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No reason to celebrate a $200-million-higher forecast Print E-mail

by Kent Hunsaker, Executive Directorkent-hunsaker

You would think that if you just returned from a quarterly report on the state’s revenue forecast that projected a positive change of $199 million in General Fund (GF) Revenue and another $39.6 million in lottery revenue, it would be cause for great celebration. Well, I just returned at lunchtime today.  And I’m not celebrating.

Here’s why. Oregon’s tax policy requires general fund revenues to be returned to taxpayers if the revenues exceed 2 percent of the projection for the biennium (a policy commonly known as the “2 percent kicker”). What that means today is that the additional $199 million in general fund revenue will be returned to both corporate and personal income tax payers, rather than used to provide greater stability for state government, for example. The total estimated rebate to these taxpayers after this forecast now stands at a whopping $1.28 billion – with a capital “B!!”

Some $1.043 billion will be returned to personal income tax payers resulting in a median refund of $263 and an average refund of $605. It represents a reduction of 20.6 percent of the personal income tax liability in 2006. The corporate kicker credit is projected to be $238 million and represents a reduction of 61.3 percent of the 2007 corporate tax liability.

While this money is being returned to taxpayers, Oregon has still not figured how to adopt tax policy that would protect government services from the next downturn in the economy, which may be just around the corner, according to the economists who gave the economic forecast report. Much of today’s additional state revenue can be attributed to the housing and construction industries in Oregon. The economists predict a cooling of this section of the economy due to the high price of housing and the increase in interest rates.

The forecast for the 2007-09 biennium is also up by $154 million from the June 2006 forecast ($99.2 million in the general fund and $54.7 million from the lottery). This brings the total revenue increase for 2007-09 to only 6.5 percent above the 05-07 biennium due to the kicker rebate, which will be distributed in December 2007. (View the September 2006 Economic Forecast.)

The economists provided the following list of risk factors as we look forward to future revenue forecasts:

  1. A large downturn or collapse of the housing market

  2. Continued increases in energy costs

  3. An outbreak of avian flu which could lead to widespread employee absenteeism and high medical costs

  4. Passage of initiatives (Measure 48 and/or Measure 41) which would drastically reduce government and cool the economy

  5. Geopolitical risks

  6. High inflation

  7. Stock Market correction

If you have questions or comments about the forecast, please don’t hesitate to submit them below.

Comments (2)Add Comment
Kent is Correct
written by Chuck Sheketoff, Executive Dir, September 01, 2006
Those who are celebrating that Oregon is sending the money back and not saving for the inevitable rainy day are fiscally irresponsibble. Add to that the fact that Income Tax Kickers Disproportionately Benefit Multistate Corporations and Wealthy Oregonians

, and you realize why no other state squanders unanticipated revenues like Oregon does. The corporate kicker only exacerbates The Great Corporate Tax Shift

and the personal kicker gives voters misinformation about Oregon's fiscal condition.

As Oregon painfully learned in the 2001-03 budget period, business cycles happen. It makes no sense not to save unanticipated revenues - from both the personal and the corporate kicker - for the inevitable downturn and for investments for a brighter future for Oregon.
Assistant Superintendent, Astoria School
written by Marilyn Lane, September 05, 2006
I just spent the week-end with my sister-in-law who lives in Colorado. She commented that the TABOR inititative had helped tighten up some government budgets. I asked if Colorado had a state tax limitation measure that limited how much local voters could spend on their schools. She said, "No." I should have asked if Colorado had a kicker in addition to TABOR. I know the answer. I assured her that in Oregon we have already tightened up every possible budget in state government. I hope we can make the point about the tax limitations already in place to help voters understand how devastating another one (the TABOR) will be to us in Oregon.

Thanks to Kent for your clear explanation of the kicker. We all need to have this information as we talk to voters in the upcoming two months. And of course, I am counting on all of you who live in the valley to work extra hard on behalf of all Oregonians. The rural voters did not pass Ballot Measure 5, nor are there many rural corporations to benefit from the kicker refunds. I'd bet the individual kicker refunds are well below the mean.

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This page was last updated on Thursday, August 31, 2006 .