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Things look good now, but lawmakers may have to navigate economic uncertainty in next budget.

PAMPLIN MEDIA GROUP ILLUSTRATION - A strong economy is putting more money in state coffers, but lawmakers could see trouble ahead in the next couple of years.SALEM — Taxpayers and lottery patrons are pouring millions of extra dollars into state coffers.

By the end of the current budget cycle, state economists say, the state will tuck $1 billion more into its treasury than forecast 18 months ago. That comes on top of the $21 billion the state already expected to collect.

While it's not clear what lawmakers may do with that extra sum, it's likely that a large share will go back to taxpayers in the form of "kicker" payments. Oregon law requires the state to give some personal income tax money back when state economists underestimate personal income tax collections by more than 2 percent.

If current predictions hold, most taxpayers would get about $174 back when filing personal income taxes in 2020. Collectively, Oregon's individual taxpayers could see $724 million flow back to them from the state. Another $230 million in unanticipated payments from corporations won't go back to the businesses but instead be funneled to Oregon's school system.

'Our bank account is a bit bigger'

PMG/EO MEDIA/SRWord of the surging tax payments came this week as state economists issued their latest forecast for state revenue. The forecasts keep state leaders and legislators updated on the flow of money into the state.

The unanticipated surge is, in part, a result of the state's humming economy, the economists said in their latest report. More Oregonians have jobs (the state's unemployment rate has held steady at about 3.7 percent for the past few months). They're getting paid more for their work. And that means they're paying more taxes.

The recent federal tax overhaul — signed into law last December by President Donald Trump — has also meant higher state taxes, for several reasons. One reason: Oregon allows taxpayers to deduct their federal taxes from their state taxes. Cut federal taxes, and taxpayers can't deduct as much from their state tax bills.

The state says lottery patrons will also have forked over more money by the time the state's two-year budget ends June 30.

Altogether, those predictions may lead to a fatter wallet when lawmakers start writing the state budget in January. During the session, lawmakers use state economists' predictions to assess how much money they will have to work with as they write the budget. The state runs on a two-year budget cycle, and the next budget period starts next July 1.

More money coming in now could mean the state has a higher balance to cover expenses in that new budget.

"It's like, 'Oh, our bank account is a bit bigger,' " said Rep. Dan Rayfield, D-Corvallis, co-chairman of the Joint Committee on Ways and Means, which writes the two-year budget.

The state funds services ranging from health care to parks. Gov. Kate Brown is scheduled to release on Dec. 1 her proposal for what to fund in the next cycle. That will then be reworked by legislators, and they face several factors.

The state's Medicaid program is facing a $830 million shortfall. A bipartisan group of lawmakers is working to boost education funding. And keeping the same government services from year to year costs more due to inflation.

Slowdown on the horizon?

While the latest figures suggest that the state is raking money in, lawmakers may have to navigate a degree of economic uncertainty as they put together the next budget.

State economists said a national economic slowdown is on the horizon. Oregon's overall economic outlook is good, but the risk of a recession is higher. Right now, state economists expect taxpayers and lottery patrons will also pay about $1 billion more in the 2019-21 biennium than they predicted at the end of the 2017 legislative session. But by 2020, federal tax cuts and spending boosts are likely to have played out, state economists said. Interest rates will likely continue to increase, and tariffs could also drag down economic growth.

"Unfortunately, all of these dynamics perfectly coincide with the state of Oregon's upcoming budget period," state economists wrote in their forecast.

Senate Democratic Leader Ginny Burdick said the economy won't be strong forever, and that it has an impact on the services the state can provide. "When the economy's chugging along, we can afford to fund schools and other services everyday Oregonians count on," Burdick said in a written statement to the Oregon Capital Bureau. "When the economy slows, we have huge problems. Our state's oversized reliance on individual workers' income taxes leaves us vulnerable to that economic downturn. Now is the time to seriously look at ways to sustainably support education and other services relied upon by everyday Oregonians."

Republicans, meanwhile, framed the surge as evidence that Oregon won't need to raise taxes to cover government operations. "We are seeing low unemployment rates across the state, but we need to do more to increase Oregon's skilled workforce to ensure Oregon's economy remains competitive and that all Oregonians can build the skills necessary to obtain high-paying jobs," said state Sen. Jackie Winters, R-Salem, the Senate minority leader. "The biggest takeaway here is that increased revenues diminish the need to increase taxes on hardworking Oregonians."

Reporter Claire Withycombe: This email address is being protected from spambots. You need JavaScript enabled to view it. or 503-385-4903. Withycombe is a reporter for the East Oregonian working for the Oregon Capital Bureau, a collaboration of EO Media Group, Pamplin Media Group, and Salem Reporter.

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