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State edges closer to 'kicker' refund

Latest forecast shows little change in economy, revenue


The good news about Oregon’s latest economic and revenue forecast, released Wednesday, is that there’s not much new.

Money coming into the general fund, which pays for most state services and public schools, is on track with the assumptions that lawmakers based the current two-year budget.

The latest quarterly forecast projects $70 million more than that May 2013 estimate.

In fact, the latest forecast says that personal income-tax collections are just $27.4 million under the threshold that would trigger “kicker” refunds to individual taxpayers — and there is a year to go.

Personal and corporate income taxes account for about 90 percent of the general fund.

The forecast, presented by state economist Mark McMullen and senior economist Josh Lehner, says:

“A more optimistic economic outlook for fiscal year 2015, combined with revenue increases enacted during the 2013 special session, suggest that revenue growth will accelerate this year, raising tax collections near to the personal income tax kicker threshold.”

A "kicker" rebate, if there is one, would be determined in the forecast a year from now, after the end of the 2013-15 budget cycle. It would be applied against tax bills due in April 2016; there would be no checks mailed.

However, the economists' report — presented to a joint meeting of the House and Senate revenue committees — also said tax collections in April were disappointing in Oregon and other states dependent on income taxes. That’s because year-end tax payments tied to investment income fell sharply. In anticipation of higher federal tax rates applicable on higher-end households for 2013 — and taxes due this year — people took their capital gains in 2012 and paid taxes in 2013 instead.

Lawmakers had assumed about $17 billion available from the general fund and Oregon Lottery proceeds for the 2013-15 budget cycle. The latest forecast pegs that figure at $17.2 billion. Some of that money will be carried over into the next cycle.

Lottery proceeds, however, have hovered around $1 billion. Although the lottery has recovered from losses from its peak in 2008, proceeds have not returned to 2008 levels yet. The lottery also is in in the middle of upgrading its video terminals, which bring in most of its proceeds.

The next forecast will be issued Nov. 13. If Democratic Gov. John Kitzhaber is re-elected, he will base his budget on that forecast. If Republican rival Dennis Richardson is elected, a new governor would have until Feb. 1 to present a budget.

McMullen and Lehner say there’s also good news in the economic picture.

“Oregon’s employment growth has accelerated sharply over the past year,” they said in their report. “The state is now adding jobs about 1 percentage point faster than the nation, a differential growth advantage Oregon typically enjoys during economic expansions.”

That growth continues to be uneven, with Eugene and rural areas still lagging.

Portland area job growth continues to outpace Oregon’s statewide average and other metropolitan and rural areas. Multnomah and Washington counties have recovered all of the jobs lost during the economic downturn, although they suffered less than other areas. Clackamas County has recovered about half the jobs.

Although the near-term outlook is stable or improved, McMullen and Lehner say the future is less rosy:

“As the baby-boom population cohort works less and spends less, traditional state tax instruments such as personal income taxes and general sales taxes will become less effective, and revenue growth will fail to match the pace seen in the past.”

Link to latest economic and revenue forecast:

www.oregon.gov/DAS/OEA/docs/economic/forecast0914.pdf

Link to Legislative Revenue Office summary:

olis.leg.state.or.us/liz/2013I1/Downloads/CommitteeMeetingDocument/40562

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Adds links to Office of Economic Analysis and Legislative Revenue Office reports.