FY 2024 General Fund Forecast Updates:
November 18, 2022
The Multnomah County Budget Office delivered an update to its five-year budget outlook Tuesday, Nov. 15, projecting a growing gap between revenues and expenses in the most recent General Fund forecast.
The five-year forecast helps the Board of County Commissioners assess the long-term financial implications and stability of both current and proposed policies and programs. The forecast anticipates a deficit of $2.6 million for fiscal year 2024, which starts July 1, 2023, and lasts through June 30, 2024. The deficit is expected to grow to $15.4 million by FY 2028.
Business income tax and property tax collections are steady, said Jeff Renfro, the County’s economist. But they may be offset by factors including personnel cost increases in light of new labor agreements, growing recession risks and continued uncertainty over inflation.
“I will just say now I think we are more likely to have a recession than not,” Renfro said. “And we are incorporating that into some of our assumptions.”
Additionally, one-time-only funding from the American Rescue Plan Act, which supported a series of anti-poverty, homelessness and health programs during the pandemic, is set to expire. Chair Deborah Kafoury said that while that funding was “fabulous and critical to providing services in our community,” the fiscal impact of continuing some of those programs would also add costs.
Contradictions amid growing risk of recession
While the most recent data shows that inflation may be cooling down, Renfro said, the Federal Reserve may keep interest rates higher for longer than initially planned to ensure inflation eases. Each month that passes with higher interest rates increases the risk of recession, Renfro said.
Renfro noted corporate profits massively increased during the most recent phase of the pandemic. That can partly be attributed to corporations lowering their costs by reducing the size of their physical space. But moving forward, Renfro said, he is expecting more pressure from inflation and rising personnel costs. Reduced profits would reduce County tax revenues.
In FY 2023, Renfro said, the County could see its business income tax revenue down 12% from the previous year.
The contradiction, Renfro said, is that household incomes continue to rise. Households have more savings than in the past. That means households are able to continue driving consumption, which is good for the economy.
Employment growth in Multnomah County is now exceeding growth in comparable metro areas. Oregon has exceeded its pre-pandemic levels of unemployment, and the county is expected to follow suit soon.
“Right now we are basically at record lows (of unemployment),” Renfro said.
Inflation and the increase in interest rates have also reduced housing affordability, which affects lower-income households the hardest.. The decrease in housing affordability will be exacerbated by interest rate increases in the medium term, as the slowdown in housing construction will make the housing shortage worse. Data from the Budget Office’s new Data Library, created by College to County intern Pari Magphanthang, confirmed these already existing, stark disparities..
Commissioner Jessica Vega Pederson said rising interest rates underscore the need for “mitigating those disproportionate impacts through Congressional action like rental assistance or child supports or construction loans.”
Airport travel rebounds, but uncertainty remains on downtown business trends
The arrival of the pandemic devastated domestic air travel at Portland International Airport. Since then, air travel has returned to a more traditional seasonal cycle, though at a lower level than before. Today, air travel, also affected by inflation, is about the same level as it was a decade ago.
But even as air travel has been slow to recover, motor vehicle rental tax collections have returned to normal. That’s because rental car prices are higher. Motor tax revenue also has rebounded to normal levels.
“My assumption going forward is that, as the supply chain issues and the higher pricing issues start to unwind, we will continue to get kind of incremental growth in traffic through Portland International Airport,” Renfro said.
Renfro noted a surprising uncertainty in the downtown Portland commercial market. Many spaces, especially downtown, remain under lease despite not being occupied on a consistent basis. It’s unknown what will happen to the commercial real estate market as more of those leases expire.
Based on the structure of the County’s property tax system, Renfro said, risk to the County’s ledger from the commercial real estate market is somewhat limited. But property taxes account for 60% of the County’s revenues, so even a small change will have some effect.
Regarding the use of downtown commercial rental spaces, Commissioner Lori Stegmann said. “I know that our Board and other jurisdictions have had conversations about should there be some type of future incentive for commercial real estate to convert into multi-family (housing), so more to come on that.”
On Dec. 9, the Budget Office will release its annual budget manual and guidance to help departments prepare their FY 2024 budgets. Then, on Feb. 13, 2023, the departments will submit their budgets to the Budget Office. On Feb. 24, the Budget Office will post those program offers online.
The Budget Office will also deliver two more budget forecasts: one in March 2023 and one in May. On April 27, the Chair’s Office will release its proposed budget, with adoption scheduled for June 18.
Commissioner Susheela Jayapal thanked Renfro for helping the Board think about all of the factors shaping the County’s budget outlook.
“You do just such a good job of explaining these very difficult concepts clearly,” she said. “Constantly dealing with all of this uncertainty must kind of be every economist’s nightmare.”