Today, state economists released the final economic and revenue forecast of the 2013-15 biennium. Throughout the course of the past year, economists have cautioned the reality of a relatively small personal income tax kicker for the current biennium as a result of the economic recovery and minor changes to the state’s tax regime. Earlier this year, the forecast projected a $349.3 million refund being issued to personal income taxpayers by the end of the biennium. Today’s release increased the value of this payment by approximately $128 million, with an average refund of $284 per taxpayer.
There are both positive and negative ramifications from today’s release. Without question, the strong economic recovery is a great overall advantage for the state. The forecast illustrates the importance of state and regional employers on Oregon’s economic vitality, as well as the dependence of legislative priorities on the ability of the private sector to continue investing in our workforce. However, the forecast also underscores the vulnerability of Oregon’s budget process to the boom and bust nature of the economy. Oregon’s Constitution requires revenue collected in excess of the “close of session” estimate (the revenue forecast prior to the beginning of a new biennium) to be returned to personal income taxpayers if state revenues exceed a two percent threshold. The payment to taxpayers will be made during the next budget cycle (2015-17 biennium) and have a significant impact on the available dollars for legislative priorities this session.
Projections suggest there will be $263.3 million in additional revenue for the 2015-17 biennium compared to the estimates from the March 2015 forecast. However, the public education budget signed into law on April 10 dedicated 40 percent of gained revenues to the State School Fund, leaving only $158 million available for the budget. While there exists newly available dollars for the state budget, there continues to be significant uncertainty over how or even whether these dollars can be expended.
The tide changes significantly over the next several weeks as leadership prepares for adjournment. Several priority agenda items remain unsolved for the session and dollars are growing evermore scarce. If you take into account the recent decision by the Oregon Supreme Court regarding changes to the Public Employees Retirement System (PERS) during the 2013 Special Session, lawmakers will be required to consider ways to rebalance a budget shortfall exceeding $1.5 billion for state and local governments.
The conversations occurring in both the budget writing Ways & Means and revenue committees will likely increase in their intensity over the next several weeks as they work towards a final budget. We expect there to be a robust discussion over an increase in personal and corporate income taxes in the weeks ahead, although their ability to raise revenue will be contingent on a bipartisan compromise in order to achieve the constitutional requirement of more than three-fifths of the members in each chamber (36 members in the House, 18 members in the Senate). The likelihood of accomplishing this remains low; nonetheless, the battle over tax increases could occur beyond the legislature as public employee and teachers’ unions push for a robust increase at the ballot box next fall.