Oregon economic forecast: More money for Legislature to spend, bigger ‘kicker’ tax rebate

State tax collections continue to surpass economists’ predictions, giving lawmakers more wiggle room as they craft the next two-year budget and Oregonians more money back when they pay taxes next year. 

That’s the topline from the state’s latest quarterly revenue forecast, released Wednesday morning, which showed the state collected nearly $2 billion more than expected in taxes, including about $1.5 billion more than anticipated in personal income taxes.

“Available resources are up sharply, not just today, but in the future,” state economist Mark McMullen told legislators. 

Oregonians will receive $5.5 billion back on their taxes next year because of the state’s “kicker” rebate, which kicks in when revenues collected exceed official projections. Higher-income Oregonians who pay more in taxes receive more money back. 

State economists haven’t yet calculated what the higher estimated kicker means for taxpayers. In March, when the total kicker was estimated at $3.9 billion, they predicted the typical taxpayer would receive about $790 back, while the top 1% of taxpayers would receive more than $42,000 back. With the kicker at $5.5 billion, rebates will increase for all taxpayers. 

And lawmakers will be able to spend hundreds of millions of dollars more than they anticipated when legislative budget writers laid out a $31.6 billion framework that called for trimming agency spending in March. 

Advocacy groups, legislators and Gov. Tina Kotek quickly weighed in on how to spend the additional money, with Kotek and fellow Democrats urging more spending on housing, health care and education and Republicans calling for tax cuts. 

Kotek reiterates priorities

Kotek reiterated her calls for the budget to include $316 million for homelessness prevention, $280 million for behavioral health and $120 million for a literacy initiative. With the additional money, she’s also seeking:

  • $64 million for water quality and infrastructure issues, especially in rural areas. Earlier this month, she visited Morrow County and spoke with residents who have health issues linked to unsafe levels of nitrates in their drinking water. 
  • $207 million for fighting and preventing wildfires.
  • $6.3 million for more spots at the Department of Public Safety Standard and Training so more police officers can complete training and get to work in communities. 
  • $6.7 million to address a backlog on the state’s sex offender registry. A law passed nearly a decade ago requires the Oregon Board of Parole to assess the risk that each registered sex offender poses to determine who should remain on the registry and who needs to be notified about offenders in the neighborhood, but the board has been slow to get through assessments. 

Overall, Kotek said, lawmakers should remain focused on maintaining existing spending on state programs and funding for top priorities, including homelessness and behavioral health.

“If we’re going to do a few new things, let’s make sure they’re very targeted, like early literacy with very specific goals in mind because that’s how you build for the future,” Kotek told reporters after the forecast. “This should not be a spending spree on new ideas.”

House Speaker Dan Rayfield, D-Corvallis, struck a similar note in his own statement responding to the forecast. 

“We have to stay focused on a budget that maintains existing services, and invests in housing, health care, good-paying jobs, and education, while, at the same time, setting ourselves up well for future needs,” Rayfield said “I look forward to continuing our work to finalize a budget that responds to the priorities Oregonians sent us here to deliver on.”

House Republican Leader Vikki Breese-Iverson of Prineville used the forecast to criticize the corporate activity tax on gross business receipts, which functions as a hidden sales tax passed on to consumers.

“It should be no surprise that the revenue derived from Oregon’s Corporate Activity Tax is up, which also means Oregonians are paying more for everything as a result,” she said. “Oregon is effectively incentivizing businesses not to come here, while family businesses are shutting down because the cost of doing business is simply too great.”

No tax cuts planned

While lawmakers are considering targeted tax breaks for semiconductor manufacturers this year, wide scale tax cuts aren’t on the table. Kotek and Democratic leaders in the House and Senate also aren’t pursuing changes to the state’s kicker rebate advocated by progressive groups that would spend extra money on state programs instead of returning it to taxpayers. 

When lawmakers can start passing budget bills is an open question. Wednesday was the 12th day of a Senate Republican walkout, with no indications that Republicans will return to allow the Senate to start passing bills again. 

In a statement after the revenue forecast, Senate Minority Leader Tim Knopp, R-Bend, said Republicans will return to pass “bipartisan” budget bills – but only if Democrats abandon their own priorities. 

“Senate Democrats must come to the table in good faith, abandon their uncompromising, unlawful, unconstitutional agenda, and allow us to participate in floor sessions,” Knopp said. “Senate Republicans have been clear that we are willing to pass substantially bipartisan budgets and bills that comply with the law.”

Senate President Rob Wagner, D-Lake Oswego, repeated calls for Republicans to return to the Senate in his own statement.

“We have an incredible opportunity this session to fund access to health care, stronger public schools, job training and behavioral health treatment that will improve the lives of people all across Oregon,” he said. “It is critical all 30 state senators are here to have a say and vote on how we invest this money to the maximum benefit of Oregonians. Senate Republicans must return so we can seize this momentous opportunity.”

And Kotek told reporters she hasn’t completely ruled out the possibility of directing the Oregon State Police to round up senators if the walkout continues, though she doesn’t currently plan on doing so. 

“I’m not saying I wouldn’t,” she said. “I’m treating people with respect. Get back to work. I don’t need to chase you down. Get back to work.” 

If the walkout lasts through the end of the session, as it did in 2020, Kotek also could call lawmakers back in a special session to pass a budget. Although the current budget period ends June 30, state agencies can continue operating with no interruptions through Sept. 15 because of a continuing resolution that will continue current levels of funding if a budget isn’t passed in time. 

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Julia Shumway is deputy editor of Oregon Capital Chronicle and has reported on government and politics in Iowa and Nebraska, spent time at the Bend Bulletin and most recently was a legislative reporter for the Arizona Capitol Times in Phoenix. An award-winning journalist, Julia most recently reported on the tangled efforts to audit the presidential results in Arizona.