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Oregon Legislature (copy)

Here's a little lesson from Oregon history that may be worth keeping in mind over the next few months.

Oregon state economists said Wednesday that they expect a record-setting $1.4 billion "kicker" tax rebate next year, as state revenues continue to exceed the estimates that were made two years ago. 

The previous record for a kicker rebate was $1.1 billion, which was issued in 2007 — right before the Great Recession.

Now, with many economists suggesting that another economic downturn is looming, possibly as early as next year, legislators should keep that history in mind as they try to determine what to do with this unexpected windfall.

Already, there are signs of a possible economic slowdown, the state economists said: Personal income has declined by about 1%, said economist Mark McMullen. And the economists predicted Wednesday that the state treasury will receive $108 million less in taxes and other general fund revenue than previously expected in the 2019-2021 budget cycle, an early sign that the state's economic growth is beginning to cool off.

Oregon's unique tax kicker is triggered whenever tax revenues for a two-year budget cycle come in more than 2% above economists' predictions made at the start of the budget cycle. That's right: The kicker hinges on estimates that were made nearly two years ago, which is just one of the weird things about this oddball tax policy. (The final amount of the kicker won't be locked in until the August revenue forecast.)

A corporate tax kicker of about $616 million also is expected, but Oregon voters approved a measure in 2012 that siphons that money to K-12 schools. Combined with the passage this week of that $1-billion-a-year gross receipts tax on some Oregon businesses, this likely is the best week for the state's K-12 schools in many years.

To be sure, the unexpectedly robust revenue numbers aren't bad news: Consider that Oregon's current two-year state budget, which expires at the end of June, is about $22.5 billion. According to the latest forecast, lawmakers likely will end that cycle with about $870 million more in the general fund than economists had predicted just three months ago. And the state's rainy day funds and other reserve accounts will have an unprecedented $3.5 billion in hand, a nice hedge against a downturn, if (when) it emerges.

Nevertheless, you couldn't blame budget writers for taking a look at that $1.4 billion kicker and wondering if there might be some other uses for it. It could go, say, to higher education, which was left out of that billion-dollar windfall that's going to K-12 schools. Or maybe it could go into efforts to pay down the state's $27 billion unfunded liability for its public pension system. 

But here's the deal: The kicker is enshrined in the state's constitution, and its defenders say it's just about the last remaining brake on state spending. Now, it's possible for lawmakers to take back some of the kicker by passing a law that retroactively adjusts the revenue forecast — but that requires a two-thirds majority in each chamber, which probably puts that out of reach this session.

And the optics, as politicians like to say, aren't great: The same week that you pass a billion-dollar tax increase on businesses, some of which certainly will be passed along to residents, you move to strip the kicker, which will give the median taxpayer earning $36,000 a $330 tax credit next year? And this comes in a session during which you've already taken away $108 million from the kicker in an earlier legislative maneuver? That doesn't look good.

Maybe there will come a time when lawmakers can build a case that is compelling enough to convince residents to overhaul the kicker. It's not out of the question, but it'll be a hard lift. And now isn't the time to do it. (mm)

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