Tax Revenues to Remain Flat for Several Years

REVENUE OUTLOOK Revenue Summary Oregon’s economic indicators and primary revenue sources have tracked very closely with expectations since the September 2020 forecast was released. As a result, Oregon’s revenue forecast has remained stable, with little change to the outlook. Although the forecast has not changed by much, a considerable amount of uncertainty remains. In particular, the spread of the COVID-19 virus, and the government policy responses to that spread, remain open questions at this time. Despite the uncertainty, General Fund revenue collections have been surprisingly healthy since the recession began. Total spending and income have been propped by the first round of federal fiscal aid. Also, the fact that high-income households have been relatively spared so far has supported tax collections. Corporate excise tax collections, lottery sales and taxes on investment forms of income have shown the strongest recoveries. While those sources stand out, all major forms of revenue have bounced back, including labor-related income taxes. In fact, given the extraordinary growth, a personal income tax kicker for the current biennium is not out of the question, although it would take a big April 2021 tax season to get there. Oregon’s budget process for the next biennium is getting started next month with the release of the Governor’s Recommended Budget. Oregon’s primary revenue sources are expected to post gains throughout the 2021-23 budget period. A growing economy typically leads to growing revenues. Even so, growth will be modest. The losses of jobs and business income due to the recession have yet to completely flow through to tax collections. Oregon’s General Fund Revenues are expected to grow by 5% over the 2021-23 budget period, surpassing $22 billion for the first time. This growth is quite modest from an historical perspective, and not sufficient to keep up with the rising cost of providing public services. Should the baseline outlook come to pass, state resources will have remained roughly unchanged for three budget periods, while Oregon’s population and prices will have continued to grow. It is not unheard of for Oregon’s tax revenues to remain flat for several years. The 1991 recession and recovery provides the most recent example. That said, the typical recession in Oregon has brought with it a much larger swing in revenue collections. Significant risk to the revenue outlook remains.

The primary source of risk to the revenue outlook is the persistence of the nationwide economic recovery. The path of the virus and success of the medical innovations and fiscal policies used to combat it are still unknown. A double-dip scenario remains possible. Even if the economic recovery persists throughout 2021-23 as expected, downside risk to state revenue collections remains. Much of this risk involves the path of profits, capital gains and other nonwage forms of corporate and personal income. Such investment forms of income do not always move in step with the underlying economy. Given that economic growth is expected to persist going forward, a consensus of forecasters expects profits and equity values to remain near the high levels where they are today. This assumption is key to the forecast of a relatively mild revenue downturn. Should asset markets take a step back, large revenue losses on the order of what was seen in the 2001 and 2007 recessions can be expected. While the revenue outlook is uncertain, Oregon is in a better position than in the past to manage this risk. Encouragingly, Oregon has saved a larger amount of reserve funds than ever before. Automatic deposits into Oregon’s Rainy Day Fund and Education Stability Fund throughout the long expansion have added up. Oregon’s budget writers have never had access to significant reserve funds during past recessions. Although today’s reserves will not cover all of the likely shortfall caused by a recession, they are large enough to ease much of the pain. 2019-21 General Fund Revenues Gross General Fund revenues Table R.1 for the 2019-21 biennium are 2019-21 General Fund Forecast Summary expected to reach $21,264 2019 COS September 2020 December 2020 Change from Change from (Millions) Forecast Forecast Forecast Prior Forecast COS Forecast million. This represents an Structural Revenues increase of $69.5 million from Personal Income Tax $18,283.5 $18,175.5 $18,182.1 $6.6 -$101.4 the September 2020 forecast, Corporate Income Tax $1,190.8 $1,330.5 $1,384.3 $53.8 $193.5 and an increase of $243 million All Other Revenues $1,546.1 $1,688.3 $1,697.4 $9.1 $151.3 relative to the Close of Session Gross GF Revenues $21,020.4 $21,194.3 $21,263.8 $69.5 $243.4 forecast. Most of the increase in Offsets and Transfers -$203.5 -$106.9 -$96.0 $10.8 $107.5 1 the General Fund forecast can Administrative Actions -$21.5 -$21.5 -$21.5 $0.0 $0.0 Legislative Actions -$199.5 -$198.3 -$198.3 $0.0 $1.1 be tied to corporate income tax Net Available Resources $22,914.4 $23,577.0 $23,657.3 $80.3 $742.9 collections. Among non-General Confidence Intervals Fund sources, lottery and 67% Confidence +/- 3.2% $681.8 $20.58B to $21.95B marijuana sales have been 95% Confidence +/- 6.4% $1,363.5 $19.90B to $22.63B strong as well, leading to upward revisions to the outlook.

Personal Income Tax Personal income tax collections have closely tracked expectations since the September 2020 forecast. However, over the recession as a whole, personal tax revenues have been surprisingly strong. Despite Oregon losing well over 100,000 jobs, personal income taxes have come in higher than ever in the months since the Coivd-19 shutdown. Timing issues, federal aid, income inequality and 2019 spillovers have all contributed to the surprisingly strong collections. Going forward, the performance of asset market prices will be key to whether the impact on revenues will remain mild. Should stock prices and business income continue to grow, personal income taxes will as well. Unfortunately, this is not typically the case during recessions. Oregon’s General Fund Tax revenues fell sharply during each of the last two recessions as asset markets fell to earth along with business income. During the housing bust, taxable capital gains dropped from around $10 billion to $2 billion. Corporate Excise Tax The corporate collections outlook has been revised upward in response to a stronger profit outlook and to the fact that revenues have been coming in strong since the latest forecast. Like personal income taxes, corporate tax collections have also remained elevated in the period since Covid-19 restrictions were put in place. The strong growth in corporate taxes is particularly surprising given that they were expected to come back down to earth before the recession began. In the two years following the enactment of the federal Tax Cuts and Jobs Act, Oregon’s corporate tax collections increased by around 50%. While some of this increase reflects a permanent increase in the tax base, a significant amount of the growth is expected to be temporary, including the realization of repatriated foreign income. However, corporate tax collections have yet to weaken at all. After a temporary drop at the beginning of the recession, corporate tax collections immediately bounced back and remain near their record highs. This stands in stark contrast to the last two recessions when corporate tax collections were cut in half. Considerable downside risk remains for the 2021-23 budget period. Other Sources of Revenue Non-personal and non-corporate revenues in the General Fund usually account for approximately 7 percent of the total. The two largest such sources are the Oregon Liquor Control Commission and estate taxes. Combined all of these other sources of revenue have been revised up by $9.1 million (+0.5%) relative to the previous forecast for 2019-21. They are raised $26.2 million (+2.1%) in 2021-23 and lowered $3.0 million (-0.2%) in 2023-25. 23

In 2019-21 the largest change is another large upward revision to estate taxes, which continue to remain strong and come in above forecast. Around half this estate tax forecast increase is offset by a downward revision to judicial revenues, state court fees in particular. Overall the judicial system is moving slower due to being socially distanced, with more online hearings and proceedings. As a result, there is a growing backlog of cases, which also means fines and fees are delayed, and delinquent accounts were not being sent to collections during the pandemic either. Now, this backlog of judicial cases is expected to be worked through in the months ahead, and especially once the pandemic is over. The net result over this year and next is no substantial declines in judicial revenues, outside of parking declines which will not be made up. However next year’s stronger judicial collections will largely occur in the 2021-23 biennium, where revenues have been revised higher. Even so, by far the biggest change to the 2021-23 outlook for these other general fund sources of revenues is an upward revision to the outlook for liquor revenues. This increase is due to the Oregon Liquor Control Commission voting to continue the $0.50 per bottle surcharge that is currently in place, with the additional revenue going into the General Fund. The surcharge is expected to increase liquor revenues by $40.8 million next biennium. One sizable offset next biennium to these other revenues is a reduction in the General Fund portion of cigarette taxes. Oregon voters recently passed Measure 108 which raised cigarette taxes by $2.00 per pack. The change will certainly increase the total amount of tobacco tax revenue the state collects. However, given the expected decline in the total number of packs sold, the General Fund portion of cigarette taxes will likewise decline in the years ahead. Measure 108 also increased other tobacco taxes by increasing the maximum tax levied on cigars from $0.50 to $1.00 each, and established a new tax on inhalant delivery devices (e-cigarettes). See Table B.6 in the appendix for the full breakdown of tobacco related revenues. Extended General Fund Outlook Table R.2 exhibits the long-run forecast for General Fund revenues through the 2027-29 biennium. Users should note that the potential for error in the forecast increases substantially the further ahead we look. Table R.2

General Fund Revenue Forecast Summary (Millions of Dollars, Current Law)

Forecast Forecast Forecast Forecast Forecast Forecast 2017-19 % 2019-21 % 2021-23 % 2023-25 % 2025-27 % 2027-29 % Revenue Source Biennium Chg Biennium Chg Biennium Chg Biennium Chg Biennium Chg Biennium Chg

Personal Income Taxes 18,823.3 17.2% 18,182.1 -3.4% 19,661.8 8.1% 22,253.6 13.2% 24,821.8 11.5% 28,051.0 13.0%

Corporate Income Taxes 1,752.7 44.8% 1,384.3 -21.0% 1,359.6 -1.8% 1,466.2 7.8% 1,740.5 18.7% 1,907.7 9.6%

All Others 1,339.3 3.9% 1,697.4 26.7% 1,314.3 -22.6% 1,347.5 2.5% 1,445.2 7.3% 1,571.3 8.7%

Gross General Fund 21,915.3 18.1% 21,263.8 -3.0% 22,335.6 5.0% 25,067.3 12.2% 28,007.5 11.7% 31,530.0 12.6%

Offsets and Transfers (129.5) (96.0) (127.0) (91.6) (72.4) (79.4)

Net Revenue 21,785.8 17.6% 21,167.7 -2.8% 22,208.6 4.9% 24,975.7 12.5% 27,935.1 11.8% 31,450.7 12.6%

Revenue growth in Oregon and other states will face considerable downward pressure over the 10-year extended forecast horizon. As the baby boom population cohort works less and spends less, traditional state tax instruments such as personal income taxes and general sales taxes will become less effective, and revenue growth will fail to match the pace seen in the past. Tax Law Assumptions The revenue forecast is based on existing law, including measures and actions signed into law during the 2019 Oregon Legislative Session. OEA makes routine adjustments to the forecast to account for legislative and other actions not factored into the personal and corporate income tax models. These adjustments can include expected kicker refunds, when applicable, as well as any tax law changes not yet present in the historical data. A summary of actions taken during the 2019 Legislative Session can be found in Appendix B Table B.3. For a detailed treatment of the components of the 2019 Legislatively Enacted Budget, see: LFO 2019-21 Budget Summary. Although based on current law, many of the tax policies that impact the revenue forecast are not set in stone. In particular, sunset dates for many large tax credits have been scheduled. As credits are allowed to disappear, considerable support is lent to the revenue outlook in the outer years of the forecast. To the extent that tax credits are extended and not allowed to expire when their sunset dates arrive, the outlook for revenue growth will be reduced. The current forecast relies on estimates taken from the Oregon Department of Revenue’s 2019- 21 Tax Expenditure Report together with more timely updates produced by the Legislative Revenue Office.

General Fund Alternative Scenarios TABLE R2b December 2020 Alternative Cyclical Revenue Forecast ($ millions) The latest revenue forecast for the 2017-19 BN 2019-21 BN 2021-23 BN 2023-25 BN 2025-27 BN current biennium represents the most Baseline Case FY '18 FY '19 FY '20 FY '21 FY '22 FY '23 FY '24 FY '25 FY '26 FY '27 Personal Income Level 208.8 220.3 234.0 236.8 233.7 246.5 257.9 273.2 287.2 302.4 probable outcome given available % change 6.7% 5.5% 6.2% 1.2% -1.3% 5.5% 4.6% 5.9% 5.1% 5.3% information. OEA feels that it is important Taxes Personal Income 8,872 9,909 7,192 10,990 9,608 10,054 10,795 11,458 12,031 12,791 that anyone using this forecast for Corporate Excise & Income 739 927 488 896 688 671 708 758 837 904 Other General Fund 633 706 639 1,058 647 667 664 683 709 736 decision-making purposes recognize the Total General Fund 10,244 11,542 8,319 12,944 10,944 11,392 12,168 12,900 13,577 14,430 % change 4.3% 12.7% -27.9% 55.6% -15.5% 4.1% 6.8% 6.0% 5.3% 6.3% potential for actual revenues to depart significantly from this projection. Optimistic Case FY '18 FY '19 FY '20 FY '21 FY '22 FY '23 FY '24 FY '25 FY '26 FY '27 Personal Income Level 208.8 221.4 235.4 238.8 236.6 249.3 261.9 278.9 294.9 312.1 Table R.2b shows the revenue % change 6.7% 6.0% 6.3% 1.5% -0.9% 5.4% 5.0% 6.5% 5.7% 5.8% implications of the two alternative Taxes Personal Income 8,872 9,909 7,192 11,315 9,883 10,280 11,046 11,751 12,407 13,259 Deviation from baseline 0 0 0 325 275 226 251 292 376 468 economic scenarios described on page 19. Corporate Excise & Income 739 927 488 922 708 686 725 777 863 937 Deviation from baseline 0 0 0 26 20 15 16 19 26 33 If the recovery were to take a step back Other General Fund 633 706 639 1,068 655 674 675 697 728 759 Total General Fund 10,244 11,542 8,319 13,305 11,247 11,640 12,446 13,226 13,998 14,955 next year as called for in the pessimistic % change 4.3% 12.7% -27.9% 59.9% -15.5% 3.5% 6.9% 6.3% 5.8% 6.8% Deviation from baseline 0 0 0 361 303 249 278 326 421 525 scenario, revenues in the 2021-23 Biennial Deviation 0 361 552 604 946

biennium would be reduced by $1.5 Pessimistic Case FY '18 FY '19 FY '20 FY '21 FY '22 FY '23 FY '24 FY '25 FY '26 FY '27 billion. If the recovery gets up to speed Personal Income Level 208.8 219.1 231.6 229.5 222.5 232.2 240.2 256.2 270.6 284.6 quickly as called for in the optimistic % change 6.7% 4.9% 5.7% -0.9% -3.0% 4.3% 3.4% 6.7% 5.6% 5.2% scenario, revenues in the 2021-23 Taxes Personal Income 8,872 9,909 7,192 10,438 9,006 9,366 9,979 10,699 11,283 11,985 Deviation from baseline 0 0 0 -552 -602 -688 -816 -759 -747 -806 biennium would be increased by $0.9 Corporate Excise & Income 739 927 488 851 645 625 655 708 785 847 Deviation from baseline 0 0 0 -45 -43 -46 -54 -50 -52 -57 billion. Other General Fund 633 706 639 1,026 616 628 619 641 668 692 Total General Fund 10,244 11,542 8,319 12,315 10,267 10,619 11,252 12,048 12,737 13,524 % change 4.3% 12.7% -27.9% 48.0% -16.6% 3.4% 6.0% 7.1% 5.7% 6.2% Deviation from baseline 0 0 0 -629 -677 -772 -916 -852 -841 -906 Biennial Deviation 0 -629 -1,449 -1,767 -1,747 25

Corporate Activity Tax HB 3427 (2019) created a new state revenue source by implementing a corporate activity tax (CAT) that went into effect January 2020. Projected gross revenues equal $1.23 billion for 2019-21 and $2.24 billion in 2021-23, slightly up from the previous forecast. The revision is due to higher-than-anticipated collections for the third quarterly estimated payment, which was due on October 31st. NOTE: This December 2020 forecast does not reflect the impact of the two-week shutdown going into effect coincident with the publication of this forecast. Given the scope of the current plan, the impact to the CAT for 2019-21 would be no more than the loss of a few million dollars. These revenues are dedicated to spending on education. The legislation also included personal income tax rate reductions, reducing General Fund revenues. The net impact of HB 3427 was designed to generate approximately $1 billion per year in new state resources, or $2 billion per biennium. In terms the macroeconomic effects of a major new tax, the Office of Economic Analysis starts with the Legislative Revenue Office’s (LRO) impact statement and any Oregon Tax Incidence Model (OTIM) results LRO found. At the top line, OTIM results find minimal macroeconomic impacts across Oregon due to the new tax. Personal income, employment, population, investment and the like are less than one-tenth of a percent different under the new tax relative to the baseline. The model results also show that price levels (inflation) will increase above the baseline as some of the CAT is pushed forward onto consumers. Of course these top line, statewide numbers mask the varying experiences that individual firms and different industries will experience. There are likely to be some businesses or sectors that experience large impacts from the CAT, or where pyramiding increases prices to a larger degree, while other businesses or sectors see relatively few impacts. Table B.12 in Appendix B has details on 10 year forecast and the allocation of resources, while the personal income tax reductions are built into the General Fund forecasts shown in Tables B.1 and B.2. Lottery Earnings Lottery sales continue to come in above forecast. In fact, video lottery sales in the past month are now higher than they were a year ago. Clearly players are venturing out and spending money. The outlook has been raised. However the forecast is not fully returned to pre-pandemic levels because of the subpar economy and surging COVID cases in recent weeks. This will lead to renewed weakness between now and when the vaccine or medical treatment is available. Consumers will likely stay home to a greater degree in the months ahead, resulting in lower levels of video lottery sales. As such, Lottery revenues in the current 2019-21 biennium are increased $17.2 million, or 1.3 percent. Even so, lottery revenues remain 11 percent below the Close of Session forecast upon which the budget was built. Larger forecast increases are seen in the 2021-23 and 2023-25 biennia. Revenues are raised $34.5 million (+2.3%) in 2021-23 and $40.3 million (+2.5%) in 2023-25. While improvements, these gains do not fully recapture the forecast reductions due to the pandemic and recession.

All of this was expected even before the two week freeze for Oregon was announced. Given this forecast was developed in October and finalized in early November, the freeze is not incorporated into the outlook. The Oregon Lottery is expected to turn off the video lottery terminals during the freeze as bars and restaurants are restricted to takeout only. Should the entire state be in the freeze for two weeks, and Multnomah County for an additional two weeks after that (4 total), that would be a reduction in video lottery sales of $41 million, and a reduction in available transfers of $26.5 million compared to the baseline, or published figures. Overall the outlook remains uncertain. To the upside, consumer spending has rebounded stronger than expected this year. The impact of the freeze, which is not in the baseline due to timing, may be even less should sales rebound faster, or stronger in the weeks and months ahead. Additionally, should a medical treatment be available earlier than expected, sale are likely to follow suit as well. It is important to note that video lottery is a measure of spending, while other indicators like the number of OpenTable reservations are a measure of people. Gaming has certainly rebounded strongly across the country since the summer, surprisingly so. However this volume of spending is more in-line with other measures of spending on going out to eat rather than the number of people making reservations. Even so, it is important to track both people and spending to gauge society’s openness and willingness to return to pre-pandemic activities in greater numbers. It is interesting to note that the strong video lottery sales here in Oregon are largely being driven by double-digit gains in southern Oregon, while the Portland region is continuing to show the largest declines. Whether this pattern is due to the severity of the recession, increases in income or simply a larger willingness among local residents to venture out is a bit hard to disentangle. That said, it does appear that COVID cases do impact video lottery sales with a delay. A higher number of cases, relative to the local population, does result in weaker sales a few weeks down the line. This is one key reason why our office was already expecting some further weakness in sales in the months ahead even prior to the two week freeze announcement. As a result the main downside risk to the lottery outlook is a larger retrenchment in consumer spending due to the pandemic and/or public health restrictions. Lottery Outlook and Distributions Big picture issues to watch include broader national trends in gaming markets, demographic preferences for recreational activities, and to what extent consumers decrease the share of their incomes spent on gaming. Up

until the past couple of years, consumers had remained cautious with their disposable income. Increases in spending on gaming had largely matched income growth. Over the long run our office expects increased competition for household entertainment dollars, increased competition within the gaming industry, and potentially shifts in generational preferences and tastes when it comes to gaming. As such, our outlook for video lottery sales is continued growth, however at a rate that is slightly slower than overall personal income growth. Lottery sales will continue to increase as Oregon’s population and economy grows, however video lottery sales will likely be a slightly smaller slice of the overall pie. The full extended outlook for lottery earnings can be found in Table B.9 in Appendix B. Budgetary Reserves The state currently administers two general reserve accounts, the Oregon Rainy Day Fund4 (ORDF) and the Education Stability Fund5 (ESF). This section updates balances and recalculates the outlook for these funds based on the September revenue forecast.

As of this forecast the two reserve funds currently total a combined $1.63 billion. At the end of the current 2019-21 biennium, they will total $1.37 billion. The reduction is due to the $400 million withdrawal from the Education Stability Fund that the Legislature passed as part of the budget rebalancing during the second special session of 2020 (HB 4303). Including the currently projected $1.79 billion ending balance in the General Fund, the total effective reserves at the end of this biennium are $3.16 billion. The forecast for the ORDF includes two deposits for this biennium relating to the General Fund ending balance from the previous biennium (2017-19). A deposit of $198.3 million was made in early 2020 after the accountants closed the books. Additionally a $55.7 million deposit relating to the increased corporate taxes from Measure 67 is expected at the end of the biennium. This exact transfer amount is subject to some revision as corporate filings are processed, however the transfer itself will occur. At the end of 2019-21 the ORDF will total $942.3 million.

4 The ORDF is funded from ending balances each biennium, up to one percent of appropriations. The Legislature can deposit additional funds, as it did in first populating the ORDF with surplus corporate income tax revenues from the 2005-07 biennium. The ORDF also retains interest earnings. Withdrawals from the ORDF require one of three triggers, including a decline in employment, a projected budgetary shortfall, or declaration of a state of emergency, plus a three-fifths vote. Withdrawals are capped at two-thirds of the balance as of the beginning of the biennium in question. Fund balances are capped at 7.5 percent of General Fund revenues in the prior biennium. 5 The ESF gained its current reserve structure and mechanics via constitutional amendment in 2002. The ESF receives 18 percent of lottery earnings, deposited on a quarterly basis – 10% of which are deposited in the Oregon Growth sub-account. The ESF does not retain interest earnings. The ESF has similar triggers as the ORDF, but does not have the two-thirds cap on withdrawals. The ESF balance is capped at five percent of General Fund revenues collected in the prior biennium. 28

The forecast for the ESF calls for $207.5 million in deposits during the 2019-21 biennium based on the current Lottery forecast, a modest increase relative to the previous forecast. To date $151 million has been transferred, meaning the remaining $56.5 million will be subject to economic and revenue forecast changes over the remainder of the biennium. For example, sales may come in higher or lower than forecast, resulting in larger or smaller transfers into the ESF. Furthermore, Oregon’s two week freeze which is not accounted for in this forecast, will likely lower these transfers by $5 million. As part of the budget rebalancing during the second special session, the Legislature voted to withdrawal $400 million from the ESF in 2021. At the end of the current 2019-21 biennium, the ESF balance is expected to be $427.2 million. Even with the scheduled withdrawal, the ESF is still forecasted to reach its cap of 5% of the previous biennium’s General Fund revenues at the beginning of FY2027, or a couple years later than pre-COVID forecasts indicated. Once the cap it reached, transfers accrue to the Capital Matching Account.

Oregon Budgetary Reserves (billions) Educ. Stability Fund Rainy Day Fund Gen. Fund Ending Balance Effective Reserves ($ millions) $4.0 24% Forecast --> Sep End $3.5 21% 2020 2019-21 $3.0 18% $2.5 15% ESF $745 $427 $2.0 12% RDF $883 $942 Percent of $1.5 9% General Fund --> Reserves $1,628 $1,369 $1.0 6% Ending $0.5 3% Balance $1,794 $1,794 $0.0 0% 99- 01- 03- 05- 07- 09- 11- 13- 15- 17- 19- 21- 23- 25- Total $3,422 $3,163 01 03 05 07 09 11 13 15 17 19 21 23 25 27 % of GF 16.1% 14.9% Biennium Source: Oregon Office of Economic Analysis

Together, the ORDF and ESF are projected to have a combined balance of $1.37 billion at the close of the 2019- 21 biennium, or 6.5 percent of current revenues. Such levels of reserve balances are still relatively bigger than Oregon has been able to accumulate in past cycles. They are needed today given that the economic recovery will take years. B.10 in Appendix B provides more details for Oregon’s budgetary reserves.

Recreational Marijuana Tax Collections Marijuana sales continue to be strong, although the underlying sales forecast in the years ahead remains unchanged. Revenues have been updated to account for somewhat larger sales in recent months and more importantly truing up our office’s records with the actual transfer amounts made so far this biennium. One item to watch during the impending two week freeze in Oregon is whether or not consumers stockpile marijuana in advance, or increase sales during the freeze. This was certainly the case earlier in the pandemic, although brief stockpiling periods tend to even out with somewhat lower sales a few weeks down the line. The largest change to the outlook has to do with the passage of Measure 110 during the recent election. Per Measure 110, starting next month, the current programs receiving marijuana revenue – the state school fund,

state police, cities and counties, mental health, and drug addiction and prevention – will be capped at $11.25 million per quarter, or $45 million year. All other revenues above this amount will be transferred to the newly create Drug Treatment and Recovery Fund. In the current 2019-21 biennium the new fund is expected to receive $81.4 million and in 2021-23 the fund is expected to receive $229.0 million, or about 72 percent of all marijuana revenue next biennium. As discussed more in-depth last forecast, the factors leading to the increase in sales during the pandemic likely includes the higher incomes due to federal support, increased stressors in everyday life, reductions in other forms of entertainment or recreational opportunities, and simply more time on one’s hand be it due to a COVID- related layoff, or increased working from home. The key forecast question is whether, or to what degree will sales taper off in the months ahead as the federal aid is gone and other entertainment options return, at least at some point? Our office’s marijuana forecast advisory group does believe some of the sales will come off, but not all. That said, the longer the pandemic lasts, the more likely consumers will permanently adjust their behavior as they become accustomed to their newer routines and buying patterns. See Table B.11 in Appendix B for a full breakdown of distributions for recreational marijuana tax collections. Note that these distributions are based on current law.