Oregon unemployment is at record lows, wages are increasing, and the U.S. economy is the strongest it’s been in decades. But pressures at the federal level, rising costs and uncertainty over the next recession pose risks in the County’s latest five-year funding forecast.
The Fiscal Year 2020 General Fund Five-Year Forecast is the latest prediction about the County’s long-term financial health. The County’s Budget Office prepares the report each year to help the Board make informed decisions on how to sustain services. This year’s forecast covered the County’s revenues and expenditures, and factors that might influence them, for fiscal years 2020 through 2024.
Speaking before the Board last week, Budget Director Mike Jaspin explained why, despite an extended period of economic growth nationwide, the County’s financial gains have been limited. “Why is the economy so strong, but our financial picture isn’t improving in line with the economy?” he said. “The short answer is we have a structural deficit.”
A structural deficit is when a government’s expenditures outnumber its revenue. Multnomah County’s three main revenue sources are property taxes, business income taxes and motor vehicle rental fees. Some of those revenue sources have increased, but not at pace to fully keep up with rising costs.
Some of the major costs that drive the County’s structural deficit include inflation and labor expenses, especially cost of living adjustments, rising pension and retirement costs, plus medical/dental expenses.
“We expect a deficit of $5.9 million in FY 2020, that grows to just over $34.1 million by the time we get out to FY 2024,” said Jeff Renfro, Multnomah County's economist. “That structural deficit means that our deficit grows by about a percent every year.”
But the County’s financial forecast is not all doom and gloom. The strong economy has allowed the County to buffer some cost of living increases. Some costs haven’t increased as much as originally predicted. And because of strong gains in the stock market, the County’s unfunded PERS liability has decreased.
In the near future, County economists will gain a clearer picture about how state and federal policy, expenditures and the next recession might affect the County’s financial outlook. Those factors will all play a role in how the Board prioritizes services in the years ahead.
“Any one thing going badly we can probably weather,” Renfro said. “But if we see a confluence of increased PERS costs, if we get a recession in the near future, if monetary policy changes affect the economy negatively, that combined with just our normal structural deficit, we would be in a bad place.”