Oregon Tax Collections Keep Exceeding Expectations; Kicker Likely

By Dirk VanderHart (OPB)
Portland, Ore. Nov. 14, 2018 7:03 p.m.

State Rep. Rob Nosse wanted to check to make sure he understood.

“The way I’ve sort of sound-bited this presentation so far … is: Things are awesome, but maybe a recession is coming,” Nosse, D-Portland, said Wednesday during a joint hearing of the House and Senate revenue committees.


Mark McMullen, the state’s top economist, hesitated for a moment before answering: “You know, I think that would be fair.”

McMullen was in the middle of unveiling the state's latest forecast on taxes that will come into state coffers by the end of the current budget biennium next June, and also to preview how the next two-year budget cycle might play out. And as in the last two-such forecasts, he had good news.

McMullen and state senior economist Josh Lehner now say the state stands to collect more than $75 million more in general fund and lottery resources than expected in the last forecast, unveiled in late August.

That means Oregon taxpayers stand to get a larger tax break. Oregon’s Office of Economic Analysts now expects the state to reward a $724 million kicker, the second largest ever in terms of dollar amount.

Oregon’s unique kicker law refunds personal income taxes collected above initial revenue projections, if revenue comes in more than 2 percent above those projections.

It far overshot that mark. The new forecast expects Oregon will collect $657.3 million more in personal income taxes than expected in its initial forecast last year. Between all general fund and lottery resources, the Office of Economic Analysis says Oregon could collect $1.3 billion more than expected.


The office in May had predicted a $555 million kicker to taxpayers, then revised that number up to $686 million in its last forecast. But the revenue picture has only grown rosier.

That’s got McMullen and Lehner a bit nervous.

“We’ve just been seeing revenue come in over the last several months far faster than would be expected given the underlying economic indicators,” McMullen told legislators. “We’re also seeing a tremendous amount of wage growth.”

The problem, he said, is figuring out what that means. Some segment of taxpayers are likely paying taxes earlier than expected because of changes to the federal tax code, McMullen believes. But puzzling out what segment of the unexpected revenues are due to timing, and which are due to a booming economy is tricky.

Wednesday’s forecast also has bearing on next biennium’s budget, which Gov. Kate Brown will propose later this month.

The state is expected to face funding shortfalls that could top $1 billion in the 2019-21 biennium, with much of that money from an anticipated $830 million hole in funding for the Oregon Health Plan. Formal proposals for filling the hole have so far been scarce, though increased taxes on tobacco and a continuation of sunsetting taxes on health care providers have been discussed.

The new forecast suggests lawmakers will have a better starting point than expected. It anticipates the state will have nearly $60 million more in the bank to begin the budget, and will reap more than expected in general fund revenues ($54 million), lottery revenue ($12.4 million), and recreational cannabis taxes ($20.3 million).

As they have in past presentations, McMullen and Lehner urged caution for the years ahead. They say a variety of factors, largely on the national level, are likely to slow Oregon’s economic growth — perhaps as early as 2020.

As a result of this, the latest forecast predicts state revenues will grow by just 3.4 percent in the next biennium, far lower than the double-digit increases Oregon has enjoyed for nearly a decade.

“We have a lot of factors working to slow growth,” Lehner said. “The question is how much it will slow.”