PORTLAND — Oregon is on track to bring in an additional $1 billion in tax revenues this budget cycle and could pay out a “kicker” tax rebate of up to $1.4 billion, state economists told lawmakers Wednesday afternoon.
It’s a dramatic rebound from the down forecast one year ago and state leaders described the news in shocked and colorful terms.
“Today’s forecast is stunning,” House Speaker Tina Kotek, D-Portland, said in a press release. “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.”
Senate Republicans proclaimed in a press release that “Oregon is swimming in money.” Senate President Peter Courtney described the forecast as “unbelievable.”
Federal aid that poured into Oregon in the form of higher-than-usual unemployment benefits for almost anyone out of a job due to the pandemic, even if they weren’t seeking other work, and assistance for renters, business owners, health care providers and other groups helped lead to the strong economic performance and mammoth taxes projected to pour in from individuals and corporations.
With just six weeks left in the two-year budget cycle that ends in June, lawmakers aren’t expected to spend more than a trickle of the unanticipated $1 billion in the current budget, which is already about $24 billion. So that money will be there to cushion the next state budget from the huge tax write-offs the kicker will provide during that period.
Additionally, economists Mark McMullen and Josh Lehner predicted the state will reap an additional $1 billion more than previously expected in every biennium through 2027.
McMullen noted there is a lot riding on the accuracy of state economists’ revenue estimates for the next two years, because the state’s unique kicker rebate is triggered when tax revenues for a biennium come in more than 2% above economists’ forecast from the start of the cycle. The state must return the full amount above the forecast to taxpayers. He cautioned lawmakers against blowing all the anticipated cash, in case actual revenues turn out to be lower.
“We really have to stick our necks out with an aggressive forecast or we risk giving away the mother of all kickers,” McMullen said. “While this is great for budget-writers, I really implore them that savings going forward is a must.”
Budget writers have until June 27 to wrap up that spending plan and all other legislative business. They already had $2.6 billion from the latest federal aide package to allocate as well.
In press releases, Gov. Kate Brown and Democratic and Republican legislative leaders all spoke about the importance of focusing on one-time spending items rather than establishing new, ongoing commitments and they acknowledged the uncertainty around future revenues. “We must also recognize that the extended tax-filing deadline and delayed information on the federal relief funds have created significant budget uncertainty,” Kotek said. “As we balance the state budget, we must maintain strong reserves to ensure we can adjust as needed.”
House and Senate Republican leaders proposed shortlists of one-time expenditures, including bumping the state school fund up to $9.6 billion — $600 million more than legislative budget analysts said is necessary to maintain the status quo — to help fully reopen all schools for in-person classes in the fall.
“Our kids’ education recovery is critical, and we must give families the choice to return to classrooms full-time,” House Republican Leader Christine Drazan of Canby said. “Our state cannot afford to underfund students.”
The governor, who recently tussled with legislative leaders over the size of the largely unrestricted state school fund for 2021-2023, said the Legislature should use the additional revenue to fund it at $9.3 million and also fully fund the 2019 Student Success Act which is more focused on educational equity. Brown said lawmakers should also prioritize spending on programs prioritized by her Racial Justice Council and make sure no one is kicked off the state’s Medicaid plan, which has suspended periodic eligibility checks due to the pandemic.
“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,” Brown said.
Courtney said the additional $1 billion will make it more difficult to wrap up the session, because of all the interest groups that will demand more funding. “With the amount of money we’ve got, the expectations are somewhere in the vicinity of Pluto,” Courtney said.
Oregon taxpayers would receive their share of the kicker as a credit against their 2021 taxes when they file next spring. The size of the rebate would be based on how much tax they paid the state when they filed their 2020 taxes this year. For people whose earnings are within the state’s median adjusted gross income range of $35,000 to $40,000, they would receive a $312 rebate. The top 1% of earners with about $442,000 in income could receive rebates of $12,000.
Rep. Khanh Pham, a Democrat from Portland, said the estimates of rebate sizes by income level illustrated why the rebate, which is enshrined in the state’s constitution, should be reformed or eliminated. The kicker “is just so unequal, so inequitable,” Pham said.
The state’s largest business lobbying group, Oregon Business & Industry, seized on the good economic news to call for lawmakers to end any discussion of raising taxes by scaling back or eliminating breaks this session.
“Lawmakers should immediately close the books on discussions of tax increases in any form,” Oregon Business & Industry president Sandra McDonough wrote in a statement.
Democrats had expressed interest in repealing Oregon’s copycat versions of new federal tax breaks created in 2020, including one that overwhelmingly benefits just the top 1% of earners and another that only applies to businesses with at least $25 million in annual revenue. Some also wanted to eliminate a tax break copied from federal code that allows businesses that received federal Paycheck Protection Program grants to reduce their tax bills by writing off their expenditures of taxpayer money. The momentum to eliminate those breaks fizzled amid repeated positive revenue forecasts, even though those forecasts showed many businesses — with exceptions such as the hospitality industry — rebounded quickly or did well during the pandemic.
