Oregon sees huge windfall in tax revenue

May 15, 2019 GMT

SALEM, Ore. (AP) — As Oregon continues to rake in historic amounts of revenue, state economists warned Wednesday that budgeters should plan wisely as a recession could be over the horizon.

The state will take in nearly $870 million more than what was initially forecasted just three months ago, according to May revenue forecast. That gives lawmakers over $22 billion for the next two-year budget cycle.

Mark McMullen, a state economist with the Office of Economic Analysis, called the extra revenue a “truly seismic event.”

Tax changes on the federal level, said McMullen, spurred extra revenue in states across the country, which led to more tax revenue for states and smaller refunds for individual taxpayers.


But he stressed lawmakers shouldn’t expect to rely on this historic amount of growth in the future.

“The tax filing season was really remarkable,” said McMullen. “The puzzle becomes how much of this will become permanent. We know it all isn’t sustainable.”

The unexpected revenue, which has been a “global phenomenon” according to McMullen, will only be temporary. Personal income has actually gone down by 1 percent, and experts suggest the economy will continue to slow as Baby Boomers continue to age out of the workforce.

Gov. Kate Brown appeared cautiously optimistic with the forecast, suggesting saving some of the funds while spreading the rest across some of the Democrats’ biggest priorities this session including housing, higher education, foster care and paying down the state’s $25 billion pension debt.

“Today’s revenue forecast shows a windfall that presents a unique opportunity to protect Oregon’s future,” said Brown in a statement.

Legislative leaders were more hesitant, suggesting most of the money be invested in the state’s rainy day fund to prepare for an economic downturn. They’ve already suggested a tight budget, calling for 5% cuts across nearly all state programs.

“We need to approach these unexpected resources prudently,” said House Speaker Tina Kotek. “Any use of one-time funds should be focused on areas of significant need, such as housing and pension debts.”

Some of that revenue will have to be returned to the taxpayers, thanks to the state’s unique “two percent kicker” law, which refunds excess revenue when the state’s coffers are more than 2 percent higher than forecasted.

This year’s kicker is expected to be the largest in state history at $1.4 billion, though $108 million of that will be redirected to pay for education thanks to a law recently signed by the governor.

State economists suggest the median taxpayer rebate to be around $330, which comes in the form of a tax credit. The top 1% of income earners will receive a $14,000 tax credit.

While the kicker dampens some of the state’s growth, economists said Oregon’s still in good shape and has enough reserve funds to provide a comfortable cushion should a recession hit.