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State economists offer estimates as they present quarterly revenue forecasts to lawmakers.

COURTESY PHOTO: DREAMSTIME - The state revenue forecast looked good, so the state's Kicker law will send some money back to taxpayers.Oregon taxpayers will get a record $1.9 billion off their personal income taxes in 2022 as a result of tax collections exceeding projections back in 2019.

For the taxpayer with average household income of $67,500, the savings will amount to $850, according to rough estimates that state economists furnished to lawmakers Wednesday, Aug. 25, during a presentation of the state's quarterly economic and revenue forecast.

For the median household — half of them with incomes around $35,000 to $40,000, and half below that range — the estimated savings is $420.

The share of 2021 tax liability that will be offset is 17.5%, short of the record of 18.6% set after the 2005-07 budget cycle. Oregon state government has a two-year budget, and the 2019-21 cycle closed on June 30.

But the $1.9 billion total would set a record, ahead of the $1.7 billion returned after the 2017-19 budget cycle, and $1.1 billion after the 2005-07 budget cycle.

"Today's revenue forecast is another sign that Oregon's economy is healthy, strong, and on the path for a rapid recovery," Gov. Kate Brown said in a statement. "This is welcome news at a time that Oregonians continue to face immense challenges: from wildfire recovery to extreme drought to our worst surge of cases and hospitalizations during the COVID-19 pandemic."

Estimates will be more precise around Oct. 1.

Kicker history

Under a 1979 law that voters made part of the Oregon Constitution in 2000, a provision known as the "kicker" requires refunds when actual tax collections exceed budgeted projections by 2% or more. It didn't do so until the mid-1980s, when Oregon emerged from a deep economic downturn.

The money is returned in the form of credits against taxes owed the following year — the practice from 1985 until 1995, when checks were mailed directly to taxpayers at an added cost. Lawmakers changed the law back to its original form in 2011.

Two years ago, the refund amounted to $1.7 billion, or 17.17% of tax liability.

Economists from the Oregon Office of Economic Analysis also reported an excess of $847 million in corporate income tax collections. However, unlike personal income taxes, the excess amount goes into the state school fund under a 2012 ballot measure. Lawmakers approved a two-year, $9.3 billion state school fund.

The $1.9 billion for personal income tax refunds exceeds previous forecasts of $1.4 billion on May 19 and $570 million on Feb. 24. As late as December 2020, no kicker was forecast, and just six months before then, state economists projected losses of $2 billion in tax collections following the downturn resulting from the coronavirus pandemic.

"But this cycle is different," senior economist Josh Lehner said at a meeting of the House and Senate revenue committees.

Income up, jobs rising

That's largely because federal aid to individuals and businesses during the pandemic propped up the economy in Oregon and other states. That aid was in the form of stimulus payments to individuals, forgivable loans to businesses, federal unemployment benefits to laid-off workers and other programs.

Lehner said Oregon incomes as a whole rose 10% in the past 18 months, although the state has not fully recouped job losses from the pandemic. The Oregon Employment Department has reported that about 70% of jobs lost in spring 2020 have been regained.

"We think we will get all the way back up next summer" or fall 2022, he said, and that would result in a faster-than-usual recovery. It took Oregon about seven years to recover from downturns in the early 1980s and the Great Recession from 2007 to 2010.

State Economist Mark McMullen acknowledged that because of how the kicker law is written, the largest amounts go back to wealthier households that pay more in state income taxes — and that the pandemic has widened the gap in Oregon's income inequality. The pace of income growth for Oregon's top 70,000 taxpayers exceeds that of the other 1.5 million.

Brown said in her statement:

"My priority will be to continue to address the challenges facing Oregon families, including the disparities resulting from systemic racism, with a particular focus on ensuring our hospitals and health care workers have the resources they need to continue to provide patients with life-saving care."

'Stable' for now

McMullen said projections for the current two-year budget cycle, which began July 1, are "stable."

"There are a lot of risks growing," he said. "But given the state of household and firm balance sheets right now, most economists feel the next year is relatively safe in terms of this cycle and not going into a downturn immediately."

Among the risks he mentioned are whether the spread of the Delta variant of the coronavirus will affect business operations and consumer confidence, bottlenecks in supply chains that will affect pent-up consumer demand, and resulting inflation.

"Our baseline forecast does not call for this to disrupt the expansion," McMullen said. "It's unlikely to have a major effect on the recovery, other than slowing the pace of the recovery some.

"But when we shut down the economy, there is obviously a direct impact."

Lawmakers approved a two-year state budget of $26.8 billion, up from the $25.6 billion proposed by Gov. Brown back on Dec. 1, before they ended their 2021 session on June 26. These figures are for spending from the general fund — which consists largely of personal and corporate income taxes — and Oregon Lottery proceeds, the state's most flexible sources.

Infusions of federal aid to Oregon and other states helped lawmakers balance the budget without major spending cuts.

Counting $48.6 billion in other funds and $37.4 billion in federal funds, both of which have restrictions on spending, the total state budget is $112.8 billion.

Healthy reserves

McMullen said the state also ended the budget cycle with healthy reserve funds, although lawmakers drew $400 million from an education reserve in 2020. Lawmakers created two reserve funds in 2002 and 2007. Although they had little time to accumulate savings before the Great Recession of 2007-10, the intervening decade gave them time to grow.

McMullen said that given the volatility of income taxes, which is still the mainstay of Oregon's support for state services and public schools, lawmakers should consider modifying the kicker law or diversifying revenue sources. The first would require voter approval; there has been some movement toward the second in the past decade.

Otherwise, he said, "The way to manage around that is to keep a cushion."

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NOTE: Full statements from Gov. Kate Brown and others are added below.

Main story adds quotes from state economists.

Statements

Full statements following the presentation of the state's quarterly economic and revenue forecast on Wednesday, Aug. 25:

Gov. Kate Brown:

"Today's revenue forecast is another sign that Oregon's economy is healthy, strong, and on the path for a rapid recovery. This is welcome news at a time that Oregonians continue to face immense challenges: from wildfire recovery to extreme drought to our worst surge of cases and hospitalizations during the COVID-19 pandemic.

"And we must never lose sight of the fact that, because of historic, structural inequities, the impacts of the pandemic and the natural disasters of the past year and a half have disproportionately impacted Black, Indigenous, Latino, Latina, Latinx, Asian, Pacific Islander, and Tribal communities the hardest.

"My priority will be to continue to address the challenges facing Oregon families, including the disparities resulting from systemic racism, with a particular focus on ensuring our hospitals and health care workers have the resources they need to continue to provide patients with life-saving care."

House Speaker Tina Kotek, D-Portland:

"The stable outlook of today's revenue forecast is welcome news coming off a legislative session where we invested strongly in programs to help Oregonians impacted by the pandemic, wildfires, the housing crisis and other challenges. We need to maintain this momentum to build a better future for everyone.

"Today is also a reminder that our economic recovery is linked to our ability to control the virus. Our hospital systems are on the verge of collapse in this moment. With 1,000 Oregonians hospitalized due to COVID-19, there is still too much suffering across the state. We will maintain our economic recovery if we all commit to protecting each other from the Delta variant."

House Majority Leader Barbara Smith Warner, D-Portland:

"Today's revenue forecast shows that between the investments we've made as a Legislature and support from the Biden-Harris administration's American Rescue Plan Act, Oregon is on the right path, with the means to ensure an equitable recovery. This is a promising forecast.

"In the face of another wave of the pandemic, we must continue to prioritize bold, structural changes that benefit all Oregonians, including working families, low-income communities, and our small businesses. We also must recognize how structural racism continues to harm Black, Indigenous, People of Color (BIPOC) communities, impeding opportunities to build generational wealth. Economic opportunity should and can be available to all.

"I look forward to continuing the work we have started and building a future where everyone has a chance to truly prosper."

House Republican Leader Christine Drazan of Canby:

"Despite a budget that has doubled in ten years, the state is worse off today for our students' education, housing prices, and the safety of our communities. State agencies have fumbled distribution of unemployment checks and rent assistance to those in desperate need. The state has struggled to protect foster kids. The cost of higher education is a barrier for students and families.

"The spending spree of the last decade has not solved Oregonians' problems. Billions in new taxes did not make things better and the state can't continue to operate this way.

"The lowest hospital bed per capita, bottom of the nation graduation rates, deteriorating safety for communities, and persistent homelessness are unacceptable.

While it is great for the state that we have an increase in tax revenues, it is not the same thing as real progress for Oregonians."

Senate President Peter Courtney, D-Salem:

"Oregon's economy remains strong. We have more money to invest in pandemic relief, child care and housing. We're still in a crisis. The Legislature will help out Oregonians who've hurt the most. I look forward to doing this as fast as we can."

Senate Republican Leader Fred Girod of Lyons:

"It's clear that Democrats raided $15 million from the kicker for no good reason. Unprecedented deficit stimulus spending by the federal government and Oregonians stepping up to support businesses during the governor's shutdowns has given the state excess money.

"The Legislature now has money to invest in COVID and wildfire response and recovery and preparing for upcoming unknown expenses in the next biennium. Most importantly, our kids need to be in school full-time to get caught up after a year of learning loss. This money can help our kids recover."

Mike Marshall, executive director, Oregon Recovers:

"Today's positive revenue forecast makes clear that the Oregon Legislature and Gov. Kate Brown have the ability to immediately fund the state plan to end Oregon's addiction crisis. In February 2020 the Alcohol and Drug Policy Commission delivered a comprehensive plan to end the addiction crisis to the legislature and the governor. It was promptly ignored.

"To date, and despite nearly 4,000 additional deaths due to substance use disorder during that time, even outpacing COVID deaths, the plan remains unfunded. This lack of action has led to a dramatic increase in alcohol-related emergency room visits and drug overdoses. Additionally, the pandemic has exacerbated a workforce crisis within the substance use disorder treatment and recovery support organizations that threatens the collapse of the existing addiction recovery continuum of care.

"COVID is not the only killer threatening Oregon. We call on the Legislature and governor to immediately address Oregon's other health crisis and fund the implementation of the Alcohol and Drug Policy Commission strategic plan."


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