State tax collections buck pandemic unemployment trends
More than 150,000 Oregonians remain out of work as a result of the coronavirus pandemic, but income tax collections that support state services and public schools are likely to exceed pre-pandemic forecasts.
State economists told lawmakers on Wednesday, Feb. 24, that is good news for the current two-year state budget — but not so good for the next couple of budget cycles, including the spending plan lawmakers are putting together now.
State Economist Mark McMullen likened it to what happened in 1990, when Oregon underwent a relatively mild economic downturn, but growth in tax collections slowed for a few years afterward.
"We have a couple of years with flat growth … without any gains in revenue, which is good for a recession, but bad for keeping up with the spending side," McMullen said at a quarterly presentation to House and Senate revenue committees.
He and senior economist Josh Lehner had projected a $2 billion drop in tax collections right after the start of the pandemic last spring. But in their latest forecast, they said lawmakers will have about $800 million more in collections available for the current budget period and the next, which starts July 1. Even with lawmakers tapping it on Dec. 21, the ending balance and two state reserves will have about $3.1 billion at the start of the new budget period.
The latest forecast also raises the possibility of $570 million being returned to income taxpayers in the form of a reduction in 2021 taxes, which would occur in spring 2022 under Oregon's "kicker" law. The law requires a return of the excess when actual collections exceed close-of-session projections by 2%. The exact figure is determined in the September 2021 economic and revenue forecast.
A corporate tax kicker, projected at $420 million, goes back to the state school fund.
Income levels up
Largely as a result of billions in federal aid to individuals and businesses, McMullen said, Oregon's overall income levels were up 5%, not down, despite the sharpest one-month nosedive in Oregon's unemployment rate from a record-low 3.3% in March 2020 to 14.2% in April 2020. The December rate was 6.4%.
"You see employment down around 6% in Oregon over the past year, which is the same as the worst year of the Great Recession, when our income tax revenues fell by 20%. Here you see much less," McMullen said. "If you extend this for our preliminary numbers for 2021, the revenues will be back to where they were last year."
Lehner said Oregon has benefited from $12 billion in unemployment benefit payments that are taxable, $11 billion in Paycheck Protection Program forgivable loans to businesses that are deductible, and $8 billion in federal rebates. (One round paid $1,200 to individuals, and a second round paid $600; Congress is considering a third plan for $1,400.)
"That is keeping income up, this far into the recession, that we have not seen before in decades — this level of income support coming from the federal government," Lehner said." If we were to take out all the direct aid … that underlying income would take us all the way back before the pandemic. The economy has proven more resilient than we first feared."
Predictably, Democratic legislative leaders greeted the news, and Republicans talked about the downside of so many people still unemployed or underemployed.
Brown urges caution
Democratic Gov. Kate Brown said the cheering is premature.
"Even with this good news, it is important to move forward cautiously, as the road ahead remains unpredictable," she said in a statement. "We also know that many Oregonians are still struggling with job losses, underemployment, and making ends meet."
Lawmakers will base their decisions on Brown's $25.6 billion budget, drawn from the tax-supported general fund and lottery proceeds, after the next economic and revenue forecast now scheduled May 19. Lawmakers and Brown herself concede it falls short of maintaining some state service and aid to public schools.
But the U.S. Congress is working on President Joe Biden's $1.9 trillion pandemic recovery plan, which offers more aid for Oregon and other states.
"If passed, this bill would provide another round of much needed aid for states and direct benefits for Oregonians in the form of essential services such as unemployment assistance, nutrition assistance, housing aid, and tax credits for families and workers," Brown said.
NOTE: Adds context for potential kicker in spring 2022; refunds are now made through reductions in income taxes, not a direct check to taxpayers.
Link to presentation by Oregon Office of Economic Analysis:
Link to summary prepared by Oregon Legislative Revenue Office:
Statements issued upon release of quarterly economic/revenue forecast on Feb. 24. NOTE: Reposts with statement by House Republican Leader Christine Drazan of Canby:
Gov. Kate Brown:
"Today's revenue forecast brings some welcome news, as we see that state revenues are on the rise, making it clearer that the impact of the latest recession on income tax revenue is significantly smaller than we had estimated it to be last spring. Even with this good news, it is important to move forward cautiously, as the road ahead remains unpredictable. We also know that many Oregonians are still struggling with job losses, underemployment, and making ends meet.
"Our May revenue forecast should give us a clearer picture of the state's overall budget outlook for the next biennium. In addition, there is an incredibly important effort on the horizon: President Biden's pending $1.9 trillion federal coronavirus relief package that Congress is currently debating. If passed, this bill would provide another round of much needed aid for states and direct benefits for Oregonians in the form of essential services such as unemployment assistance, nutrition assistance, housing aid, and tax credits for families and workers.
"It is important that we get clarity on both the pending federal relief package and the May revenue forecast before making consequential budget decisions. This is consistent with how I crafted my recommended budget for the 2021-23 biennium. It makes clear investments, reflects some difficult cuts, and prioritizes a number of investments that can be made should we receive additional federal assistance.
"I'd like to thank our congressional delegation for their work to secure federal funding for Oregon in the previous relief packages Congress passed, and for continuing to fight to secure additional assistance for Oregon and all states.
"As we wait for greater clarity on our budget climate, I remain committed to making prudent financial decisions and to position our state to manage unforeseen economic challenges that may come our way."
House Speaker Tina Kotek, D-Portland:
"Today's positive revenue forecast is good news for our budgetary efforts. However, I'm troubled by the disconnect between these numbers and the economic pain on the ground for so many Oregonians.
"We have lost 150,000 jobs during this pandemic. Many low-wage workers will need years to recover, and the recession has only worsened existing income inequality. There is still a lot of economic uncertainty going forward, and our recovery will continue to depend on controlling the virus and receiving more help from the federal government.
"This crisis demands bolder actions in the areas of housing, wildfire recovery and financial assistance to the hardest-hit households. I look forward to working with my colleagues to reinvest some available dollars in the coming weeks to help Oregonians who need us to step up and help them."
House Republican Leader Christine Drazan of Canby:
"Given the state's fragile economy, we must exercise fiscal discipline, not increase taxes or grow government programs and bureaucracy. We must focus our attention on getting the 150,000 Oregonians who have lost their jobs back to work and struggling small businesses back on their feet.
Â "Despite state ordered shutdown after shutdown, Oregon's economy has proven resilient. Businesses have followed changing guidelines to keep their doors open and Oregonians employed. Even still, we know that an unequal burden was placed on women and small businesses as well as families who have been unable to send their children to school.
Â "Many of these scars run deep and will take time to fully reveal themselves. For the time being, the bipartisan federal pandemic relief has proven effective in supporting families and the state's finances."
Senate President Peter Courtney, D-Salem:
"I'm very surprised… The forecast is way up. This allows us to start really dealing with the pain and suffering of Oregonians."
Senate Republican Leader Fred Girod of Lyons:
"I prefer to focus on the revenue coming into Oregonians' bank accounts. The reality is that 150,000 Oregonians have been put out of work because of the pandemic and the economic lockdowns. Tens of thousands are struggling to make rent, afford child care, and put food on the table.
"The revenue forecast indicated that the state has taken in over $800 million in excess revenue.
"The state has been bailed out by the federal government. We are looking at billions more coming our way in the coming weeks from Congress and the Biden administration.
"The Legislature should not be considering new taxes or rolling back COVID relief. That will simply hinder economic recovery and the chances of Oregonians getting back to work. If the Democrats aren't careful, they might even trigger the kicker and give taxpayers their money back.
"The governor is lucky to have gotten such a windfall from the federal government. Too many working people aren't so lucky. They have been asked to sacrifice by tightening their budgets. It's time for their government to do the same for them."
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