State revenue forecast could be too much of a good thing

The end of August produced a bounty of good news for Oregonians, some of it seasonal and predictable, like kids returning to classes and hot weather fading to fall cooling, some of it less so on either count.

One of the headliners in the latter category was a gushingly positive state revenue forecast for the quarter. It promises to give the lawmakers controlling the state’s purse strings a license to fully fund favored programs, while putting billions back into the pockets of personal and corporate taxpayers next spring, thanks to Oregon’s biennial income tax kicker.

For those unfamiliar with the state’s quirky kicker law, here’s a brief primer:

Under Article IX, Section 14 of the Oregon Constitution, underestimating state general fund revenue by more than 2% for a given biennium triggers a rebate to taxpayers.

It’s almost impossible for budget analysts to come that close two years out, and they tend to err on the low side in order to avoid potentially catastrophic shortfalls for state agencies and programs. That makes kicker rebates almost sure things in the spring of even-numbered years.

However, the record kicker to date ran $1.9 billion, and the Aug. 30 forecast projects the looming kicker at an eye-popping $5.6 billion. That would push the median for personal income tax filers to almost $1,000.

We have no interest in advising private rebate recipients on allocation of their windfalls. However, we do have some conservative advice for allocation of the state windfall by lawmakers,.

Back at the end of February, when the year’s first quarterly forecast pegged this year’s surplus at a mere $1.9 billion, Gov. Tina Kotek called for “bold action” by the Legislature.

“The revenue forecast lays the path for bold leadership,” she said. “We cannot afford to squander this opportunity.”

She went to call for increased spending on public education, the homeless crisis and mental health services, particularly for the latter in rural areas where access is limited. And she responded with equal enthusiasm when the projected surplus nearly doubled in the May forecast and tripled in the August forecast.

No surprise there.

However, it was surprising to see the opposition equally enthused about shoveling more money into closely held causes. It seemed to differ only in which causes it considered most deserving.

Senate Republican Leader Tim Knopp called for putting more money into road systems and sewer and water infrastructure. House Republican Leader Vikki Breese-Iverson called for putting more money into drug interdiction and crimefighting.

It seemed the new found money was burning holes in pockets on both sides of the aisle. We heard little clamor for putting some away for the inevitable rainy day.

To be sure, the forecast was glowing. However, its authors also noted:

“The challenge today is two-fold.

“First, there are emerging signs that the economy is reaccelerating, which means inflation could reheat at some point in the quarters ahead. Second, this leaves the Federal Reserve in a tough position trying to thread the needle of raising interest rates just enough to cool the economy and bring inflation down but not too much that chokes off growth.”

And buried back on Page 27, for those who read that far, was this longer-range concern:

“Revenue growth in Oregon and other states will face considerable downward pressure over the 10-year extended forecast horizon. As the baby boom population cohort works less and spends less, traditional state tax instruments such as personal income taxes and general sales taxes will become less effective, and revenue growth will fail to match the pace seen in the past.”

Yes, today’s economy is red hot. But what comes up must come down, and that includes tax collections. An economic cooling is inevitable at some point on down the line, and it behooves us to be prepared.

So, whether the cause is education or infrastructure, mental health or drug interdiction, the homeless crisis or crimefighting, we urge our legislative leaders to cool their jets a bit. We urge them to give some thought to the long term and the lean times it will inevitably bring at some juncture.

Not every tax dollar needs spending at the earliest opportunity. There’s nothing wrong with holding a few back.