Unexpectedly positive budget news Oregon economists unveiled in September appears to be holding steady, a rare note of stability in a year where the state’s financial outlook has shifted wildly.
In a briefing Wednesday, lawmakers heard the latest thinking on how the state’s current and future budgets are likely to be impacted by the ongoing effects of the COVID-19 pandemic. The news was, refreshingly, not that newsy — state economist Mark McMullen said that general fund and lottery revenues have held steady, and are likely to grow modestly in coming years.
That growth won’t be enough to accommodate the rising costs of public services, meaning lawmakers might need to consider cuts when they take up the next two-year budget. Still, the forecast is a far cry from a dire assessment economists offered in May after the pandemic had just taken root.
Economists say lottery revenues, corporate excise taxes, capital gains taxes and income taxes from mid- and high-income earners are all playing a role in the economic growth. Notably, they’re now not ruling out revenues triggering a “kicker,” the unique part of Oregon tax law that refunds personal income taxes that come in 2% or more above initial projections.
“All major forms of revenue have bounced back, including labor-related income taxes,” said a forecast released by the state’s Office of Economic Analysis. “In fact, given the extraordinary growth, a personal income tax kicker for the current biennium is not out of the question, although it would take a big April 2021 tax season to get there.”
The new forecast comes with caveats. Economists stressed that it was based on assumptions that a treatment or vaccine for COVID-19 would be available by mid or late 2021, a timeline that appears achievable given recent developments.
The outlook also assumes that Congress will pass another aid package to help individuals and businesses impacted by the coronavirus, likely at some point next year. While state economist Josh Lehner said such a package would help people impacted by the pandemic, he said there was a debate about whether it was necessary for the state’s continued revenue growth, which has been largely driven by high-income earners and corporate taxes.
“The question isn’t whether a future package would be helpful … the question is whether a future package is necessary,” Lehner said.
That sentiment gave pause to some lawmakers, who noted that many lower-income Oregonians are struggling, regardless of what the big economic picture shows.
“I’m concerned about the disparities and the people at the bottom who are really struggling,” said state Rep. Alissa Keny-Guyer, D-Portland.
Oregon has already received roughly $1.4 billion in federal aid this year, aimed at shoring up expenses related to the pandemic and assisting those affected. Gov. Kate Brown and other elected officials in Oregon have repeatedly demanded that Congress pass another aid package to help stabilize people who are out of work and businesses struggling to stay afloat. With no such package seemingly coming this year, Oregon House Speaker Tina Kotek on Wednesday called on Brown to convene a special legislative session next month.
“We need to utilize some portion of the state’s reserves as soon as possible to help struggling Oregonians and small businesses through the winter months,” Kotek said in a statement. “I am particularly interested in seeing the state spend $100 million to keep Oregonians housed and stabilize the rental market as the pandemic continues into 2021.”
Brown’s office said Wednesday that the governor “remains open to holding another special session if legislators can agree to a succinct list of policies that address Oregonians’ most pressing needs, including the impending expiration of the evictions moratorium, while also preserving state resources ...” Oregon has held two special legislative sessions so far this year, one in June and another in August.
While Wednesday’s news was not as dire as past forecasts, facets of the state’s economy have been rocked by the pandemic. The unemployment rate may not return to pre-recession levels for four years, the manufacturing sector is hurting and restaurants continue to struggle. Expiring unemployment benefits and the end of eviction moratoriums could exacerbate matters, McMullen said.
A “freeze” to economic activity ordered by Brown won’t help matters, economists said. The new regulations limit bars and restaurants to to-go service, shutter other venues, and cap capacity at retail stores, among other things. They’re slated to last at least two weeks in all Oregon counties, and at least four weeks in Multnomah County.
But while economists weren’t able to build the freeze into the new forecast, McMullen said their initial estimates indicated the impact would be limited.
“The good news is we’re not talking about a tremendous amount of money if we do stick to the time frame we’re talking about now,” he said. “We’re talking tens of millions of dollars, not hundreds of millions of dollars.”
Oregon restaurants and bars have been a key focus since Brown announced the freeze, with many business owners protesting being singled out when much of Oregon’s increased spread of COVID-19 has been attributed to private gatherings.
Top elected officials were quick to respond to Wednesday’s news. They universally indicated uneasiness with the state’s financial position but differed on the next steps.
“We are reminded today how tenuous our state’s recovery is as COVID-19 cases surge in every corner of Oregon,” House Majority Leader Barbara Smith Warner, D-Portland, said in a statement. “While there are positive signs in here, as we have heard time and again from our state’s economists, it is critical for our economic recovery that we get this pandemic under control.”
Smith Warner spent much of the statement calling out Republican lawmakers, who in recent days have issued statements strongly objecting to Brown’s new economic restrictions.
“We desperately need our Republican colleagues to join us and start taking this pandemic seriously,” Smith Warner said. “This isn’t about politics – it’s about peoples' lives and livelihoods.”
A letter released by Senate Republicans on Tuesday called the freeze hypocritical, and accused state health professionals of “playing into [the] politicization of COVID-19” by warning hospitals would fill up if current infection rates continued.
“There are horrifying consequences to your government overreach in the name of COVID-19,” the letter said.
Some officials have taken a stronger stance. Incoming Clackamas County Chair Tootie Smith has pledged to defy new rules against large private gatherings, and excoriated the order on national television.
Republican officials kept to the theme in reacting to the budget forecast Wednesday.
“Today’s forecast shows that our state economy is stable, but this is not a reflection of reality for most Oregonians who have been impacted by these shutdowns,” House Minority Leader Christine Drazan, R-Canby, said in a statement. “The most recent ‘freeze’ will hurt Oregonians and business owners, and make an already tenuous recovery even harder for families.”