For Oregon's state budget, and for Oregon taxpayers, it appears everything's coming up roses these days.
An economic surge as the coronavirus pandemic wanes will produce $1 billion more for state coffers than state economists projected just three months ago. That will be enough to boost state spending, without cuts, as lawmakers finish work on the state budget for the next two years.
Meanwhile, that surge will result in an estimated $1.4 billion — more than twice the $570 million projected Feb. 24 — going back to taxpayers next year in the form of "kicker" credits against their 2021 tax bills. The final figure will be determined in the September economic and revenue forecast, but the share of tax liability is projected at 13.6%.
For the average taxpayer with a household income of $67,400, the credit will be $636. For the median taxpayer with household income between $35,000 and $40,000 — half are above and half below that range — the credit will be $312.
"I have never seen such a strong outlook," State Economist Mark McMullen told members of the House and Senate revenue committees during his quarterly forecast on Wednesday, May 19.
"There are a whole lot more resources available than when we last reported in March, and even more than we reported at the beginning of the session, when the budget was drafted. It's quite a remarkable turnaround from a few months ago.
"When the pandemic hit, we saw these massive job losses that blew a $2 billion hole in the budget. That hole was filled by the March forecast (on Feb. 24), and now we are past where we thought we would be, even pre-pandemic."
Gov. Kate Brown proposed $25.6 billion in spending from the tax-supported general fund and lottery proceeds, the state's two most flexible sources, back on Dec. 1 before the session got under way. Legislative budget writers, bolstered by $2.6 billion in federal aid from President Joe Biden's pandemic recovery plan, unveiled a framework for almost $28 billion in spending on March 24. The session is scheduled to close June 27.
Brown said in a statement that the latest forecast, coupled with projections for the following two budget cycles, sets the stage for a better Oregon:
"Our anticipated state revenues will allow us to fully fund our state agency base budgets, make investments prioritized by the Racial Justice Council, move forward with a $9.3 billion school budget, fully fund the Student Success Act and ensure no one is kicked off the Oregon Health Plan, among other things.
"These investments will help Oregonians recover from the COVID-19 pandemic and move Oregon toward a future where equity is realized and all are equal."
House Speaker Tina Kotek called the report "stunning." Senate President Peter Courtney, a Democrat from Salem who has gone through five downturns in 37 years as a legislator, said the forecast was "unbelievable."
Some Democrats want to spend even more. Republicans say spending should focus on one-time purposes. Budget writers have already proposed to save some of the federal aid for the 2023-25 budget period.
Senior economist Josh Lehner said what has helped prop up the economy in Oregon and other states is the massive federal spending during the pandemic, including payments to individuals and businesses. Biden's plan gave $1,400 payments to an estimated 95% of Oregonians, on top of two previous rounds of payments.
"It has been unprecedented outside of wartime," Lehner said. "It has allowed households and firms to keep their heads above water. It does not mean that some people haven't fallen through the cracks — they have — and some businesses have closed."
McMullen said economists have not seen such a steep downturn triggered by the onset of the pandemic — Oregon's unemployment rate went from a modern-low 3.5% in March 2020 to a modern-high 13.2% the following month — or an equally speedy recovery. The April 2021 rate was 6%; it has hovered around that mark for a few months.
McMullen said he still projects it will be the fourth quarter of 2022 before Oregon returns to its pre-pandemic employment levels. That's still shorter than the seven years following downturns in 1980 and 2007.
"Obviously, a lot of things can happen in two years," he said. "But right now we are on a pretty strong footing. The consensus (of economists) ranges from good to great."
McMullen said the amount of the projected kicker could change, given that Oregon tax filings just closed on Monday, May 17, a month later than usual because of the pandemic. It would not be the largest since the kicker was created in 1979 and put into the Oregon Constitution in 2000; $1.7 billion was rebated in 2019, just before Oregon's economy took a sharp nosedive.
When tax collections exceed forecasts by 2% in the two-year budget, the entire amount is rebated to taxpayers in the form of credits against taxes owed in the following year.
Unlike the Great Recession between 2007 and 2010, Oregon had built up general and education budget reserves, plus a big ending balance, that cushioned the latest downturn. They will be at $4.2 billion at the close of the current budget period June 30, but drop to $2.2 billion — slightly under 10% — in 2021-23.
"I would implore that having savings going forward is a must," McMullen, who has held his position for nine years, said.
Link to Oregon Office of Economic Analysis slide presentation of May economic and revenue forecast:
Link to Oregon Office of Economic Analysis web page:
NOTE:Adds reactions below.
Reactions to forecast
Reactions to the quarterly economic and revenue forecast presented May 19:
Gov. Kate Brown
"Today's revenue forecast reaffirms that Oregon's outlook for rapid economic recovery from the COVID-19 pandemic and last year's historic wildfires remains strong. With solid state revenues expected over the next three biennia, coupled with historical federal investments from the American Rescue Plan and the American Jobs Plan, we have a tremendous opportunity for transformational change.
"Our anticipated state revenues will allow us to fully fund our state agency base budgets; make investments prioritized by the Racial Justice Council; move forward with a $9.3 billion school budget; fully fund the Student Success Act; and ensure no one is kicked off the Oregon Health Plan, among other things. These investments will help Oregonians recover from the COVID-19 pandemic and move Oregon toward a future where equity is realized and all are equal.
"As we near the end of the legislative session, I am urging the Legislature to pass a budget that reflects these investments — a budget Oregon can be proud of and that will continue moving us forward — while at the same time reserving additional General Fund dollars. With a strong ending fund balance, we will be able to leverage those state dollars with the additional federal resources that are coming our way, setting us up for tremendous possibilities to help Oregon's families and businesses continue to recover.
"And as we recover, we must work to create a more just and equitable Oregon, supporting the communities that have been disproportionately impacted. By rooting our recovery efforts in racial equity, we can support economic growth for all of Oregon's communities."
House Speaker Tina Kotek, D-Portland
"Today's forecast is stunning. A year ago, the world was in a free fall. Oregon's decisions and investments in the face of converging crises have started an incredibly strong recovery.
"While Oregon's economy is experiencing its strongest growth in decades, we must remember that too many Oregonians are struggling to pay rent or put food on the table. The Legislature must seize this opportunity to deliver bold action and immediate relief for Oregon families. This forecast means we can make critical investments to recover from the COVID-19 pandemic, advance racial equity, and address our housing and behavioral health needs.
"We must also recognize that the extended tax filing deadline and delayed information on the federal relief funds have created significant budget uncertainty. As we balance the state budget, we must maintain strong reserves to ensure we can adjust as needed."
House Republican Leader Christine Drazan of Canby
"This historic revenue forecast is propped up by massive federal infusions that buoyed Oregon's economy through the impacts of COVID-19. This windfall won't last forever. It's important to commit funds to reserves now along with targeted investments, rather than creating ongoing spending promises we can't fulfill.
"Oregon has the opportunity for one-time spending on wildfire relief and pandemic aid. We should also fully fund schools next year when they need help most. Our kids' education recovery is critical, and we must give families the choice to return to classrooms full time. Our state cannot afford to underfund students.
"Republicans will be pushing for these investments as we work to balance the budget with healthy reserves while limiting financial burdens caused by unnecessary new taxes or raiding the kicker."
Senate President Peter Courtney, D-Salem
"This is unbelievable. In all my years at the Oregon Legislature, I have never seen a forecast like this. Oregon's economy is clearly one of the most stable in the country. We have what we need to deal with the damage caused by the great fire and the pandemic. If we join our hands and arms, we can really do something about the pain and suffering of Oregonians right now. If we don't, we have no one to blame but ourselves."
Senate Republican Leader Fred Girod of Lyons
"Money is coming out of our ears. This one-time dump of federal money needs to be used responsibly. We must first ensure taxpayers get their full kicker. That money belongs to them, and there is no justification to take it from them.
"This money should be directed to Oregonians' most pressing needs. We must fully fund and fully reopen our schools, invest in our workforce, and assist in wildfire recovery efforts."
Senate Republicans are proposing the following allocations:
• Fund and fully reopen Oregon K-12 schools with the school districts' recommended budget of $9.6 billion.
• Get our economy back on track by investing $100 million into workforce development and career and technical education programs at our community colleges.
• Assist fire devastated communities by allocating $800 million to recovery efforts.
Alejandro Queral, executive director, Oregon Center for Public Policy
"Today's Oregon economic and revenue forecast leaves little doubt that the "kicker" — an unplanned tax rebate favoring Oregon's richest taxpayers — is on its way. The Oregon Center for Public Policy estimates that, if revenue collections come in as predicted, the richest 1 percent of Oregonians (with an average income of about $1.1 million) will get a kicker payment of about $12,856. Meanwhile, the typical Oregonian, who makes about $39,000, will get a kicker worth about $312.
"While the kicker has long failed to serve the interests of Oregonians, the lingering effects of the pandemic make the injustice of this policy more acute. The COVID-19 crisis has exacerbated the already extreme levels of economic inequality. The rich have seen their fortunes swell, while many low-paid workers have seen their jobs vanish.
"Handing a big, fat check to the already rich — as the kicker law is on course to do — serves no defensible purpose. It won't stimulate the economy, because the rich already have plenty of money to spend. It won't increase the economic security of Oregonians, because the rich are already secure. Instead, the kicker will worsen economic inequality.
"Oregon lawmakers must act in the best interest of Oregonians. They should suspend the kicker and either: (1) invest the resources to help low-income Oregonians afford child care, housing, or other necessities; or (2) reissue the kicker in equal amounts to all low- and middle-income Oregonians — an approach that would result in much bigger, more meaningful tax rebates for those who need them. As a one-time fix for the kicker, such reforms would also allow Oregonians to consider a new approach to Oregon's oddball kicker law.
"This is not the time for being passive in the face of failed public policies. The Oregon Legislature should be bold and use this opportunity to lay the groundwork for permanent kicker reform."
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