Oregon lawmakers convened virtually this week to receive updates from state agencies responding to the multitude of emergencies and disasters occurring throughout the state. These include the ongoing response to the coronavirus pandemic and economic recession as well as efforts to contain the historic wildfires spanning the state. The interim hearings were heavy on substance and relatively light on political pomp, which is unusual for this time of the election cycle but, perhaps, expected given the unfamiliar nature of holding all hearings remotely from home offices and kitchen counters instead of the hearing rooms of the capitol. All the same, the legislature has a knack for making its presence known.
On Sept. 14, Gov. Kate Brown announced she would veto certain budget actions from the special budget session to preserve resources to respond to the firefighting efforts. The Oregon Constitution authorizes the governor to issue line-item vetoes of appropriation bills and provisions requiring a policy bill to take effect immediately. For general policy bills, however, the Constitution only provides the ability for a governor to approve or reject an enacted measure. These limitations are at the core of an ongoing dispute between the executive and legislative branches. One of the vetoed measures appropriates funds while also establishing statutory policy, and the legislature is considering suing the governor to prevent the veto from setting a precedent that could potentially broaden executive veto powers.
Meanwhile, in the legislature’s virtual committee rooms, the revenue forecast was the featured act of the week. State economists announced revenues rebounded much quicker and stronger than initially expected, in large part due to federal aid to individuals and businesses, erasing the immediate budget cliff anticipated only a few months ago. In other committees, lawmakers received updates from state agencies on disaster responses and, later today, the Joint Emergency Board will continue its work to appropriate funds to support those efforts.
Upward Revision to State Fiscal Outlook
As mentioned, the outlook for Oregon’s economy and state revenues has improved significantly since the beginning of the pandemic, according to an updated revenue forecast presented to a joint meeting of the legislative revenue committees. The economists described the revision as “shocking” compared to previous assumptions about the impact of the pandemic and business closures on state tax collections. Nevertheless, they continued to caution lawmakers the recovery will be slow and track with the progression of the pandemic.
The revision was attributed to several factors, including the unprecedented amount of temporary federal aid to individuals and businesses and income tax collections from the prior year outperforming earlier projections. Notably, much of the federal assistance to individuals (e.g., enhanced unemployment) and businesses (e.g., grants and loans) is subject to the state’s income tax. Together, the upward revision to the forecast translates to a nearly $2 billion increase in available general and lottery fund revenues for the current budget that may serve as a cushion for the next budget.
There are several narratives to take away from the updated forecast, although they do not necessarily fit together neatly. That is, in large part, due to do the uneven exposure of households and businesses to layoffs and closures. The nature of the pandemic has mostly spared higher-income households and businesses in some industries from the worst of the recession while severely impacting others. Since Oregon relies on a progressive income tax as its primary revenue instrument, the relative stability of higher incomes seems to contribute to the durability of the overall revenue outlook. Nonetheless, the economists warned legislators “the economic pain has yet to be fully reflected in the revenue data.”
Looking ahead, the economists painted a less rosy revenue picture. Over the last decade, Oregon has experienced significant growth in budget resources due to a strong economy and tax policy changes from the state and federal government. The Legislative Revenue Office commented the average growth rate during that time stood at approximately 13 percent. Now, however, the forecast calls for a positive growth rate of eight percent and it may take several years for the recessionary shock to work its way through the economy.