Oregon Office of Economic Analysis

Today the New York Times is out with a good article on state tax collections. To those of you following along with our office, there is no real news here. State tax revenues are doing much better than feared at the beginning of the pandemic because the economy is doing much better. This is in large part due to federal aid to households and businesses, the nature of the cycle impacted low-wage workers the most, and asset markets rebounding to all-time highs. Our office and our counterparts across the country have been revising up our forecasts as a result in recent months. Do read the whole piece for more information and interesting anecdotes from other states.

I want to touch on three things.

First, and most importantly is discussing the chart included in the NYT article. As far as Oregon goes it is technically correct. Total General Fund revenues in Oregon from March through October of this year are down 17% compared to year-ago figures. However, these raw collections do not adjust for our unique kicker law. Oregon has paid out the largest dollar sized kicker on record this year. And while the money is returned to taxpayers this year, it was collected over the course of the 2017-19 biennium, so it’s not really a “loss” of revenue so much as a timing shift. Of course it is a “loss” in the sense that the state does not get to keep the revenue, but it is fundamentally different than saying actual tax collections are down.

Once you do adjust for the kicker, and some rough accounting of how much of that was paid out in February, you find that Oregon General Fund tax collections are flat over the year. I get somewhere in the +/-1% range depending upon those kicker assumptions. That vaults Oregon in the chart from the bottom to above the median state. Using my fingers and the magic of a smartphone, it looks something like this.

Second, this only looks at General Fund revenues with are around a quarter of the state budget. Other Funds (gas taxes, hunting licenses, etc) are also impacted but not shown here. More importantly, this does not include Oregon’s new Corporate Activity Tax (CAT). That is boosting actual state tax collections on a year-over-year basis because it is new. Last year Oregon collected $0 in CAT revenues. That said, our office has revised down the forecast for CAT revenues due to the recession and other technical issues. As such, even though CAT is boosting dollars in the door, that boost is smaller than expected at the time the budget was drafted a year and a half ago.

Third and finally, in terms of the state budget outlook, the fact that revenues have not plunged as they typically do in recession is great news. That said our office’s forecast for the upcoming 2021-23 biennium currently shows modest growth, which is likely to be slower than the increase in the cost of services and rise in demand for needs-based programs. As such, elected officials and policymakers still face tough choices as they draft the upcoming budget, but thankfully not as tough as expected earlier this year.