'Kicker law' likely triggered amid budget shortfall
SALEM — The Oregon economy has been bustling this year, so much so that the state's unique "kicker" law may give $408 million back to Oregonians next year when they do their taxes, plus another $75 million for schools in the next budget cycle.
The kicker won't be certain until the state's next revenue forecast this summer, but economists said Tuesday it's likely. That's because the kicker law, adopted by voters in the 1980s and embedded into the Constitution two decades later, takes effect when the state has a surplus of revenue — at least 2 percent higher than expected.
In this instance, total revenues for the 2017-19 budget were 2.4 percent higher than earlier projections. Yet, Tuesday's rosy revenue forecast won't do much to help the upcoming budget shortfall.
Should the kicker be triggered, the local economy's record-performance would send just $187 million in extra funds to the upcoming budget — less than half the amount that would 'kick' back to Oregon taxpayers — slightly trimming the deficit down to $1.4 billion.
Gov. Kate Brown said in a statement that Tuesday's report was both good news and bad news.
"We now have less than two months before the end of this legislative session. The stakes couldn't be higher," Brown said. "I will continue to hunt for every penny and rein in the costs of state government. But, without definitive action by the Legislature 350,000 Oregonians could lose health care, hundreds of teachers could lose their jobs, and college could become even more unaffordable."
Those 350,000 Oregonians she referenced are those with health plans under the Medicaid expansion, the cost of which to the state is climbing to $256 million next biennium, or about 18 percent of the shortfall, due to a long-anticipated reduction in federal matching dollars. Democrats say they'd have to end that expansion program without more revenue — a move that, according to the Legislative Fiscal Office, could ultimately cost 38,100 jobs statewide and reduce general fund-revenue by almost $200 million per biennium.
Lawmakers are, however, close to reaching a deal for a tax hike on health care providers that could raise roughly $600 million for the next budget and spare the Medicaid expansion. Another $650 million in savings could come from other efforts in the works to reform the state's pension and health care systems plus other spending cuts.
Those efforts, combined with the additional revenue in Tuesday's report, could whittle down the budget shortfall to about $150 million.
Still, billion-dollar tax hike proposals are still in play. State economists, Brown and her fellow Democratic lawmakers say the economy's good health today only masks the broad structural problems that plague the state's tax system with volatility and unpredictability.
Personal income taxes fund almost 90 percent of the state's $18 billion-general fund. Corporate income taxes make up about 6 percent, although that can be misleadingly low. Taxes paid by S-corporations, LLCs and partnerships, such as law firms or advertising agencies, are reflected in their shareholders' personal income taxes. Oregon is also among a handful of states without a sales tax, which voters have rejected several times.
Democrats want to raise up to $3 billion in additional net revenue for the next cycle by replacing the corporate income tax with a new tax on business-to-business transactions that's similar to Measure 97, the union-backed big business tax hike that voters struck down in November.
Republicans are opposed to any Measure 97-like proposals. They generally support the upcoming health care tax and a long-term $8.2 billion transportation package that'd impose highway tolls and raise consumer prices on motor fuel and new cars beginning next year.
The GOP minority and some business leaders say Tuesday's revenue report is more proof that Oregon has a spending problem, not a revenue problem. They emphasize, for example, the rising costs of state employees, who pay 5 percent or less toward their health premiums and often pay zero toward their retirement.
"These circumstances might be inconvenient for Democratic leaders, who continue to push a narrative that suggests current revenue levels are inadequate," House Republican Minority Leader Mike McLane said in a statement. "But for most Oregonians it is just more evidence of the fact that our government needs to tighten its belt and get serious about slowing the unsustainable rate of spending in Salem."