Revenue Forecast: ‘Wow… That is a lot of money’

This morning, Oregon lawmakers received an updated economic and revenue forecast from state economists, marking the only update they will receive as they work to rebalance the state budget during the short session. Like recent forecasts, the economists are continuing to revise the state’s fiscal position upward. Inflation, rising wages, and business profits are all contributing to a widespread boom in state tax revenues, launching the legislature into debates over how to best spend the money.

The following are the top lines from today’s forecast:

• Personal Income Tax revenues are up by $760 million (3.7 percent)
• Corporate Activity Tax revenues are nominally down by $5.3 million (-0.2 percent)
• Combined General Fund & Lottery Resources are up by $2.72 billion (9.8 percent)
• Personal income tax kicker of $964.2 projected for 2023
• Corporate income tax kicker of $633.8 million for 2023-25
• Oregon’s projected ending balance at the end of the biennium is $3.02 billion

Although often overlooked, Oregon’s corporate sector is becoming a significant contributor to the state’s strong fiscal position. The state’s corporate income tax collections have grown exponentially in recent years, nearly doubling their pre-pandemic levels without any major tax increases. Considering that corporations comprise only a small share of the overall composition of businesses in the state, the increase serves as a rebut to critics who have spent years denouncing the corporate sector for not paying its “fair share” to finance state programs. Additionally, given the unanticipated growth of corporate tax revenues and Oregon’s fiscal policy rules (the corporate “kicker”), the additional funds will result in a $634 million increase to public schools for the next biennium.

Today’s revenue forecast ignites the featured act of the session—rebalancing the state budget and spending unanticipated revenues. Senate President Peter Courtney (D-Salem), who typically urges caution following an optimistic revenue forecast, simply pronounced, “Wow… That is a lot of money.” During the 2021 session, lawmakers had five months to navigate a $5.5 billion reconciliation measure. Now, during the short session with up to $3 billion in new budget capacity, the legislature only has a few short weeks to traverse the spending demands from lawmakers and advocacy groups. And there are certainly no shortages of ideas circulating the Capital over ways to spend the money, including new investments in education, workforce training, housing, and healthcare, only to name a few of the major spending categories already at the forefront of fiscal negotiations. Perhaps the rosy fiscal outlook presents a new challenge for legislative leaders responding to funding requests—saying no when there is an overwhelming presumption that there is enough money to meet every need.