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State Predicts $218 Million Increase in 2023-25 Tax Revenue

 

The Oregon Office of Economic Analysis issued its quarterly economic and revenue forecast Nov. 15. That forecast contained a data error that overstated anticipated insurance tax revenue, however. On Nov. 20, the office released a corrected forecast. Below is an updated summary:

Economic outlook

The report shows no major changes in economic outlook or expected revenue since the last report in September. State economist Mark McMullen told the House and Senate Revenue Committees Nov. 15 that everything is “pretty stable” and “tracking with expectations.” McMullen also told the committees that the Federal Reserve’s goal of a “soft landing” appears to remain on track.

The state’s economists also noted that inflation is moderating, with substantial flattening of prices for food, energy and goods, partially offset by continued high inflation for services. The economists acknowledged continued challenges with labor force shortages and outmigration. The state’s population declines since 2021 have been driven primarily by people leaving the state rather than a decline in the number of people moving here from elsewhere, they explained.

Despite the workforce and population challenges, the forecast report does show that Oregon’s current experience with productivity differs from what the state has experienced in the past. Historically, population growth has helped Oregon outperform many states during periods of nationwide economic expansion. Recently, however, increased worker productivity has produced strong economic gains despite stalled population growth.

Revenue

The corrected December forecast (compared to the forecast issued in September) shows slight adjustments to anticipated 2023-25 and 2025-27 revenue. The forecast for the current biennium (2023-25) is up a bit ($218 million) due to strong personal and corporate tax revenue as well as interest earnings. The 2025-27 forecast, despite a slight downward adjustment, is still expected increase the general fund 34% over 2023-25.

Kicker

It is important to note that changes to the 2023-25 revenue forecast will not affect the personal income tax kickers that will be credited to taxpayers in 2024. The kicker triggers when revenue growth exceeds the forecast by at least 2%, and the 2024 kicker is based on revenue collected during the 2021-23 biennium.

While the personal income tax kicker is returned to taxpayers, the state retains the corporate kicker to fund education. The kicker represents money the state collects beyond the total used to set the budget.

Reserves

The state’s reserve funds remain high. The combined Education Stability Fund and Rainy Day Fund balance is $2.1 billion, which represents about 8.2% of the current general fund budget.

Bottom line

Given the projected economic stability and the generally stable revenue outlook, the December forecast should be considered good news. While OBI encourages spending restraint, legislators will have a little more to work with for any urgent or emergency need that may come up. These factors, coupled with the strong reserve fund balances, argue against a search for new revenue sources or tax increases.

You can read the full December report here.

Policy and Rulemaking Updates

Unemployment Insurance Rates: Starting in 2024, the rate new employers pay for unemployment insurance will increase from 2.1% on wages up to $50,900 per employee to 2.4% on wages up to $52,800 per employee. According to the Employment Department, the increase is needed because wages – across the state and across all industries – increased for the past two years, which pushed up the amount unemployed people claimed for weekly benefits. While the rate for established businesses varies depending on the business, the state bases the new employer rate on the previous year’s demand for the unemployment trust fund. That trust is used to pay claims for weekly benefits to Oregonians who lose their jobs through no fault of their own. Starting next year, meanwhile, the Employment Department will begin to process claims using the same Frances system it uses to process Paid Leave Oregon claims. Hopefully that change will be a welcome improvement to a system that was among the slowest in the nation to get benefits in the hands of Oregonians during the COVID pandemic and still struggles to process many claims for benefits within three weeks, due in part to fraud.

Climate Program Rule Revised: The Environmental Quality Commission adopted changes to the Climate Protection Program (CPP) at its Nov. 16 meeting. The proposed rule did not contemplate major revisions to the CPP. Nevertheless, several changes will result in significant impacts on regulated entities. OBI submitted comments on the proposed rule in October, but the Department of Environmental Quality (DEQ) did not address most of our concerns. The updated rule:

  • Rejected a major push by environmental groups that would have required renewable natural gas (RNG) to be sourced from within Oregon and codified book and claim accounting for RNG, which OBI was pleased to see.
  • Added major new requirements for stationary sources that will make more businesses subject to the best available emissions reduction (BAER) provisions in the CPP. Under the new rules, an air permit modification will become much more cumbersome if a proposed modification 1) would increase actual GHG emissions by 10,000 metric tons per year; 2) has the potential to emit 25,000 metric tons of GHG per year; or 3) makes significant alterations to an entity’s air permit (including Type 2, 3 or 4 changes). A facility would be required to implement BAER, a lengthy process in and of itself, before DEQ could consider modifications to the facility’s air permit. This provision essentially makes a business’ air permit contingent upon complying with some of the most burdensome elements of the CPP.
  • Adjusted the method for distributing compliance instruments to regulated entities so there are adequate compliance pathways for new market entrants.
  • Retained the proposal to make each metric ton of GHG incorrectly reported by a covered fuel supplier a separate violation.

Industrial Site Readiness: While the Legislature did good work this year in support of Oregon’s semiconductor sector, the same cannot be said of its treatment of other manufacturing industries. Manufacturers should be pleased, then, that policy that could help all parts of this sector will be considered during the 2024 session.

Currently, almost 70% of undeveloped industrial-zoned land in Oregon is not site-ready. A significant obstacle is the cost to prepare such land for use. Local governments struggle to find the money needed to do such preparatory work as grading and providing road access, power and sewer infrastructure. Several state programs exist to help, including the Oregon Industrial Site Readiness Program (OISRP), but these have been largely unfunded in recent years.

Several lawmakers have told OBI, however, that the Legislature will give the OISRP program a $40 million budget that can be used to support work by local governments. The support, including loans and reimbursements, would be largely or wholly repaid with some of the income taxes generated by jobs created by specific projects. While $40 million is a fraction of the estimated $500-700 million needed for site readiness across the state, it is still a step forward and a show of support for Oregon manufacturers.

Committee Seeks Members: The Higher Education Coordinating Commission is seeking members for the Private Career School Advisory Committee, which advises HECC staff on education provided by the private career school sector. The panel meets four times per year and provides feedback on policy, procedures and laws. HECC oversees the licensure of over 200 PCS schools. If you’re interested in serving or would like to learn more, contact Kia Sorensen at kia.sorensen@hecc.oregon.gov.

How COR Became a Leader in Recycling and Sustainability

Portland solid waste management and recycling company COR made a splash in early November by unveiling the state’s first electric garbage truck, a Peterbilt rear-loader that holds a big enough charge to conduct a full day of bin pickups without stopping.

The new truck is one of about 25 collection vehicles operated by the company, whose success since its founding in 1997 has less to do with splashiness than hard work and business savvy fueled by a clear mission.

Go here to learn more about the growth of the family owned business.

Notable News

Teacher Strike: Portland Public Schools and the district’s teacher union announced a tentative agreement Nov. 26 that would end a strike that had endured for almost a month. The union’s members still must ratify the new contract, according to Willamette Week. Students returned to school Nov. 27.

Payroll Tax: The state unemployment payroll tax for unemployment insurance will rise for new employers in 2024, Oregon Public Broadcasting reports. The current rate is 2.1% on taxable wages up to $50,900 per employee. It will rise to 2.4% on wages up to $52,800.

Unemployment Claims: Delays for jobless benefits in Oregon are mounting despite the state’s low unemployment rate, The Oregonian reports. Partly to blame is a deluge of fraudulent claims. The fraud problem also is affecting Paid Leave Oregon, the state’s paid family and medical leave program, which the state employment department also runs.

TriMet Security: TriMet, the state’s largest public transit system, may hire additional security to ensure safety on its vehicles, Willamette Week reports. Ridership has not rebounded to pre-pandemic levels, in large part because people are worried about their safety on the agency’s buses and trains.

OLCC Audit: Secretary of State LaVonne Griffin-Valade has determined that a state audit of the Oregon Liquor and Cannabis Commission, which was embroiled in a scandal that culminated in the resignation of former Secretary of State Shemia Fagan, is credible, Willamette Week reports. This finding is at odds with a California law firm hired by Attorney General Ellen Rosenblum, which recommended pulling the audit from the agency’s website.

Elliott State Forest: Oregon State University has decided not to participate in the management of the Elliott State Forest, the Oregon Capital Chronicle reports. In a letter to the State Land Board, OSU President Jayathi Murthy expressed concern that management and habitat plans for the forest wouldn’t allow enough logging or provide sustainable revenue.

Election Complaints: The secretary of state’s Elections Division is struggling to process an increasing number of election complaints, Willamette Week reports.

Record Shopping: Nearly 197 million Americans shopped in stores and online during the five-day holiday period from Thanksgiving Day to Cyber Monday, according to an annual survey by the National Retail Federation. This is the biggest number since the NRF began tracking in 2017.

Manufacturing Study Details Federal Regulatory Burden

The National Association of Manufacturers in October released a study outlining the macroeconomic impact of federal regulations. According to the study, the total cost of federal regulations in 2022 is estimated to be $3.1 trillion, which is equivalent to 12% of U.S. gross domestic product.

The federal regulatory burden costs manufacturers $29,000 per employee per year. For small manufacturers, the cost is even greater, at $50,000 per employee per year. This regulatory burden chills investment, limits the ability of businesses to hire workers and suppresses wage growth. Learn more about NAM’s study here.

States, meanwhile, create additional regulatory burdens, and Oregon is no exception. In early 2023, OBI asked hundreds of small businesses to share their thoughts on Oregon’s business climate. Seventy four percent of respondents said that regulations affecting businesses change so frequently that it’s hard to keep up with what they’re supposed to do. More than 70% said that state agencies seem more interested in finding wrongdoing than in helping businesses comply with regulations. Sadly, only 18% of respondents believed that state lawmakers care about the success of their businesses.

To address such problems, OBI is working on a regulatory modernization package for the 2025 legislative session. It will be included in the next iteration of our Growth and Innovation Roadmap. You can read the 2023 Growth and Innovation Roadmap here.