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Oregon's Economy Keeps Booming, But Economists Predict A Slow Down

<p>The Oregon Capitol in Salem. As lawmakers continue to debate whether to change how the state taxes businesses, some public employee unions say they'll take the question to voters again.</p>

Bradley W. Parks

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The Oregon Capitol in Salem. As lawmakers continue to debate whether to change how the state taxes businesses, some public employee unions say they'll take the question to voters again.

Oregon’s economic picture keeps getting sunnier, but state forecasters are warning of impending cloudy days.

In the latest forecast of state revenue, released Wednesday, government economists say they now expect state coffers will rake in more than $166 million more this biennium than they estimated just three months ago. That includes payments from taxes and the Oregon Lottery.

State economists now anticipate almost $78 million more from personal income taxes than in June, and $11 million more in corporate income taxes. And because of the deaths of a number of extremely wealthy individuals, the state also expects to generate more than $50 million more in estate taxes.

In all, economists say the state may take in more than $1 billion more than they estimated at the close of last year’s legislative session. Assuming those estimates hold — or don’t dramatically drop — much of this money is headed back to taxpayers.

Under the most recent forecast, the state expects $686 million will make its way back to taxpayers in the form of “kicker” payments. A unique Oregon law refunds taxes that come in at least 2 percent above initial estimates. In June, economists projected taxpayers would receive a $555 million kicker. Payments are delivered in the form of tax credits.

The $686 million payout would be the second-largest kicker payment in Oregon’s history, but economists were quick to note that, because of the state’s growing economy, its share of overall taxes is relatively common.

“It’s really on par with what maybe our typical kicker size would be,” state senior economist Josh Lehner said in a presentation to legislators.

Oregon has issued kicker refunds in its last two budget cycles.

Combined with ongoing job and wage growth, the current economic picture offered by Lehner and state economist Mark McMullen was upbeat. But the two men also warn of difficulties ahead.

McMullen said that in 2020, a variety of factors may converge to act as a powerful drag on the state’s economy. Those factors include a planned reduction in federal spending, rising interest rates and lingering effects of federal tax policy.

“We’re going to slow down,” McMullen said. “Everything seems to be landing here in this 2020 period.”

Even so, the latest projections anticipate the state’s total revenue will increase nearly 5 percent in the next biennium, which runs from 2019 to 2021. McMullen called that “as low as we ever see in Oregon,” though revenue plummeted during the great recession.

In the short term, Lehner noted, ongoing trade disputes between the U.S. and other nations could prove difficult for Oregon manufacturers — particularly computer and electronics firms, and food and beverage companies.

Wednesday’s news also held a bright spot for teachers, parents and students in Oregon. Because tax receipts are expected to overshoot estimates, more than $200 million in corporate taxes are expected to go to K-12 public education. That money would have gone back to corporate taxpayers until voters dismantled the state’s corporate kicker law in 2012.

Spending on schools is a perennial problem in Oregon, which trails much of the country in its high school graduation rate. How to fund schools has been a signature issue in this year’s race for governor, with Gov. Kate Brown and her Republican challenger, state Rep. Knute Buehler, both proposing spending increases.

Copyright 2018 Oregon Public Broadcasting

Dirk VanderHart is JPR's Salem correspondent reporting from the Oregon State Capitol. His reporting is funded through a collaboration between public radio stations around the Northwest called the Northwest News Network.