Oregon’s new State Economist, Carl Riccadonna, came bearing good news as he delivered his first-ever quarterly revenue forecast to Oregon lawmakers on Nov. 20.

In his presentation to the House and Senate interim revenue committees, Riccadonna said he expects the state general fund will bring in $947 million more in 2023-25 than previously figured. Taxpayers will also receive a $1.79 billion “kicker” in 2026, up from $1 billion.

Riccadonna provided both an economic forecast and revenue forecast for Oregon. In addition, he spoke at length about adjustments made to forecast models to help legislators and the state better plan for the future.

“We are aware that over the last several biennia, there has been a forecast bias,” Riccadonna said. “We’ve tried to take apart and reassemble the models to understand what is happening.”

Economic Forecast

According to the December Economic and Revenue Forecast, Oregon’s economy is stabilizing after a period of uncertainty. Unemployment remains below the national average, and workforce participation is strong, signaling a robust labor market.

However, economic growth is expected to moderate, reflecting national trends. The state’s reliance on migration for population growth remains critical as birth rates have declined.

Demographic shifts, particularly the aging population, are driving changes in economic demands. Sectors such as health care and elder care are experiencing increased pressure to meet growing needs. At the same time, the construction industry continues to face labor shortages. For education, both K-12 and higher education must prepare for declining enrollment and shifts in funding requirements.

There are some risks that could affect Oregon’s economy, like inflation and challenges facing global trade. Construction materials and health care supplies could be negatively affected by supply chain issues or rising costs, which could make it even harder for these sectors to stay afloat.

But there are also opportunities to invest in things like workforce training and health care infrastructure that can help Oregon grow in the long run. The next steps for policymakers and stakeholders will be important as the Legislature gets ready to make the 2025-27 state budget.

Revenue Forecast

The revenue forecast brings mostly positive news, with increases across key streams. General Fund resources for 2023-25 have grown by $947 million since the September forecast and $2.8 billion since the last legislative budget. Personal and corporate income taxes continue to outperform expectations, reflecting a stable economic base.

The personal income tax kicker will return $1.79 billion to taxpayers, while the corporate kicker will direct $1.024 billion to K-12 education. Lottery revenues also saw a modest increase, while marijuana revenues remain stable, signaling maturity in that market.

The state’s reserves are at an all-time high, with $5.7 billion available in the Rainy Day and Education Stability Funds. This fiscal stability provides a cushion for economic uncertainties but also sets the stage for complex budget discussions.

Highlights

• 2023-25 Biennium:
  • Revenues increased by $945 million since the September forecast.
  • Balance is projected to be $2.79 billion.
• 2025-27 Biennium:
  • Revenues are estimated to increase $1.3 billion since the September forecast.
  • Beginning balance is estimated to be up $945 million.
  • Available resources are estimated to increase $2.27 billion.
• Budget Reserves:
  • The Rainy Day Fund is projected to receive $329 million following the 2023-35 biennium.
  • The Rainy Day Fund and Education Stability Fund (Budget Reserve Funds) are projected to be a total of $5.7 billion at the end of the 2023-25 biennium, or 20.5% of General Fund.

Looking Toward the 2025 Legislative Session

The 2025 Oregon Legislative Session will be pivotal, not only for crafting and balancing the constitutionally required 2025-27 state budget but also for addressing major revenue challenges and opportunities. With significant revenue streams requiring renewal and evolving economic and political landscapes, the Legislature will face a complex environment. Below are a few of the items they anticipate to tackle.

Health Care: One of the most pressing issues will be the renewal of the provider tax, a critical funding source for the Oregon Health Plan (OHP), which provides healthcare for low-income Oregonians. The provider tax draws significant federal matching funds, making its renewal a key priority for maintaining healthcare access across the state. For health care providers and CCOs, this presents a vital opportunity to advocate for stable and predictable funding mechanisms to avoid disruptions in services.

Transportation: Similarly, Oregon’s transportation infrastructure, including roads and bridges, faces significant funding gaps. Declining revenues from the gas tax, driven by increased fuel efficiency and the rise of electric vehicles, create an urgent need to find alternative funding solutions. The construction sector should anticipate robust discussions on new revenue streams, such as vehicle miles traveled (VMT) fees or other user-based mechanisms, to address infrastructure maintenance and modernization needs. These discussions could open up significant opportunities for public infrastructure projects, driving demand for skilled labor and materials.

Federal Administration Changes: The potential change in federal administration adds another layer of complexity. Federal matching rates for healthcare programs like Medicaid could shift, affecting Oregon’s budget calculations. Transportation funding, such as grants for infrastructure projects, may also be influenced by federal policy priorities. Education providers could face changes in federal funding for programs like Title I or Pell Grants, which may impact budgets and programming decisions.

Political Landscape: The recent election results in Oregon underscore the delicate political balance in the upcoming session. While Democrats hold a supermajority in the State Senate, they lack a quorum-proof majority, which requires Republican participation for certain legislative actions. In the House of Representatives, late ballot counts could provide Democrats also with a supermajority. For all stakeholders, this political dynamic will require bipartisan negotiation to address revenue challenges and budget priorities. Building coalitions across party lines will be critical to advancing industry-specific priorities in healthcare, education, and construction.

There are many new faces and new leadership teams in both the House and Senate chambers. It will be critical for the 2025 Legislature to work together to address this substantial funding decisions and external factors like federal policy shifts to benefit all sectors of Oregon’s economy.