Economists: Oregon's revenue still strong; ongoing inflation presents challenges

Oregon's economy has continued to produce record-breaking revenues, exceeding economists' expectations that the economy would slow after federal coronavirus aid dried up.

“All of Oregon’s primary revenue instruments are outstripping expectations at this point,” state economist Mark McMullen told lawmakers Wednesday during a hearing on the quarterly economic forecast. “Instead of normalizing, revenue growth has continued to accelerate."

Compared to the last quarterly forecast in August, the state is expected to gather $751 million more during the current 2021-2023 fiscal biennium. 

Wages and salaries are 8% above the pre-pandemic peak, despite the fact that employment is 70,000 jobs below where it was pre-pandemic.

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However, economists warned nationwide inflation could continue into next year and would have an outsized impact on low-income Oregonians and is likely to counteract much of the wage growth the state is currently seeing.

“For the next six months, the anticipation is inflation above expectation, and that’s going to continue to eat into these wage gains. We’re expecting real wages to be relatively flat, really through the end of next year," state economist Josh Lehner said. 

While inflation is boosting state revenue growth, McMullen said it is a net negative for the state budget as items will cost more than previously budgeted.

Many of the factors leading to the inflation are out of lawmakers' control.

Supply chain bottlenecks and labor market shortages are persistent as companies seeing high profits look to expand and purchase inventory. 

It's a phenomenon described as "too many dollars chase too few goods," and inflation is one result. 

When the supply chain and labor market catch up, inflation should slow, McMullen said.

However, that solution is not an option in sectors like the housing market where a lot of supply cannot suddenly appear. Additionally, there was already a supply shortage before the pandemic, which has been exacerbated.

Gov. Kate Brown said the state still has room to recover from the pandemic and public health-related shutdowns, particularly within historically disenfranchised communities. 

"As we recover, we must support the communities that have been disproportionately impacted," Brown said. 

Looking forward to the 2022 legislative session, Brown said the state also has an opportunity to put some of its additional resources toward infrastructure, in concert with new federal funds.

Revenues have been strong since the coronavirus pandemic began, driven by federal aid sent to states in response to the impacts of COVID-19 and stronger-than-expected tax revenues.

High revenues were responsible for a record-breaking $1.9 billion tax "kicker" rebate Oregonians will receive when filing taxes next year. 

The median Oregonian making between $35,000 and $40,000 is projected to receive a kicker rebate of about $420 on their 2021 taxes. The average salary for an Oregonian is $67,500 — those individuals are expected to see an $850 credit.

Economists' early estimate for the 2024 kickers are $558 million for individuals and $250 million for corporations.

Reporter Connor Radnovich covers the Oregon Legislature and state government. Contact him at cradnovich@statesmanjournal.com or 503-399-6864, or follow him on Twitter at @CDRadnovich.

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