By GARY A. WARNER
SALEM -- Oregon Capital Bureau Oregon is doing better than once feared in digging out of the economic crater caused by the COVID-19 pandemic, but more pain is likely before fitful gains, state lawmakers were told Wednesday.
Winter could be "the most challenging period yet" for Oregonians, according to the December Economic and Revenue Forecast, the state's quarterly attempt to gauge the future for Oregon's businesses, workers, and financing for state programs.
The fiscal scenario was presented Wednesday by Mark McMullen and Josh Lehner of the Oregon Office of Economic Analysis to a joint meeting of the Legislature's revenue committee.
The report's mix of a wobbly and inequitable economy paired with stronger than expected state revenues spurred a call for lame-duck special session of the Legislature next month. It will also be used by Gov. Kate Brown to shape her 2021-22 budget proposal expected in early December.
Under a best-case scenario, the report said Congress would approve a stimulus package to help states, businesses, workers and families to pay their bills until a COVID-19 vaccine is widely available, hopefully by summer. The state received about $1.4 billion in federal funds, including enhanced unemployment benefits, with most running out by the end of the year.
Congress has deadlocked along partisan lines over the size of a second round of aid, with some Republicans advocating no more spending.
That upbeat timeline that assumes a vaccine widely available by summer would see children back in school by fall 2021, freeing parents to return to work and increase income and spending.
The report said that nationwide, more than one million women had left the workforce during the pandemic at least in part to care for children who could not go to school.
Oregon businesses would start to recover in uneven waves that would stretch from mid-2021 to late-2023. Early comebacks are expected by e-commerce, drive-through dining, health care and office jobs. Later would come restaurants, financial services, consumer services such as nail salons and gyms, large-scale timber operations and government employment. The pandemic could mean pushing the recovery of some retail businesses and manufacturing to 2024, with a number never reopening. The full impact on each business sector won't be known until the pandemic is over and Oregonians return to old habits of going out or continue shopping and entertainment options they picked-up while homebound.
While 2024 seems like a long time, economists Mark McMullen and Josh Lehner with the state Office of Economic Analysis told the lawmakers that a two- to four-year recovery would be far shorter than recovery from a typical economic recession, which can require five to eight years.
Time and trust will be important to how fast and steep Oregon comes back. The pandemic has infected over 58,000 in the state and killed 778.
"Businesses and consumers are likely to pull back out of fear of the virus, and more restrictive public health policies are being implemented such that the health care system does not breach capacity," the report said. "When the weak labor market and spreading virus is combined with months of federal inaction regarding both the pandemic and the economy, it brings the recovery to its most challenging point yet."
What was pain for most was gain for some. Home improvement stores and some logging had done well during the pandemic as homebound Oregonians launched renovation projects instead of taking vacations. Food and beverage sales were up as dining out became difficult. Software was another winner, with more people working from home.
The report was mixed news for businesses and workers, showing a difficult 2021 no matter what happens. The bright spot was the state's balance sheet. Reserve funds were tapped at the height of the crisis, but have been largely refilled. Economists have been surprised by strong revenues, which come from income taxes, business excise taxes and surprisingly robust capital gains taxes on investments.
The robust tax returns came while 250,000 people are on unemployment insurance, 10 times the number before the pandemic, McMullen said. The disparity showed there had largely been two COVID-19 recessions: A mild or non-existent one for wealthier Oregonians with savings and assets to fall back on, but a grimmer experience for lower-income residents.
"High-income households have been relatively spared so far," the report written by McMullen and Lehner said. That has "supported tax collections."
Rep. Alissa Keny-Guyer, D-Portland, said that what is good news for state coffers is likely paper over bad news for many lawmakers' constituents.
“I’m concerned about the disparities and the people at the bottom who are really struggling,” she said.
The job market will recover over time, but pay levels and job security will be shakier than before the pandemic, the report said.
Another surprise is the Oregon Lottery. After hitting almost no incoming revenue in the summer due to restaurant and bar closures, the state's licensed and taxed gaming is on pace to actually exceed the money it brings in for the state by 5% over last year, the report said. The forecast on Wednesday was just the latest snapshot released every three months based on the best evidence available.
The quarterly report at the beginning of 2020 forecast strong revenue and low unemployment. After the pandemic struck, the second quarter report forecast deep revenue drops that would require taking an axe to the state budget. The Legislature responded with two special sessions called by Brown. But in September, the report said that while the economy remained in "a Great Recession-sized hole," revenues were surprisingly strong and the economy showed better chances of rebounding.
The trend continued on Wednesday, with the economists saying that the revenue for the state budget for the remainder of the current fiscal period through June 2021 and for the following duo of two-year budgets would remain essentially flat. That would leave little room for new programs or tax cuts, but head-off more draconian measures. The state would then start to see revenue edge up again in the budget that would end in the summer of 2024.
Even those timelines could be disrupted by events that are difficult to factor into an economic model.
Trends show a surge in COVID-19 infections that could bring wider shutdowns of the economy that could cripple businesses, lead to more layoffs and cut into the revenue that the state depends on to provide services.
Congress so far has failed to pass a stimulus package to help states, businesses and residents bridge the gap between when the last benefits run out in December. With consumer confidence crippled by fear of infection, the economic hit would be hard until a vaccine arrived with a chance for a return to something close to normalcy.
Without help, Oregon would have to grind out the first three to four months of the year on it's own.
"There would be a soft patch" in the recovery, McMullen said. At worst, Oregon could fall into a "double-dip" recession mirroring the financial setbacks of last summer and delaying a rebound.
Reaction Monday to the report was mixed. Brown called on Congress and President Trump to get a stimulus bill passed before the end of the year.
U.S. Sen. Ron Wyden, D-Oregon, said an aid package was tangled up in political debates not only between the Republican-controlled Senate and Democratic-controlled House, but between the Senate and outgoing President Donald Trump.
"This is one of the greatest derelictions of duty I have witnessed during my time in public service," said Wyden, who has served in Congress since 1981.
Oregon House Speaker Tina Kotek, D-Portland, said the Legislature should not wait for federal aid that will either be late or not come at all. She called for a special session of the Legislature in December to get emergency funding to Oregonians, including $100 million in rental aid.
House Republican Leader Christine Drazan, R-Canby, said the report showed hope for the future, but criticized Brown's business closures during the pandemic as hurting the economy.
Oregon was not alone in forecasting tough but hopeful economic news on Wednesday. An economic analysis released Wednesday by the Washington State Economic and Revenue Forecast Council, also showed stronger than expected tax revenues despite the COVID-19 challenges and business curtailments in the state.
The next Oregon economic forecast will be released in February 2021, after the Legislature has convened in January.