Federal chaos leaves Oregon's economic outlook sluggish, uncertain, short hundreds of millions

Yahoo

14-05-2025

Oregon lawmakers are facing a two-year budget cycle with hundreds of millions of dollars less than anticipated due to slow economic growth expected as a consequence of President Donald Trump's tariffs. (Julia Shumway/Oregon Capital Chronicle)
Uncertainty from President Donald Trump's tariffs have thrown a wrench in state revenues previously expected to grow by hundreds of millions of dollars, state economists report.
Forecasted growth in the national and state economy has deteriorated in the last few months, leaving Oregon lawmakers to craft a two-year state budget with nearly $756 million less than they anticipated, according to the latest revenue forecast from the state's Office of Economic Analysis.
This comes on top of uncertainty around the federal budget and as Congressional Republicans debate cutting hundreds of billions that states rely on to provide healthcare and social services.
State economist Carl Riccadonna and senior economist Michael Kennedy, presented the quarterly forecast Wednesday to House and Senate revenue committees, and previewed some of their findings on a call with reporters Tuesday evening.
Riccadonna said the rest of 2025 will be characterized by sluggish economic growth due to existing tariffs and uncertainty around the future of tariffs, especially in the manufacturing and construction sectors. Tariffs disproportionately hurt coastal states and states with large ports like Oregon, he added.
Senate Majority Leader Kayse Jama, D-Portland, said in a news release that the forecast shows reckless federal actions are harming Oregon's economy.
'Tariffs amount to a sales tax on shoppers here and act as headwinds against shipping products overseas. These policies threaten to push our state and the nation into an economic recession,' he said.
Oregon Republicans said state Democrats are to blame.
'It's no surprise that Democrats who've spent years passing policies that weaken our economy are quick to blame anyone but themselves,' Senate Republican Leader Daniel Bonham, R-The Dalles, said in a news release.
'What's needed now isn't higher taxes, but smarter budgeting, real accountability, and a renewed focus on growing the private sector,' he said.
At the beginning of the year, economists expected the national economy would grow by about 2% in 2025. The consensus now among economic forecasters is that it's likely to be less than half that — about 0.8%.
Slower economic growth leads to higher unemployment, lower wages and consequently the state taking in less corporate and personal income tax revenue, which make up the bulk of the state's general fund.
'It is a sluggish growth period, which will lead to instability in the labor market,' Riccadonna said.
He and other economists do not yet forecast a recession, though he said the risk is 'certainly elevated.'
The state's Office of Economic Analysis puts the risk of a recession in the next 12 months at about 25%. In a typical year, the risk is 10% to 15%.
'You will see the unemployment rate drifting higher over the course of the next several quarters,' Riccadonna said.
Gov. Tina Kotek in a news release said she would, 'refuse to let Oregon be knocked off of our game.'
'We know the problems we need to solve here at home regardless of the chaos coming out of Washington, D.C.,' she said. 'There are still too many people sleeping outside. There are not enough houses. There are not enough places to go for care or people to provide that care. Our kids must be served better by our schools. The cost of living is on the rise. These crises don't take an intermission, so neither can we.'
The quarterly revenue forecasts take into account all of Oregon's major revenue sources, including personal and corporate income taxes — which make up the bulk of the state's general fund — as well as lottery revenues and the Corporate Activity Tax.
In February, Riccadonna and Kennedy told Oregon lawmakers they could expect to have about $38.2 billion to spend in the state's next two-year budget. That was $350 million more than they thought they would have at the last forecast in November 2024.
Now, Oregon lawmakers can expect to have about $37.4 billion to spend in the state's next two-year budget. That's the result of both a reduction in expected revenue, mostly from income taxes, and additional spending in the current budget cycle, primarily on higher-than-expected caseloads for Medicaid and the state department that provides services to seniors and people with disabilities.
House Majority Leader Ben Bowman, D-Tigard, said in a news release the latest forecast shows lawmakers will need to make 'hard choices.'
'This forecast means we will have fewer resources available in order to support our education priorities, human services, and the many other priorities throughout the state,' he said.
The state's 'kicker' tax refund is also expected to be about $87.5 million lower than expected. The refund, now projected to return about $1.64 billion to Oregon taxpayers, is triggered when actual revenues come in at least 2% higher than lawmakers projected.
Riccadonna was more optimistic about growth and revenues in 2026 and the first half of 2027 than the current fiscal year, assuming tariffs are lower, the Federal Reserve reduces interest rates and Congress passes a budget that includes extending the 2017 Tax Cuts and Jobs Act — which reduced personal and corporate income taxes intending to stimulate spending and economic growth.
He said hard economic statistics impacted by tariffs, like unemployment or the nation's GDP outlook, are not likely to show up in federal reports until June and July, leaving forecasters at the moment with heightened uncertainty in terms of understanding how all of Trump's tariffs and cuts to federal agencies and the workforce plays out.
Trump cuts to the federal workforce have so far not caused the state's unemployment rate to tick up, but have hit local economies, Riccadonna said, mostly in eastern Oregon.
'We should make no bones about it. This is a very dynamic situation that is very sensitive to policy being set at the federal level, policies which are not clearly defined at this point in time, in terms of where the end point or the ultimate consequence will be, where that effective tariff rate will ultimately settle, how the restructuring at the federal level ultimately pans out,' Riccadonna said.
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