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Oregon's Revenue Picture Improves, Fueling Heightened Expectations For 2020 Session

<p>People gather on the steps of the Oregon Capitol in Salem for a rally for climate action on Feb. 11, 2020.</p>
<p>People gather on the steps of the Oregon Capitol in Salem for a rally for climate action on Feb. 11, 2020.</p>

Oregon’s budget picture keeps looking up, as lawmakers debate a host of expensive priorities during the legislative session.

Under a quarterly revenue forecast delivered by state economists Wednesday morning, the state is now expected to top $25 billion in the general fund and lottery revenue during the current budget biennium, which stretches from July 2019 to June 2021. The updated figure includes a $183.4 million increase in the general fund and lottery resources over what economists predicted in December, and nearly $675 million more than predicted last June.

Those increases were largely driven by higher-than-estimated personal income and estate tax collections.

The forecast marks only the latest dose of good news delivered by state economists, who have grown accustomed to sitting in front of lawmakers every three months to predict budgets that are cushier than originally expected.

“We have had a consistent pattern of every time we come in front of you saying, ‘More money, more money, more money,’” state economist Mark McMullen told lawmakers Wednesday.

Also revealed in the new outlook: The “kicker” refund that will flow out to taxpayers this year is greater than initially thought  about $1.7 billion instead of $1.6 billion.

The higher-than-expected forecasts, McMullen explained were because of a fact of the Oregon economy of late. Job growth, output and other economic indicators have slowed, tempering economists' expectations. But the taxes that fuel state revenues -- personal and corporate income taxes, the lottery, estate taxes, and other mechanisms -- have continued to surge.

As always, the tidings came with a warning: Oregon could see a slowdown in the future. Fears of an impending recession have been tempered somewhat as the trade war with China and lending markets have calmed, McMullen said.

But he cautioned that fallout from the coronavirus outbreak in China could have consequences for the state’s economy if it continues longer than expected. China is the world’s second-largest economy and the No. 1 market for Oregon exports.

McMullen also registered alarm at recent population estimates in Oregon, which have suggested the state is attracting fewer residents from out-of-state than predicted. That could hamper job growth, as companies cannot find employees.

“If we’re constrained by labor growth that’s a big deal,” McMullen said. “That cuts our job growth estimates potentially by a quarter to a third.”

Economists are awaiting more solid numbers from the 2020 census before building the phenomenon into the state’s forecasting, McMullen said.

The updated revenue picture comes as the Legislature considers a wide range of spending proposals in its legislative short session. Big-ticket items demanding lawmakers’ attention include wildfire preparedness, homeless shelters and affordable housing.

The chairs of the Legislature’s Ways and Means Committee, which has a huge influence over where state dollars flow, have also been clear they’ll prioritize plugging structural funding holes in state agencies like the Oregon Health Authority and Department of Forestry while socking away money against a possible recession. Prior to Wednesday's forecast, that philosophy had lawmakers contemplating a roughly $500 million pot for new spending this session.

As is typical, lawmakers wasted no time sending out statements reacting to the revenue picture.

House Speaker Tina Kotek, D-Portland, called the forecast “welcome news,” and announced she’d press for more money for homelessness services than she initially planned.

“In the midst of a statewide housing crisis, I think it’s essential we direct some of our ending fund balance toward helping individuals and families experiencing homelessness get access to shelter,” Kotek said in a statement. “I will be increasing my request for one-time dollars for serving unsheltered Oregonians from $40 million to $60 million.”

Similarly, Gov. Kate Brown used the forecast to press again for her priorities of wildfire and earthquake preparedness.

“Now is the time to make responsible investments—in priorities like wildfire mitigation and preparedness, earthquake resiliency, and shelter space and services to address homelessness—that will ensure future generations won’t have to shoulder the burdens of our inaction,” Brown said in a statement.

Republicans, meanwhile, continued to maintain that the state’s strong economic performance indicated Democrats should not have sought tax increases, such as a new tax on businesses passed last session to fund schools.

“We have nearly $650 million more funds in the budget than expected,” Senate Minority Leader Herman Baertschiger Jr., R-Grants Pass, said in a statement.”Why did Democrats burden taxpayers with over $1 billion in taxes with the gross receipts sales tax disguised as an education bill? The supermajority is determined to weaken our economy and will do everything they can to take taxpayer dollars to fund big government.”

Copyright 2020 Oregon Public Broadcasting