FY 2023 General Fund Forecast Updates:

FY 2023 General Fund Forecast - June 2022 (558.71 KB)

FY 2023 General Fund Forecast - March 2022 (1.08 MB)

FY 2023 General Fund Forecast - November 2021 (1.34 MB)

YouTube link to November 2021 FY 2023 General Fund Forecast

November 24, 2021

The Multnomah County Budget Office presented its five-year budget outlook to the Board of Commissioners Tuesday, Nov. 12, forecasting an $18.4 million surplus in Fiscal Year 2023, and an anticipated $40.3 million by FY 2027. 

The latest financial forecast arrives as the local economy continues to recover from the COVID-19 pandemic. At the same time, significant revenue bumps from property tax and business income tax collections have led to a financial surplus. 

“This is really exciting to even be having that kind of revenue coming in,” Commissioner Sharon Meieran said. “But there are so many complexities and of course so many just unprecedented or unique factors coming into play. It will be interesting to continue watching this.”

But even that outlook is tempered by the continuing impact of COVID-19, uncertainty around inflation, supply chain issues, and the course of urban centers’ recovery. Threats of a two-tiered recovery also remain, with significant racial gaps in employment as Americans return to the workforce. 

Data shows labor shortage, disparities in employment

Polling data from the U.S. Census Survey shows that, as businesses and schools have reopened, Americans are less burdened by pandemic-related layoffs and childcare. But the Delta variant has contributed to labor shortages, with many workers continuing to fall ill, or avoid working altogether, due to concerns about COVID-19. 

The unemployment rate is nearly at pre-pandemic levels. But that data masks a significant disparity across racial lines. While unemployment among White and Asian workers is back below 5%, Black and Hispanic unemployment remains a few points higher. In the case of Black workers, the number is close to White unemployment in the aftermath  of the 2008 financial crisis.

“In Multnomah County, there’s continued evidence of a two-tiered recovery for households and for businesses,” said Jeff Renfro, the County’s economist. “This has implications for services that the County provides, as well as our business income tax revenues.” 

While the overall unemployment rate has gone down, there continue to be gaps across racial lines.

In Multnomah County, in particular, employment is still well below pre-pandemic highs. Much of that is attributed to the County’s industry makeup. Given the concentration of leisure and hospitality jobs in Multnomah County, it’s taken longer to recover job losses. Currently, the leisure and hospitality industry remains about 20,000 jobs short of pre-pandemic levels. 

The Oregon Employment Department recently looked at a cohort of people employed in the hospitality industry in 2020 and examined their current employment status. The findings revealed 40% were no longer working in the industry. Of those, 20% are out of Oregon’s workforce and another 10% are collecting unemployment. 

Portland is also struggling to return to pre-pandemic tourism. Prior to COVID-19, Portland International Airport recorded more than 900,000 passengers per month in peak travel season. In April 2020, that number shrunk to about 40,000. Likewise, Portland saw close to a 50% decline in motor vehicle rental tax revenue in 2021. Those numbers are expected to gradually increase year over year, but Portland’s recovery is moving slower than other cities of a similar size.

“Travel Portland will tell you there’s not a ton of interest in having a convention here right now,” Renfro said. “So they are expecting it to take a few years before we get back to kind of a normal level of tourism and business activity here.”

Property values and business income tax revenue drive budget increase

Despite the labor shortage and obstacles facing Portland’s tourism industry, a hot housing market and increases in business revenue are partly behind the County’s budget increase. 

In the past year, an increase in home values in Multnomah County have helped the County avoid an increase in compression which would reduce property tax revenues. The increase mirrors a broader trend across the West Coast, with millennials beginning to purchase more single family homes and at-home workers deciding to seek bigger homes during the COVID-19 pandemic. 

As expected, underlying property tax growth slowed as a result of a decrease in development in Portland, but property tax revenue is expected to come in $5.4 million higher than previously anticipated due to the early return to the tax roll of assessed value associated with the River District Urban Renewal Area. 

Corporate profits have also increased during the pandemic, along with corporate profit margins. Business income tax revenue has risen steadily during the same timeframe. In 2021, collections came in higher than expected at $136.2 million.

The increase in corporate profits is so high, Renfro said, that it may not be sustainable. If that number returns closer to baseline, the County may see a small decline in collections in Fiscal Year 2023. The County Budget Office incorporates risk assumptions into its forecast and makes recommendations on how to budget for them.

“I appreciate the very specific recommendations that you give us in terms of making good, thoughtful, and financially responsible decisions that we can do with some of the money we have this time around for the long-term health of the County,” Commissioner Jessica Vega Pederson said. 

“I appreciate the prudent recommendations of putting aside, whether it’s money to the PERS side account or the business income tax savings account or General Fund,” Commissioner Lori Stegmann added. “Obviously that’s why we’re where we are today and I think that we’re in a pretty good financial standing”

Another risk that could potentially affect the County’s fiscal environment is inflation. Assuming inflation is 1% higher year over year from FY 2024 to 2027, that would increase the County’s expenses by $15 million. 

Personnel costs may also affect expenses moving forward. There are seven open labor contracts right now, which create uncertainty over expense expectations in the years ahead. The County is also looking at a higher cost of living adjustment rate of 4%, which is the cap allowed by its labor contracts. 

“These numbers are extraordinary,” Commissioner Susheela Jayapal said. “The combination of uncertainty, risk, and yet top-line growth in revenue is extraordinary. I do feel like when we look at that 2027 forecast, there’s an opportunity and a responsibility to think about how to approach that strategically."

Combining all of the revenue factors and risk assumptions, Multnomah County’s FY 2022 budget forecast increases by 6.4% to $36.7 million. That figure doesn’t include the $30 million business income tax adjustment earlier in the month. It also doesn’t factor in Year Two funding from the American Rescue Plan. 

A surplus of $18.4 million is forecast for FY 2023, which becomes a $40.4 million surplus by FY 2027. For FY 2023, $46.6 million is expected to be available for one-time-only funding. Per Board policy, $23.3 million would be available for capital and infrastructure projects, and the remaining $23.3 million to be allocated for appropriate uses. 

On Dec. 15, the Budget Office will host its annual Budget kickoff, which will include a guest appearance from Chair Deborah Kafoury and the Office of Diversity and Equity. Program offers are expected online by March 4. And on April 28, Chair Kafoury will release her FY 2023 proposed budget. The Board is expected to adopt the budget on June 9, 2022.

“Very thorough, as always,” Chair Kafoury said, thanking the Budget Office for its detailed view at the County’s financial outlook.