SALEM — Voter approval of tax-increasing Measures 66 and 67 appear not to have entirely solved Oregon state government’s budget woes.
Despite the tax increases and a slowly recovering economy, Oregon’s revenue collections are now expected to fall $183 million below previous expectations, according to the latest forecast issued Monday.
That’s a fraction of the $13.3 billion in general-fund spending planned for 2009-11 — but enough to put the budget $106 million out of whack, after accounting for the $77 million ending balance.
The news comes two weeks after voters approved the two tax-raising measures. The measures pull in a combined $733 million in higher personal income and business taxes. The Legislature enacted them last year to provide what turned out to be 5 percent of the current budget. Voter ratification of the increases does not put more money into state budgets, said House Revenue Committee Chairman Rep. Phil Barnhart, D-Eugene.
“It means we don’t have to cut budgets like crazy,” he said.
But the measures provided no guarantee that past predictions of revenues flowing into state coffers would remain unaltered. And the new revenue forecast proved that point.
State Economist Tom Potiowsky said the previous forecast in November assumed a quicker pace of Oregon’s economic recovery than what more recent indicators point to. At the same time, recent estimated income-tax payments have been lighter in the past few months than what was expected last fall. The payments come primarily from those at the top of the income ladder: business owners, investors and well-paid professionals who work with tax accountants.
Potiowsky said it’s possible that these peoples’ income is now low enough that their tax payments are lower than anticipated, or that they are holding onto cash right now and plan to make bigger tax payments in time for the April 15 deadline.
Barnhart said he’s hopeful that the Legislature can manage the newly emerged deficit without drastic changes in state spending. Most of the general fund pays for education, human services and public safety programs.
“We have to be really careful, but it looks like we can weather it,” the Eugene lawmaker said.
A bill moving through the Legislature would cut tax breaks to companies that spend money on renewable energy projects. That’s expected to net the state $55 million — nearly half the anticipated budget shortfall.
The rest would most likely be filled by drawing on state budgetary reserves, which total $318 million, and efforts to squeeze money out of existing budgets and agency funds, said Geoff Sugerman, a spokesman for the House speaker’s office.
One possible consequence of revamping the Business Energy Tax Credit is that corporate tax collections will jump higher for 2009-11 than what economists forecast when more generous tax breaks were put on the books at the close of the 2009 legislative session.
And that, in turn, could mean that the corporations will be in line for “kicker” refunds if actual collections of corporate taxes exceed the close-of-session forecast by 2 percent or more, which amounts to $16.6 million.
Gov. Ted Kulongoski is pressing the Legislature to refer a constitutional amendment to voters this year, calling for a portion of kicker rebates to go into a rainy-day fund instead of to taxpayers.
The state economist likened the Oregon economy’s upcoming stretch of recovery to a car motor idling after the battery-charging cables have been removed.
“The engine is still going to run,” Potiowsky said, but without as much power as when it was relying on juice from an external source.
For Oregon, the soon-to-be-removed added power takes two forms. One is $900 million in one-time federal economic stimulus money, most of which has gone to pay employees in education and human services and keep their programs running in 2009-11, but has not been renewed for the next two-year cycle, 2011-2013.
Another is from the private sector, in the form of corporate spending to restock dwindling inventories and for other long-postponed costs while waiting out the worst economic recessions in decades.
That kind of spending has become unavoidable, Potiowsky said, but it comes with no guarantee that the spending will continue or that an uptick in overall economic activity is looming.
“I would say Oregon is in recovery, but it’s going to be a slow, long road,” he said. “A little bit slower than expected.”
State General Fund revenue forecast
Economists have been gradually reducing revenue projections for 2009-11 since the Legislature wrote the budget last summer. Here’s what the last three forecasts have called for:
May 2009, forecast: $13.58 million
Nov. 2009, forecast: $13.39 million
Feb. 2010, forecast: $13.21 million
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