAT DOES IT ALL MEAN FOR SCHOOL FINANCE? 2 2004-05 2002-03 2000-01 1998-99 1996-97 1994-95 1,000 1992-93 1990-91 1988-89 1986-87 1984-85 1982-83 1980-81 1978-79 2,000 1976-77 1974-75 1972-73 1970-71 Millions of Dollars Oregon Income and Property Taxes 6,000 5,000 4,000 PERSONAL INCOME TAX 3,000 PROPERTY TAX Property Tax Personal Income Tax 0 Fiscal Year 3 OREGON’S GENERAL REVENUE MIX TAXES % OF TOTAL % OF TOTAL 1989-90 1998-99 54 46 (57) FEDERAL 20 23 (19) CHARGES 13 17 (15) MISC. 13 14 (10) 98-99 US AVERAGE IN PARENTHESIS 4 STATES RANKED BY LARGEST TAX AS % OF STATE TAX COLLECTIONS TAX % OF STATE TAX COLLECTIONS PER INCOME 68.9 WASHINGTON SALES 61.6 FLORIDA SALES 60.6 TENNESSEE SALES 57.4 STATE OREGON 1999-2000 FISCAL YEAR 5 OREGON’S STATE & LOCAL REVENUE SYSTEM OREGON %OF INCOME 21.7 US % OF INCOME 19.4 OREGON RANK TAX 10.0 11.1 45 PERSONAL 4.4 2.6 2 CORP. 0.4 0.5 27 SALES 1.0 3.9 50 PROPERTY 3.0 3.3 28 GENERAL 1998-99 FISCAL YEAR 15 6 CHARACTERISTICS OF OREGON’S REVENUE SYSTEM • LOW TAX BURDEN • HEAVY RELIANCE ON NON-TAX REVENUE • HIGH PERSONAL INCOME TAX BURDEN • LOW CONSUMPTION TAX BURDEN • AVERAGE PROPERTY TAX BURDEN 7 LEGACY OF OREGON’S PROPERTY TAX INITIATIVES PROGRESSIVITY STABILITY CENTRALIZATION TAX BURDEN SIZE OF GOVERNMENT UP DOWN UP DOWN EVEN 8 OREGON’S TAX BURDEN: WHO PAYS? 14% Effective Tax Rate 12% Other Taxes 10% Property Taxes 8% 6% Income Taxes 4% 2% 0% 9 29 49 69 89 109 129 149 169 189 209 229 Income ($,000) 9 THE ECONOMIC ENVIRONMENT • ARE WE IN A RECESSION? • HOW LONG WILL THE SLOWDOWN LAST? • WHAT ARE OREGON’S PROSPECTS? 10 1991-2000 Was a Great Decade The unemployment rate fell from 7% to 4%. Core inflation fell from 5.5% to 2.5%. Productivity and real wage growth accelerated. Household net worth doubled. The federal budget shifted from deficit to surplus. 11 OREGON’S ECONOMY PERFORMED VERY WELL IN THE 1990’S • JOBS UP 30.1% • WAGES UP 53.3% • POPULATION UP 18.3% • PER CAPITA INCOME UP 58.7% • PRICES UP 43.2% 12 The Good Times Are Over Industrial production has fallen for 13 straight months. Longest consecutive monthly decline since 1932. Jobs have declined by 1.6 million over the past 6 months. Consumer confidence is at an 8-year low. Capacity utilization is lowest since 1983. The stock market peaked in March of 2000. 13 ECONOMIC IMPACT OF TERRORIST ATTACK • • • • • • PUSHES WEAK ECONOMY INTO RECESSION CONSUMER CONFIDENCE DECLINES FISCAL AND MONETARY POLICY TURN MORE AGGRESSIVE V-SHAPED ECONOMY OVER NEXT TWO YEARS ADDITIONAL COSTS ADDED TO TRANSPORTATION & DISTRIBUTION SYSTEM COST OF CAPITAL INCREASES BECAUSE WORLD IS MORE UNCERTAIN 14 WHAT KIND OF RECESSION? • 1990-91 EXPERIENCE • ROLE OF BUSINESS INVESTMENT SPENDING • INTERNATIONAL TRADE • FEDERAL FISCAL AND MONETARY POLICY 15 CONSENSUS CALLS FOR MILD RECESSION 12% 10% Expansion (Yellow) Annual Rate of Growth in GDP (1996 Dollars) The current expansion: 10 years and counting 8% 6% 4% 2% 0% -2%1975 1980 1985 1990 1995 2000 2005 -4% First Soft Landing -6% -8% -10% Contraction (Red) Second Hard (Recession) Landing? 16 Office of Economic Analysis OREGON ALREADY IN RECESSION (CHANGE OCTOBER 01 VERSUS OCTOBER 00) 0 -5000 -10000 -15000 TOTAL EMPLOYMENT MANUFACTURING CONSTRUCTION -20000 TRADE -25000 SERVICES -30000 17 IS THIS THE EARLY 1980s ALL OVER AGAIN?? • YES • CYCLICALLY SENSITIVE INDUSTRY STRUCTURE • DEFENSE BUILD-UP • HIGH LAND,LABOR & ENERGY COSTS • STRONG $/WEAK FOREIGN TRADE 18 IS THIS THE EARLY 1980s ALL OVER AGAIN?? • NO: • INTEREST RATES/INFLATION ENVIRONMENT • HIGH TECHNOLOGY • STRONG WESTERN REGION • DEMOGRAPHICS 19 SEPTEMBER FORECAST CALLED FOR RESUMPTION OF MODEST JOB GROWTH Employment Growth 6% 5% 4% Oregon’s employment growth rate dropped below the nation’s for the first time since 1985 3% 2% 1% 0% -1% Oregon U.S. -2% 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 20 Office of Economic Analysis THE STATE BUDGET SITUATION • THE SEPTEMBER REVENUE FORECAST PROJECTS A GENERAL FUND DEFICIT OF $212 MILLION. • ACROSS THE BOARD GENERAL FUND CUT OF $212 MILLION WOULD BE 1.86%. • THE DECEMBER FORECAST WILL INCORPORATE THE ESTIMATED EFFECTS OF SEPTEMBER 11. 21 Biennial Growth in General Fund Revenues 25% 22% 21% 20% 22% 18% 15% 19% 18% 14% 14% 13% 11% 11% 10% 8% 7% 5% 5% 0% 79-81 83-85 87-89 General Fund Revenue 91-93 95-97 99-01 03-05 (Proj.) Long Term Average 22 Office of Economic Analysis REVENUE GROWTH IS SLOWING (% CHANGE COMPARED TO YEAR EARLIER) 16 14 12 10 8 6 4 2 0 -2 -4 2001/3 2001/1 2000/3 2000/1 99/3 99/1 98/3 98/1 97/3 97/1 96/3 96/1 95/3 WITHHOLDING RECEIPTS 23 CORPORATE COLLECTIONS ARE FALLING SHARPLY (% CHANGE COMPARED TO YEAR EARLIER) 80 60 40 20 0 CORPORATE INCOME TAX COLLECTIONS -20 -40 99 /2 99 /3 99 / 20 4 00 /1 20 00 / 20 2 00 /3 20 00 /4 20 01 / 20 1 01 /2 20 01 /3 -60 24 The Capital Gains Windfall Will Soon Disappear 700 (Billions of dollars) (Percent) 14 600 12 500 10 400 8 300 6 200 4 100 2 0 0 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 Taxable Capital Gains Percent of Federal Tax Base 25 Lottery resources available to the state Lottery Resources Available to the State 800 Debt Service 700 Education Endowment Fund Parks and Natural Resouces Fund and Gambling Addiction Millions 600 500 400 Resources Available for Allocation 300 200 100 0 85-87 87-89 89-91 91-93 93-95 95-97 97-99 99-01 01-03 03-05 05-07 Proj. Proj. Proj. 26 Office of Economic Analysis GENERAL FUND ENDING BALANCE: HISTORY & PROJECTION 800 600 400 ENDING BALANCE HISTORY ENDING BALANCE FORECAST 200 0 -200 -400 -600 95-97 97-99 99-01 '01-03F '03-05F 27 2001-2003 BUDGET: GENERAL FUND & OTHER DICRETIONARY FUNDS K-12 11 COMMUNITY COLLEGES HIGHER ED 2.3 10.9 41.8 HUMAN SERVICES PUBLIC SAFETY 22.7 7.5 3.8 BUDGET INCLUDES GENERAL FUND, LOTTERY, MUPL & NATURAL RESOURCES OTHER PROGRAMS 28 FUTURE UNKNOWNS • DURATION & IMPACT OF INTERNATIONAL CONFLICT • NATIONAL ECONOMY: LENGTH & DEPTH OF RECESSION, STRENGTH OF RECOVERY • OREGON’S PLACE IN THE NEW ENVIRONMENT • ROLE OF GOVERNMENT IN NEW ENVIRONMENT 29 2001-03 K-12/ESD RESOURCES SCHOOL RESOURCES 2001-03 BIENNIUM (IN MILLIONS OF $) STATE SCHOOL FUND SCHOOL IMPROVEMENT FUND TOTAL STATE LOCAL REVENUE TOTAL REVENUE 4,971.6 220 5,191.6 2,135.7 7,327.3 30 2001-03 STATE RESOURCES FOR SCHOOLS/ESDs SOURCE 2001-03 BIENNIUM (IN MILLIONS OF $) GENERAL FUND* LOTTERY MUPL PRIVATE TIMBER TOTAL STATE *INCLUDES SCHOOL IMPROVEMENT, LOCAL OPTION & DATA INTEGRITY 4,791.2 288.4 99.2 23.7 5,202.5 31