Oregon’s state coffers continue to fill with personal and corporate income taxes at a record rate, according to the state’s latest economic and revenue forecast.

The tax-supported general fund, which accounts for the most flexible state spending, and lottery proceeds, have generated $1.7 billion more than forecast at the close of the 2021 legislative session, when the current two-year state budget was approved.

The forecast is up $1.2 billion from the previous report on Nov. 17, which projected about $500 million more in collections.

Economists from the Oregon Office of Economic Analysis told lawmakers on Wednesday, that the growth is fueled by near-record employment — tax withholding rates are setting records — and inflation.

Even Senate Republicans called for $60 million more to aid the Oregon State Police and eradicate illegal cannabis grows, on top of the $25 million lawmakers approved at a special session Dec. 13, and $50 million for forest thinning to reduce the severity of wildfires. House Republicans did not call for more spending, however.

Gov. Kate Brown and Democratic legislative majorities also have plans for increased spending during the short session that ends March 7, though Brown’s requests are largely for one-time spending.

“It’s nice to have more money,” Sen. Lee Beyer, a Democrat from Springfield who is retiring from the Legislature after two decades, said. “Sometimes it’s hard to have more money.”

Beyer spoke at the close of the presentation by state economists Mark McMullen and Josh Lehner at a meeting of the Senate Finance and Revenue Committee. The Legislature approved a two-year, $27 billion budget from tax collections and lottery proceeds, and more spending during the special session.

“The outlook is going to look very familiar,” McMullen said. “At least in the near term, the outlook is bright.”

Activity generates taxes

Although Oregon’s economy is still 54,000 jobs short of its pre-pandemic mark — the economists say that mark will be reached in the fall, instead of summer — the unemployment rate has fallen from its 13.2% high at the onset of the pandemic in April 2020 to 4.1% in December. (A January figure will be released soon.)

Corporate income tax collections, which are based on profits, are up. So is the corporate activity tax, first instituted in 2020, which is based on revenues.

“They can pass along higher prices because their consumers have good balance sheets right now and are ready to spend,” McMullen said. “So far, these higher prices have turned into higher business income, profits and the like. That’s all taxable activity.”

He also said a small but growing share of Oregon taxpayers are paying at the top 9.9% income tax rate. In 2012, just after the higher tax rate was created, 1.9% of taxpayers paid at that rate; in 2020, it was 3.9% — but McMullen said they now account for about one-third of all income taxes collected.

The economists are now projecting that $964 million will go back to taxpayers in 2024 in the form of credits against their 2023 taxes — an amount known as the kicker — and $634 million will be added to the state school fund as a result of excess corporate income taxes.

Under a 1979 law that voters wrote into the Oregon Constitution in 2000, when actual collections exceed projected forecasts by 2% or more, individual taxpayers get the difference back in the form of credits. (Voters changed the Constitution in 2012 to send excess corporate taxes to the school fund, from which Oregon’s 197 districts get the lion’s share of their operating costs.)

The actual numbers for the 2019-21 cycle just concluded were $1.9 billion for taxpayers and $847 million for schools.

Asked by Rep. Werner Reschke, R-Klamath Falls, whether a brake on state spending would ease inflation, McMullen said: “For the most part, inflation is larger than Oregon. It’s difficult for state and local policymakers to make a dent.”

Workforce critical

In response to another question by Rep. Khanh Pham, D-Portland, Lehner said state policymakers can act to increase the available workforce and the supply of housing, especially for lower-income families who do not earn enough for market-rate housing.

Brown has proposed $400 million more for housing, $200 million for a workforce training plan, and $100 million for child care.

“While I am pleased to see growth in wages for Oregonians, there is more work we need to do to grow, develop, and support our workforce,” she said in a statement. “Now is the time to make critical investments in housing, child care, workers, and businesses to help jump-start growth and keep our economy moving.”

The Employment Department reports that Oregon has seven workers for every 10 job openings available. It specified five business sectors, each with at least 10,000 unfilled jobs.

“It’s not limited to bars and restaurants. It’s economy-wide that the labor market is tight,” Lehner said. “The overall tightness is expected to persist, largely due to demographics. We will be losing a large number of highly skilled workers with a lifetime of experience for years to come. The inflow into the labor market is relatively lackluster; it’s not growing.”

As the post-World War II generation known as baby boomers continues to retire over the next decade, Lehner said low birth rates and in-state migration have not filled the gap.

In September, based on a national report, Lehner outlined ways to boost the number of women, minorities and less-skilled workers in the labor force. Brown’s $200 million Future Ready Oregon plan, now in front of lawmakers, targets training for workers in three growing sectors — health care, construction and manufacturing — and provides them with some interim support for families.

“All of these things would help increase the labor force,” Lehner said.

Housing shortage

Oregon also has fallen an estimated 111,000 housing units short of what it should have to accommodate its people; the current annual growth rate is 20,000 to 25,000 units. Lehner said the gap is equal to the loss of one year’s production every five years — and people earning less than half the area’s median income (around $40,000) account for just about half (54,000) of that need.

“The current acute need is at the bottom of the spectrum,” he said.

Lehner said this need is concentrated in the Portland metropolitan area, which is home to about half the state’s population when outlying counties are counted. But he said housing availability and affordability are statewide issues.

Though Oregon’s population is slowly diversifying — and homeownership by whites and Asians are on a par — the figure for Hispanics is under 50%, and Blacks just 25%. Lehner said policymakers will have to boost approvals for housing beyond their current rate to increase the supply.

“If it becomes too expensive to live in Oregon, people are going to move away,” Lehner said — and that would have implications for future economic forecasts for the next decade.