February 14, 2022 - Week 2
Back to Full Legislative Report
Revenue Coordinator, Josie Koehne
The March Revenue Forecast put out by the Office of Economic Analysis (OEA) presented by the Office of Economic Analysis was presented at 8 AM on Wed. the Feb 9 in Senate Committee on Finance And Revenue held jointly with House Revenue. The forecast is important to spending and budgeting decisions. The full report can be seen here.
Yet again, like all the 2021 revenue forecasts, this March forecast is much better than expected. The 2021-23 ending balance increased $979 million from the December forecast! Since close of session in 2021, gross revenues were up $790 million. Oregon’s 2022 beginning balance is $378 million due to unspent appropriations for the 2019-2021 biennium.
The U.S. economy grew at its fastest pace last year since the early 1980s. Businesses have passed along production cost increases to consumers who are still willing to pay higher prices for goods in short supply. Employers are still having a very hard time filling a record number of available positions in all sectors of the economy. With high consumer demand and some workers still not returning to work, workers are being offered good pay. Oregon has added 100,000 jobs in 2021 and is expected to return to pre-pandemic employment by the end of the year. This high labor demand has put upward pressure on wages at all income levels, increasing over the employment peak in early 2020 by 11%, and is projected to continue well into 2024 with high consumer demand. The rate of inflation is taking a big bite out of income. Consumer inflation in the United States reached 7.1% in December, a 40-year high, but OEA thinks the inflation rates are mostly temporary and will go down once supplies are more readily available and full production resumes. If inflation continues, consumers tend to curb their spending and that will put pressure to lower their prices, slowing economic growth and reducing inflation.
By far, the greatest strain on Oregonians, especially at the lowest income levels, is the lack of affordable housing, not only in the metro areas but also in rural areas. Years of underbuilding by 100,000 new units puts pressure on existing housing, forcing housing prices even higher. What exacerbates the problem is that new construction costs have increased so much that a very high rent is needed to recoup the cost of construction. Most renters cannot afford the higher rents, and there are exceptionally few affordable units available, threatening many with homelessness. There is also high demand in the older home market.
With a booming economy over the last few years, most corporations have had high profits and therefore in 2021 paid a whopping $1.4 billion in excise (income) taxes over the past 12 months, mostly coming from the few very largest corporations. Traditional corporate taxes are coming in 50% higher than when the pandemic began, and 140% higher than four years ago. For smaller businesses, the federal payroll (PPP) loan allowed business deductions that reduced their tax burden. Personal taxes collections are also way up. An increased number of workers earning higher wages means higher tax withholdings, and many taxpayers moving into higher tax brackets. Not only was the general fund way up, but Other Funds from consumption taxes and Lottery Funds were also up. These other funds, with the addition of the high marijuana tax revenue add up to more fiscal stability for the state.
The reserve funds also have increased since the corporate activity tax (CAT) took effect. The reserve funds (that include the Educational Stability, the Rainy Day Fund and reserves in the General Fund ending balance makes up 20% of the General Fund. The net General Fund March forecast is $28.640 billion, up $ $2,631 billion since the 2021 close of session forecast! Unfortunately, this means that we will be paying out vast sums in kicker refunds through 2025 for collections that far exceeded previous forecasts.
Important Revenue Bills
House Revenue: On Feb1, HB 4055 with the -2 extending the privilege tax (the Forest Products Harvest tax) on all wood products harvested, had a public hearing on Feb 1, and had a work session on Feb 10. The bill has a new Private Forest Accord (PFA) provision, Section 5, that adds an additional tax for implementing the mitigation work to protect fish streams in riparian areas, as required by the new PFA. $2.5 million per year would come from this new harvest tax provision into the Oregon Conservation and Recreation Fund subaccount to fund the initial mitigation work to protect streams and fish species, and $5 million thereafter annually after an “incidental take permit” is issued by the federal Environmental Protection Agency (EPA). The fund is capped once a total of $250 million is reached (about 50 years). All testimony was in favor of the bill.
Senate Finance and Revenue: SB 1525 and SB 1569 both passed on Feb 9. SB 1525 updates Oregon’s connection date to the federal Internal Revenue Code and other provisions of federal tax law. On Feb 7, SB 1569, a bill to collect ethnic income data passed. The bill allows taxpayers to voluntarily report how they self-identify ethnically on their personal income tax form. This ethnicity data is meant to help legislators evaluate and address disparities in our tax codes.