By PETER WONG/Oregon Capital Bureau
For Oregon’s state budget, and for Oregon taxpayers, it appears everything’s coming up roses these days.
An economic surge as the coronavirus pandemic wanes will produce $1 billion more for state coffers than state economists projected just three months ago. That will be enough to boost state spending, without cuts, as lawmakers finish work on the state budget for the next two years.
Meanwhile, that surge will result in an estimated $1.4 billion — more than twice the amount projected back on Feb. 24 — going back to taxpayers next year in the form of “kicker” credits against their 2021 tax bills. The final figure will be determined in the September economic and revenue forecast, but the share of tax liability is projected at 13.6%.
For the average taxpayer with a household income of $67,400, the credit will be $636. For the median with household income between $35,000 and $40,000 — half are above and half below that range — the credit will be $312.
“I have never seen such a strong outlook,” State Economist Mark McMullen told members of the House and Senate revenue committees during his quarterly forecast on Wednesday.
“There are a whole lot more resources available than when we last reported in March, and even more than we reported at the beginning of the session, when the budget was drafted. It’s quite a remarkable turnaround from a few months ago.
“When the pandemic hit, we saw these massive job losses that blew a $2 billion hole in the budget. That hole was filled by the March forecast (on Feb. 24), and now we are past where we thought we would be even pre-pandemic.”
Gov. Kate Brown proposed $25.6 billion in spending from the tax-supported general fund and lottery proceeds, the state’s two most flexible sources, back on Dec. 1. Legislative budget writers, bolstered by $2.6 billion in federal aid from President Joe Biden’s pandemic recovery plan, unveiled a framework for almost $28 billion in spending on March 24.
Brown said in a statement that the latest forecast, coupled with projections for the following two budget cycles, sets the stage for a better Oregon:
“Our anticipated state revenues will allow us to fully fund our state agency base budgets, make investments prioritized by the Racial Justice Council, move forward with a $9.3 billion school budget, fully fund the Student Success Act, and ensure no one is kicked off the Oregon Health Plan, among other things.
“These investments will help Oregonians recover from the COVID-19 pandemic and move Oregon toward a future where equity is realized and all are equal.”
Some Democrats want to spend more; Republicans say spending should focus on one-time purposes. Budget writers have already proposed to save some of the federal aid for the 2023-25 budget period.
Senior economist Josh Lehner said what has helped prop up the economy in Oregon and other states is the massive federal spending during the pandemic, including payments to individuals and businesses. Biden’s plan gave $1,400 payments to an estimated 95% of Oregonians.
“It has been unprecedented outside of wartime,” Lehner said. “It has allowed households and firms to keep their heads above water. It does not mean that some people haven’t fallen through the cracks — they have — and some businesses have closed.”
McMullen said economists have not seen the steep downturn triggered by the onset of the pandemic — Oregon’s unemployment rate went from a modern-low 3.5% in March 2020 to a modern-high 13.2% the following month — and the equally speedy recovery. The April 2021 rate was 6%; it has hovered around that mark for a few months.
McMullen said he still projects it will be the fourth quarter of 2022 before Oregon returns to its pre-pandemic employment levels, still shorter than the seven years following downturns in 1980 and 2007.
“Obviously, a lot of things can happen in two years,” he said. “But right now we are on a pretty strong footing. The consensus (of economists) ranges from good to great.”
McMullen said the amount of the projected kicker could change, given that Oregon tax filings just closed on Monday, May 17, a month later than usual because of the pandemic. It would not be the largest since the kicker was created in 1979 and put into the Oregon Constitution in 2000; $1.1 billion was rebated in 2007 and $1.7 billion in 2019, both just before Oregon’s economy took sharp nosedives.
Unlike the Great Recession between 2007 and 2010, Oregon had built up general and education budget reserves, plus a big ending balance, that cushioned the latest downturn. They will be at $4.2 billion at the close of the current budget period June 30, but drop to $2.2 billion — slightly under 10% — in 2021-23.
“I would implore that savings going forward is a must,” McMullen said.