SALEM — A potential sea of red ink facing the state budget will evaporate, leaving Oregon government most likely in the black, according to official state economists.
Lawmakers arriving earlier this month for the 2018 session of the Legislature were warned by some leaders that they might have to tackle a budget hole of more than $200 million because of the federal tax cuts.
But the quarterly report issued Friday by the Office of Economic Analysis, says the state should receive enough revenue to pay its bills, and could have up to $100 million in annual additional revenue flowing into state coffers in future years.
The economists cautioned that projections are based on normal financial activity — and there may be a new normal. The economy may never return to its pre-2007 recession levels; tax filers will alter their finances to take advantage of the new tax laws, and a volatile stock market could upend expectations.
“Households, firms and tax professionals are all certain to change their behavior in light of the new rules of the game,” according to Friday’s report.
State Economist Mark McMullen said his office won’t have a clear picture of state finances until fall 2019 — after the current and next sessions of the Legislature.
Forecasts are, in part, based on the past and are difficult to predict. With the tax cut, economists are in uncharted territory.
“This is taking it to another level,” said McMullen.
The state’s short-term money needs could receive a boost from a bill unanimously passed by the Senate and working its way through the House. Oregon income tax uses a filer’s federal tax return as the basis for the state tax bite. But Senate Bill 1529 would require companies to pay taxes on money they “repatriate” from overseas tax havens. It could generate about $145 million.
With the forecast predicting a sunnier short-term forecast for state revenues, Gov. Kate Brown suggested Friday that lawmakers rethink a bill to close what some say is a loophole in state tax law that allows partnerships and small businesses to take advantage of a tax break originally meant to entice large corporations to keep their operations in Oregon.
“I believe we must protect small businesses, the engine of our economic growth,” Brown said.
Senate Republican Leader Jackie Winters, R-Salem,who in the past has supported some Democratic tax bills, appeared to pour cold water on any new taxes this year.
“This revenue forecast shows that Oregon’s economy continues to prosper, eliminating the need for any new revenue package during this 35-day short session,” she said. “Providing tax relief for small business and taxpaying Oregonians, while growing Oregon’s economy, is our priority.”
Democrats are one vote short in the House and Senate from a supermajority that would allow them to pass taxes or other revenue bills without Republican help.
Senate Majority Leader Ginny Burdick, D-Portland, said the uncertainty of the projections was troubling.
“I continue to have concerns about how the federal tax changes will affect our state’s revenues over time,” Burdick said. “While the anticipated growth is good news, I don’t believe it will last. We should chart our own course by detaching from the federal tax code in key areas. That will protect the middle class and low-income Oregonians.”
Overall, Oregon’s economy continues to “hit the sweet spot” between growth and inflation, according to the report.
Job growth is keeping pace with population gains. Wages are rising faster than in most states, as are household incomes. But both are lagging projections made last fall by state forecasters.
— Reporter: 541-525-5280, email@example.com