Oregon Capital Bureau
SALEM — More than 150,000 Oregonians remain out of work as a result of the coronavirus pandemic, but income tax collections that support state services and public schools are likely to exceed pre-pandemic forecasts.
State economists told lawmakers on Wednesday that is good news for the current two-year state budget — but not so good for the next couple of budget cycles, including the spending plan lawmakers are putting together now.
State Economist Mark McMullen likened it to what happened in 1990, when Oregon underwent a relatively mild economic downturn, but growth in tax collections slowed for a few years afterward.
“We have a couple of years with flat growth … without any gains in revenue, which is good for a recession, but bad for keeping up with the spending side,” McMullen said at a quarterly presentation to House and Senate revenue committees.
He and senior economist Josh Lehner had projected a $2 billion drop in tax collections right after the start of the pandemic last spring. But in their latest forecast, they said lawmakers will have about $800 million more in collections available for the current budget period and the next, which starts July 1. Even with lawmakers tapping it on Dec. 21, the ending balance and two state reserves will have about $3.1 billion at the start of the new budget period.
Largely as a result of billions in federal aid to individuals and businesses, McMullen said, Oregon’s overall income levels were up 5%, not down, despite the sharpest one-month nosedive in Oregon’s unemployment rate from a record-low 3.3% in March 2020 to 14.2% in April 2020. The December rate was 6.4%.
“You see employment down around 6% in Oregon over the past year, which is the same as the worst year of the Great Recession, when our income tax revenues fell by 20%. Here you see much less,” McMullen said. “If you extend this for our preliminary numbers for 2021, the revenues will be back to where they were last year.”
Lehner said Oregon has benefited from $12 billion in unemployment benefit payments that are taxable, $11 billion in Paycheck Protection Program forgivable loans to businesses that are deductible, and $8 billion in federal rebates. (One round paid $1,200 to individuals, and a second round paid $600; Congress is considering a third plan for $1,400.)
“That is keeping income up, this far into the recession, that we have not seen before in decades — this level of income support coming from the federal government,” Lehner said.” If we were to take out all the direct aid … that underlying income would take us all the way back before the pandemic. The economy has proven more resilient than we first feared.”
Predictably, Democratic legislative leaders greeted the news, and Republicans talked about the downside of so many people still unemployed or underemployed.
Democratic Gov. Kate Brown said the cheering is premature.
“Even with this good news, it is important to move forward cautiously, as the road ahead remains unpredictable,” she said in a statement. “We also know that many Oregonians are still struggling with job losses, underemployment, and making ends meet.”
Lawmakers will base their decisions on Brown’s $25.6 billion budget, drawn from the tax-supported general fund and lottery proceeds, after the next economic and revenue forecast now scheduled May 19. Lawmakers and Brown herself concede it falls short of maintaining some state service and aid to public schools.
But the U.S. Congress is working on President Joe Biden’s $1.9 trillion pandemic recovery plan, which offers more aid for Oregon and other states.
“If passed, this bill would provide another round of much needed aid for states and direct benefits for Oregonians in the form of essential services such as unemployment assistance, nutrition assistance, housing aid, and tax credits for families and workers,” Brown said.