Oregon's economy in slow recovery, state economist Tom Potiowsky tells lawmakers

By Harry Esteve, The Oregonian, Portland, Ore.

Feb. 9--SALEM -- Oregon's economy is on the mend but still wheezing and not close to replacing the tens of thousands of jobs lost in the recession, the state's chief economist reported Monday.

"We're in recovery," said Tom Potiowsky of the state Office of Economic Analysis. "But it's going to be a slow, long recovery."

Potiowsky, who laid out his diagnosis to a joint meeting of House and Senate revenue committees, said he doesn't expect to see much growth until 2011. By then, he said, hiring could start to pick up, particularly in the high-tech and solar energy sectors.

Many businesses are operating with skeletal crews or have ordered workers to take unpaid furlough days to save money. Any recovery has to work through those factors first, he said.

"Unfortunately, it's going to be one of those jobless-type recoveries," Potiowsky said.

First, the furlough days go away and hours start to increase for some workers. Then companies hire temporary employees as the workload increases. "Finally, we get permanent workers hired."

The slow rebound has implications beyond short-term job prospects for Oregonians looking for work. Despite last month's vote to increase taxes, money continues to leak from the current state budget. That has put pressure on lawmakers to cut back on tax incentives the state gives green energy companies to lure new, high-paying jobs to the state.

Looking further into the future, the latest projections show the 2011-13 state budget facing a $2 billion shortfall, a hole partly caused by an expected end of the billions of dollars coming to the state from federal stimulus spending.

The bottom line for the 2009-11 state budget is that it will get an estimated $183 million less than legislators expected since the last forecast three months ago. The drop was caused by lower-than-expected tax collections and higher-than-expected tax breaks to renewable energy companies.

Filling the hole

Significant cuts in the current budget probably won't be necessary, however. The budget had a $79 million cushion built in. And lawmakers are looking at scaling back the state's Business Energy Tax Credits, which would save the state an estimated $55 million.

The rest of the hole could be filled with reserves from a school savings account and the state's nearly depleted rainy day fund.

"One of the fundamental weaknesses we face is the lack of budgetary reserves," Sen. Frank Morse, R-Albany, said after the quarterly economic and revenue forecasts were presented. "We don't need to keep doing this to ourselves."

Gov. Ted Kulongoski, a Democrat, also used the latest forecast to call for a bigger reserve fund. He is pushing for a change in the state's "kicker" law that would feed an emergency reserve account with a portion of the money that otherwise would be rebated to taxpayers.

"Even with tighter budgets in the future, the kicker will continue to destabilize state services and make it more difficult to work through future economic downturns," Kulongoski said in a statement.

Under Oregon law, individual and corporate taxpayers get a rebate any time state revenues exceed forecasts by 2 percent or more. It's unlikely that income tax collections for individuals will go above the forecast, but corporations could be due for a refund if the economy picks up.

"It's possible," Potiowsky said, noting that all it takes is another $16 million above projections for the corporate kicker to come into play.

Sectors struggling

Most businesses, however, will continue to struggle this year, according to information presented Monday.

Among the worst hit will be the construction and wood products industries, both of which are projected to lose jobs at a rate of about 7 percent this year. On the other side, health and education are among the few areas projected for modest job growth -- a little less than 2 percent.

Ray Wilkeson, lobbyist for the Oregon Forest Industries Council, said the continuing sag in home construction has taken its toll on mills, logging firms and other timber-related businesses. Efforts to help, such as forest thinning projects to guard against wildfires and provide stock for biomass energy, have flopped so far, Wilkeson said.

"Without question, this has been the most difficult period this industry has faced in many, many years," he said.

Potiowsky noted some upsides to the state's economic outlook. Corporate tax receipts shot up over the past two months, he said, a sign that companies are starting to make money again. Inflation has largely been kept in check, and exports could pick up as other parts of the world -- China, notably -- come out of the recession.

In his quarterly state economic and revenue forecast, he warned, however, of another "soft patch" coming, if not another recession, when the federal government stops handing out billions of dollars in stimulus money.

"It's really more of a mixed bag," he said.

-- Harry Esteve

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