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Politics & Government

Oregon economists say state lawmakers have an additional $800 million to spend

Oregon State Capitol building, May 18, 2021. The capitol was completed in 1938.
Kristyna Wentz-Graff
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Oregon State Capitol building, May 18, 2021. The capitol was completed in 1938.

In what has practically become a ritual, the latest quarterly revenue forecast for Oregon shows tax receipts are exceeding expectations. That likely means more money coming back to taxpayers.

Oregon lawmakers rushing through a month-long legislative session now have nearly $800 million more to spend than expected, following another bullish revenue forecast.

In what has practically become a ritual, state economists told lawmakers Wednesday morning that, once again, income and business tax revenues are expected to far outstrip what they predicted just three months before.

Corporate tax revenues have continued to surge, as businesses have raised prices amid supply shortages and found consumers prepared to pay more, economists said. Projections for the 2021-23 budget cycle are now $384 million higher than the last forecast in November, a 24% increase that could see corporate receipts nearing $2 billion.

Income taxes are also up, driven by wage increases that have aided Oregonians at every end of the economic spectrum, but are especially benefiting the wealthy. The new personal income tax forecast is up $229 million, a roughly 1% increase. Total personal income tax revenues are expected to total $21.4 billion for the biennium.

Other sources of revenue, like estate taxes and lottery receipts, have also exceeded expectations.

In pure fiscal terms, the surging revenues mean the state is expected to take in $2.7 billion more during the current two-year budget cycle than economists expected at the cycle’s outset in July 2021, a nearly 10% jump.

That amounts to more money for legislative priorities, but also for taxpayers. The state is now projected to send $964 million back to tax filers in 2024 as part of the state’s unique “kicker” law. The policy refunds taxpayers whenever personal income tax revenues come in at least 2% above initial projections during a two-year budget cycle. A similar law relating to corporate tax receipts is expected to send an additional $634 million to a fund for state schools.

The outlook in future budgets is even more bullish, as economists expect higher wages to juice revenues in excess of a billion dollars higher in the 2025-27, 2027-29 and 2029-31 budget cycles.

But in practical terms, the sunny outlook is not entirely good news. A piece of the surging forecast has to do with the spiking inflation that has helped business receipts, but ensured that every dollar in Oregonians’ bank accounts stretches less far than it used to. Even though Oregonians are making more, and so sending more money to the state, Oregon state economist Mark McMullen noted that “the vast majority of that is getting eaten up in terms of price increases.”

Prices for goods in December had increased 7% over the year before, the highest-such jump in four decades.

McMullen and another state economist, Josh Lehner, warned that the positive economic trajectory could be hampered in coming years not only by inflation, but also by an ongoing housing supply shortage and people slow to return to the workforce.

The forecast comes as state lawmakers are sprinting through a one-month short session, where they were already expected to spend heavily. Now they theoretically have more cash at their disposal.

“Nice to have more money, and sometimes bad to have more money,” state Sen. Lee Beyer, a Springfield Democrat and chair of the Senate Finance and Revenue Committee, said in Wednesday’s hearing. “The appetite for expenditures grows, and the real trick… is to use that money wisely on one-time expenses.”

Legislative leaders said prior to the session they had roughly $2 billion they could spend on priorities like affordable housing, increasing child care options and bolstering the pay of people working in mental health– though they also called for socking money away into the state’s reserve accounts.

A central piece of Gov. Kate Brown’s agenda would put $200 million toward helping prepare people for jobs in construction, manufacturing or health care. Democrats believe such efforts will be key to helping Oregon add back roughly 54,000 jobs that have yet to return, as workers are slow to return to the labor force following the onset of COVID-19.

Democrats reacted to the budget forecast by calling for increased spending. Brown said the revenue outlook pointed to “a pivotal moment for Oregon.”

“We have a windfall of one-time resources this year, and we have the opportunity to make big investments—and to do the big and bold work to help our working families and businesses thrive,” she said in a statement. “We cannot miss this moment.”

House Speaker Dan Rayfield, D-Corvallis, said in a statement he would prioritize new money for areas like schools, job training, housing and behavioral health services. House Majority Leader Julie Fahey, D-Eugene, largely echoed those priorities.

“Right now we have the means and the vision to help Oregonians and tackle some of our state’s biggest challenges,” Fahey said in a statement.

Republicans, meanwhile, emphasized a spike in violent crime and illegal marijuana grow operations causing major issues in southern Oregon.

Senate Majority Leader Tim Knopp, R-Bend, said some of the excess money should be used in support of his $60 million proposal to bolster state police resources. “Crime is on the rise,” Knopp said. “We must invest in public safety.” He accused Democrats of pushing policies, such as a proposal to expand compassionate medical releases, that could allow people out of prison, and referred to controversial commutations by Gov. Kate Brown.

Republicans also called for spending millions on forest thinning to prevent wildfires.

As usual, the most direct statement on the forecast came from Senate President Peter Courtney, D-Salem, who led off a call to invest in housing, schools and police training with a simple sentiment.

“Wow,” Courtney said. “That is a lot of money.”