The forecast further demonstrates the inaccuracies of Oregon’s forecasting methodology. Long term revenue predictions for the past four years have consistently been grossly overestimated. Short term predictions have been somewhat more accurate and have reflected the reality of the economic decline.

 The most recent prediction for the second quarter of 2011 is for a fourteenth consecutive quarter of real revenue loss. That reduction is equal to yet another $40 million. The sum of the loss of state revenue for the eight quarters beginning at the end of 2009 legislative session and ending June 30, 2011 now exceeds $1.2 billion. This failed prediction follows well more than a billion dollar over-estimation of revenue in the previous 2007-09 budget period. A billion dollar under-estimation of forecasted revenue in the 2005-07 budget periods resulted in more than a billion dollars in kicker tax refunds.

 The forecast also rightly predicts that neither personal income tax nor corporate kickers will create refunds this year because the state income certainly does not exceed the revenue predictions by more than two percent. Further, there will be no contribution to the rainy day fund reserves because there will be no ending balance to transfer.

 Our ever-optimistic economist is now predicting that Oregon General Fund and lottery revenue will suddenly cease its fourteen quarter decline and is now expected to increase by about $130 million during the next 2011-13 budget period. This Legislature has done virtually nothing to date to improve the business, investment or worker earnings in our state. How or why this improvement will occur without substantial job creation and improved  per capita income is not made clear.

 The state budgeting process traditionally assumes the accuracy of these forecasts and builds our budgets using that predicted income. Deep and difficult budget reductions are forced during the budget periods when the projected income fails to occur. These reductions are too often postponed while waiting for the next revenue projection and the hoped for improvements in cash flow. The required budget cuts are then greatly magnified near the end of the budget period when the income fails to materialize and most of the two year appropriations have already been spent.

 This year feels like déjà vu all over again. This intolerable budgeting procedure that is repeated each two years will likely occur once again. The latest long-term projected revenue increase is less than one percent of current general fund and lottery revenue. Never-the-less,  the legislative leadership is already eager to spend this new-found money to backfill unpopular budget reductions.

 We can hope that the money will materialize but have little confidence that it will happen.  In the likely event that the money does not appear, the legislature will once again be required to rebalance the budgets during the biennium by reducing appropriations in mid-stream.

 To make matters even worse, the current budgets being established provide for spending fifty three and one half percent of the appropriations in the first year and forty six and one half percent in the second year. The concept appears to be either to allow the agencies one year to establish policies to reduce their expenditures by seven percent, or to hope for increasing revenue and more money to spend in the second year. The $400 million ending balance being built into the budget may help to offset either the seven percent differential or  declining revenues, but certainly will not be sufficient to do both.

 I cannot imagine creating a family or business budget based on those principles. Wouldn’t it be much better to base our expenditures on revenue that we know we will have rather than on income that we hope to have. Wouldn’t it be better to set aside a little more, provide for level expenditures, and judiciously add back more when and if the money materializes.

Remember, if we do not stand up for rural Oregon... no one will.

Best regards,

Doug