Revenue
Legislative Report - Week of 2/9
Revenue Team
Coordinator: Peggy Lynch
REVENUE
Patricia Garner, Josie Koehne, Peggy Lynch
It’s here! The long-awaited Revenue Forecast that will guide the spending for the 2026 legislative session, was delivered at the Senate Finance and Revenue Committee meeting on Feb. 4th. Carl Ricidonna, Oregon’s State Economist, provided his report, along with Michael Kennedy, Senior Economist. See pages 17 and 20 for the important numbers. And the Legislative Revenue Office’s Forecast Summary:
Projected 2025-27 Net General Fund Resources are up $252.7 million (0.7%) from the 2025: Q4 forecast.
Projected 2025-27 Lottery resources are up $33.8 million (1.8%) from the 2025: Q4 forecast.
Projected 2025-27 Combined net General Fund and Lottery Resources are up $286.5 million (0.7%) from the 2025: Q4 forecast.
This Revenue forecast is better than the last forecast, and it appears there is just a 20% chance of a recession. Oregon’s revenue outlook is doing better than predicted due the highest corporate earners doing especially well last year with higher productivity. 5% of corporations are paying 90% of the tax. Lottery revenues are also up. However, the personal income tax revenues were only modestly up, and lower income earners are again hardest hit by a nearly 3% inflation rate with few new jobs. Unemployment is also up but not at an alarming rate. In all this will reduce slightly the revenue hole caused by HR 1 and our state income tax connection to it.
Because of the importance of this presentation here is a list of news articles covering the forecast: Oregon Capital Chronicle on Feb. 4. OregonLive. OPB
In the last legislative report, we shared the various budget gaps that legislators are facing, from Medicaid and SNAP to education and addressing transportation funding. Although this forecast was helpful, it is still $450 to $1 billion less than needed. So, cuts will happen. However, there are some actions the legislature is considering to decrease the effects of funding loss for services Oregonians value. One is SB 1507 shared below:
At the Senate Finance Committee meeting on Feb. 4, the version of SB 1507 which was initially introduced sought to reduce a number of taxes equal to/conditioned on a statewide retail sales tax with proceeds to be directed to specifically defined purposes. The legislation is largely intended to ameliorate some of the impacts of federal H.R.1. At the outset of the hearing Chair Anthony Broadman indicated that there were likely additional amendments in the pipeline besides those posted online. Committee members are, for example, working through the jobs credit provision which is currently set at a $12.5 million cap per year. The -3 amendment is fairly straightforward. It entirely replaces the initial version of SB 1507 and updates Oregon’s connection with the federal Internal Tax Code by replacing effective dates of “2023” with “2025.”
The -4 amendment also seeks to replace the initial version of SB 1507 and is no longer in consideration. It closes certain federal tax loopholes for purposes of Oregon taxation, which will result in increased taxpayer payments and state revenue. They include (1) deductions for car loan interest, (2) gain from the exchange or sale of small business stock deducted on personal income tax returns, (3) certain machinery and equipment tax deductions. Subject to an annual total amount of tax credits of $12.5 million, taxpayers can also claim $1,000 personal and corporate income tax credit for every new job they create in Oregon, which credit can be carried forward for 3 years. Oregon’s earned income tax credit is also increased from 9% to 14% of a taxpayer’s federal earned income tax credit, and for taxpayers with a dependent under 3 the credit is increased from 12% to 17%.
The -5 amendment reiterates - 4 but also adds clarifying language. For example, when seeking the new job tax credit, Dash 5 provides that new jobs are to be determined by comparing the average annual employees of a taxpayer in a 12-month period ending on June 30th of the current tax year as compared to the same 12-month
period in the previous tax year. Here is the Legislative Revenue Office summary of the -5.
The tax credits are capped at an annual total amount of tax credits of $12.5 million. The latest amendment is the -6 which includes the following:
1. Removes the vehicle loan interest deduction
2. Increases Oregon’s EITC from 9% to 14% of federal EITC amount, or from 12% to 17% for taxpayers with a dependent under the age of 3 at close of tax year. This is a great help to low-income earners.
3. Disconnects from personal income tax exclusion for gain from the exchange or sale of qualified small business stock.
4. Disconnects from bonus depreciation provision. This item was hotly contested in the Feb 4 hearing which allows a business to take 100% depreciation in the first year.
5. Credit for taxpayers creating jobs allows $1,000 × number of jobs created in the year, capped at 10 new jobs per year. Wages paid must be at 150% of the local minimum wage.
These credits are capped at $12.5 million per year and end in 2031.
All these credits apply to tax years starting in 2026.
On Feb. 5th, a -6 amendment was posted. Here is the Staff Measure Summary of the -3 and -6 amendments that replace the measure and we expect to be voted on in Committee Monday. Public Hearing Feb. 4. Work Session Feb. 9. The League supports the bill with amendments as it has the potential to bring in over $300 million but had wished for additional disconnect items to help with Oregon’s revenue needs. The Oregon Capital Chronicle provides this article.
Here are Oregonlive and Salem Reporter articles on HB 1507. Then the Full Ways and Means Committee met for hours Feb. 3rd to hear from Oregonians as shared in this Oregon Capital Chronicle article. On Feb. 5th, hundreds of Oregonians rallied in Salem in support of a disconnect (KDRV article).
The Full Ways and Means Committee met Feb. 6th and introduced 6 budget bills for the session. The LCs (Legislative Concepts) will be assigned bill numbers after their introduction AND the League expects amendments by the end of session:
LC 319: Amends an incorrect internal reference in a law relating judicial compensation. Program Change Senate bill.
LC 321: Modifies previously approved lottery bonding provisions. (Includes monies for the Port of Coos Bay) Bond Authority Senate Bill.
LC 322: Establishes and modifies limits on payment of expenses from specified funds by certain state agencies for capital construction. Capital Construction 6-year limitation Senate Bill
LC 323: Establishes biennial appropriations and expenditure limitations for ______ for the biennium ending June 30, 2027. Placeholder for agency allocation changes Senate Bill.
LC 324: Approves certain new or increased fees adopted by state agencies. The bill includes the Dept. of State Lands Wetlands processing fees set forth during rulemaking for which the League engaged. Fee Ratification House Bill.
LC 325: Establishes biennial appropriations and expenditure limitations for ______ for the biennium ending June 30, 2027. Placeholder House Bill.
LC 326: Establishes biennial appropriations and expenditure limitations for ______ for the biennium ending June 30, 2027. Placeholder House Bill.
LC 327: Modifies certain biennial appropriations made from the General Fund to specified state agencies and the Emergency Board. Establishes and modifies limitations on expenditures for certain biennial expenses for specified state agencies. The items populated in this bill as introduced reflect tentative decisions made by Ways and Means during the January Legislative Days. Omnibus Budget House Bill.
Though LWVOR does not have a position regarding the conclusion shared by the author of this article, the information about future PERS costs is important. The two increases mean that by 2029, PERS contributions will have increased almost 80% over the 2023-2025 biennium, from $5.26 billion to $9.35 billion, over 25% of payroll.
The Dept. of Administrative Services (DAS) is reviewing state building usage and leases to find efficiencies and reduce state costs per this presentation in the W&M General Government Subcommittee on Feb. 2nd.
Here is the material from the Oregon State Debt Policy Advisory Commission. Tentatively the General Obligation bond capacity for the 2026 session is $513 million and $86 million lottery bond capacity.
Bills we may be following:
SB 1562: Allows city and county services for which net local transient lodging tax revenue may be used to be provided either directly by the city or county or indirectly by a special district. Changes the division of allowable uses of net local transient lodging tax revenue from at least 70 percent for tourism related expenses and no more than 30 percent for city or county services, to at least 40 percent and no more than 60 percent, respectively. Allows units of local government with restricted grandfathered local transient lodging tax regimes to take advantage of the new provisions of the Act. Establishes biennial reporting by local governments of amounts and uses of local transient lodging tax revenue.
HB 4148: Allows city and county services for which net local transient lodging tax revenue may be used to be provided either directly by the city or county or indirectly by a special district. Changes the division of allowable uses of net local transient lodging tax revenue from at least 70 percent for tourism related expenses and no more than 30 percent for city or county services, to at least 40 percent and no more than 60 percent, respectively. Allows units of local government with restricted grandfathered local transient lodging tax regimes to take advantage of the new provisions of the Act. Establishes biennial reporting by local governments of amounts and uses of local transient lodging tax revenue. The LOCAL Act, adjusts the post-2003 lodging tax distribution so that local governments may adjust the percentages, with up to 60% used for critical local services and infrastructure, such as first responders, and at least 40% dedicated to tourism promotion and facilities. The LOCAL Act is a bipartisan collaborative bill that updates outdated restrictions so communities can better balance supporting tourism with maintaining residents' quality of life. Public hearing Feb. 9.
HB 4125: Prescribes methodology for the preparation of revenue estimates used in the budgeting process and as applicable to the surplus revenue refund process. Applies to estimates prepared on or after January 1, 2027. Requires the Department of Revenue to estimate the difference in surplus revenue calculations using stated methodologies, and transfer an amount equal to the difference for use for various purposes. Establishes the One-Time Emergencies and Finance Fund. Public hearing Feb. 2.
HB 4136: Disallows, for purposes of personal income taxation, a mortgage interest deduction for a residence other than the taxpayer’s principal residence, unless the taxpayer sells the residence or actively markets the residence for sale. Establishes the Oregon Homeownership Opportunity Account. Transfers an amount equal to the estimated increase in revenue attributable to restrictions on the deduction of mortgage interest to the account, for the purpose of making down payment assistance payments. Applies to tax years beginning on or after January 1, 2026.
SB 1510: Updates the terminology used to describe certain income earned by multinational corporations to reflect a change in the term used in federal law. Aligns sunset dates for earned income tax credit provisions with the underlying sunset date for the credit. Expands the tax credit for certified film production development contributions to allow the use of contributions for the production of commercials. Applies to fiscal years beginning on or after July 1, 2026. Provides an exception from the annual filing requirement for the property tax exemption for property burdened by an affordable housing covenant used for owner-occupied housing. Applies to property tax years beginning on or after July 1, 2027. Public Hearing Feb. 11.
SB 1511: Requires the Legislative Revenue Officer to study the estate tax. Directs the Legislative Revenue Officer to submit findings to the interim committees of the Legislative Assembly related to revenue not later than December 1, 2027. Public Hearing Feb. 11.
SB 1586: Modifies the tax credit allowed for semiconductor research. Creates and amends certain programs offering tax breaks related to advanced manufacturing, enterprise zones and regionally significant industrial sites. Directs certain state agencies to establish deadlines within which the agency intends to process applications for permits and make the deadlines available to the public. Directs certain state agencies to publish a catalog of permits issued by the agency within 60 days after the effective date of the Act. Adds rural reserves in Washington County to Metro to be used for high technology and advanced manufacturing purposes. See more on this omnibus bill in the Land Use section of the Natural Resources Report. The League has major concerns about sections of this bill. Oregonlive provided this comprehensive assessment of the bill.
SJR 201: Kicker Reform: Proposes an amendment to the Oregon Constitution to require a portion of surplus revenue that would otherwise be returned to personal income taxpayers to be used for funding public kindergarten through grade 12 education, community colleges and wildfire prevention and suppression, if surplus revenue exceeds a certain threshold. Refers the proposed amendment to the people for their approval or rejection at the next regular general election. OPB covered a story about the bill. NO public hearing has been scheduled at this time.
HB 4014: Requires the Legislative Revenue Officer to study the state financial system. Public Hearing Feb. 2.
HB 4125: Prescribes methodology for the preparation of revenue estimates used in the budgeting process and as applicable to the surplus revenue refund process. Public Hearing Feb. 2.
See other sections of the Legislative Report about the cuts in each area and what’s being considered to address the revenue shortfall.