Oregon lawmakers will have a little more available for spending in the current two-year budget, but in an otherwise unremarkable forecast from state economists, most of the growth will come from unspent money in the previous budget.
Projected personal and corporate income tax collections — which account for most of the state’s general-fund budget — “are tracking along our expectations,” State Economist Mark McMullen told lawmakers on the revenue committees on Wednesday, Feb. 7.
He and senior economist Josh Lehner presented the state’s quarterly economic and revenue forecast, which is the only one scheduled before lawmakers close their 35-day session no later than March 10.
Legislators will base their mid-term budget decisions on that forecast — and the amount is far short of long spending wish lists already presented to the joint budget committee.
The current two-year budget from the tax-supported general fund and Oregon Lottery proceeds — the two most flexible sources for spending — is about $32 billion. State government spends far more, but most of the rest comes from federal grants and restricted sources, such as vehicle and licensing fees that are reserved for highway and bridge work.
Since lawmakers completed that budget last June, the three subsequent forecasts (counting the latest one) have projected up to $1.2 billion more that may be available. Projected collections in personal and corporate income taxes accounted for more than half that gain.
The latest forecast accounts for a gain of $558 million.
But McMullen said virtually all of that gain ($473 million) will come from money left unspent from the 2021-23 budget, the books for which closed on Dec. 31. The unspent money reverts to the general fund, where legislators can spend it.
There is a record $5.6 billion in excess personal income tax collections, known as the kicker, that will be rebated to taxpayers in the form of credits against 2023 tax returns due April 15. This money is not available for state spending. The amount was determined after the close of the 2021-23 budget cycle.
Spending demands
Gov. Tina Kotek has an ambitious proposal (in Senate Bill 1537) to jump-start housing production with $500 million in one-time funds already in the budget. She has requested another $100 million in the budget for continued state support of regional efforts to maintain shelter beds, add to emergency rental assistance, and avert homelessness.
Her statement after the forecast was released:
“Oregon’s economy continues to stabilize. Now, we need to keep our economy moving in the right direction. It’s harder than ever for Oregonians to afford to live here, which is why we must take bold action on affordable housing. I look forward to working with legislators this session to make progress for Oregonians.”
There are other pending requests, such as $78 million for Employment-Related Day Care, which has a waiting list for families. Advocates want more, and legislative budget writers have been swamped with 200 requests for spending, excluding a list of infrastructure projects submitted by the League of Oregon Cities. The amounts had not been tallied at the start of the session.
On the session’s opening day on Monday, Feb. 5, Sen. Elizabeth Steiner, a Democrat from Portland and co-leader of the Legislature’s joint budget panel, said lawmakers will fulfill some of the most urgent requests. But she added: “There is never as much money as people think there is.”
Budget changes will be contained in a single reconciliation measure at the close of the session. The two-year cycle closes June 30, 2025.
Steiner said she wants to maintain the transfer of 1% of the budget’s ending balance to the state’s general reserve, known as the rainy-day fund, which is required by law. She also said an additional amount should be reserved for the full two-year cost of new programs started in this budget cycle.
Outlook ‘hasn’t changed’
As for the underlying economic factors behind the forecast, McMullen said “the outlook hasn’t changed very much.”
Though Oregon employment is near a record high — and the statewide unemployment rate remains at near-record lows — McMullen said the rate of income taxes withheld from wages is coming down even as the labor market remains tight. The state forecast does not foresee an economic downturn in the near future — a lingering concern when the Federal Reserve raised borrowing costs in an attempt to dampen demand and fight inflation, which has fallen from its peak in 2022.
Lehner said it does not affect the current forecast, but a slowdown or decline in Oregon’s population growth will have implications on future revenue forecasts. For 2022 and 2023, population estimates from Portland State University still indicate growth — though at lower rates than in the past four decades — but statewide estimates from the U.S. Census Bureau indicate actual declines. The comparisons are not exact; the Census Bureau is scheduled to release localized data in March.
The economists have trimmed their outlook for revenue growth later this decade.
Lehner and McMullen presented a more detailed look at the implications of slow or no population growth during a Nov. 15 meeting of the revenue committees.
Lehner wrote in a blog post, “The modest reduction in expected population and job gains reflected in the underlying economic outlook filters through to a somewhat weaker long-term forecast for personal income taxes. That said, these changes do not change the general nature of the revenue forecast.”
pwong@pamplinmedia.com
Reactions to the state economic and revenue forecast presented Wednesday, Feb. 7, will be posted separately.
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