SAN FRANCISCO — The Oregon Legislature won’t send voters Gov. Ted Kulongoski’s proposal to change the state’s tax rebate law to bolster its rainy-day fund, lawmakers said late last week.
The Democratic governor has been pushing lawmakers to reduce the amount of taxes rebated to taxpayers in boom years in favor of adding some of the money to the state’s reserve funds to offset the state’s volatile revenue structure.
But legislative leaders said voters just are not in the mood to pass “kicker” reform after approving $730 million of personal and corporate income tax hikes last month.
“Our task this February is to create jobs and help those families get back on track,” said House Speaker Dave Hunt. “We’re not opposed to tax reform, but today our number-one priority is helping families through this recession.”
Oregon’s tax surplus rebate, or kicker, requires refunds to taxpayers when actual revenue exceeds forecasts by at least 2% during a biennium. The kicker was approved by voters in a ballot initiative in 1980 and enshrined in the Oregon constitution in 2000.
The governor says the kicker adds to the state’s cycle of boom and bust budgeting.
Oregon gets about three-quarters of its general fund revenue from personal income tax collections, which rise and fall sharply with economic cycles.
While the kicker keeps lawmakers from spending unexpected revenue windfalls during booms, it does nothing to smooth out the sharp declines in revenue during economic busts.
The state has paid personal income tax kickers in more than half of the biennia since 1980, returning more than $1 billion to personal income tax payers in 2005-07. It has since suffered a sharp decline in revenue that lawmakers responded to with tax hikes and big cuts in spending.
Oregon voters approved about $730 million in tax hikes on corporations and high-income individuals last month to help close a $3.8 billion budget deficit. Lawmakers used federal stimulus dollars and $2 billion of spending cuts to close the rest of the gap.
State revenue forecasters last week said a continuing drop in tax collections has opened up another $100 million-plus budget deficit.
Kulongoski wants to avoid hiking taxes or cutting social services during the next recession by changing the kicker law. Last month he proposed a constitutional amendment that would require the state to direct as much as half of the kicker tax rebates into an emergency reserve fund, building up the reserves until they reached 10% of the previous biennium’s general fund budget.
“We will never end this cycle of roller-coaster budgeting that forces us to cut schools and public safety in every recession unless we reform the kicker and build a strong reserve fund,” Kulongoski said.
During the 2007 legislative session, the state’s corporate kicker was diverted into a newly created rainy-day fund that helped the state garner rating upgrades during the last expansion.
But lawmakers said they don’t want to put Kulongoski’s latest proposal before voters until it has the support of enough constituents to pass.
“I regret that I have to disagree with the governor on this issue,” said Senate President Peter Courtney. “He’s worked hard, but I don’t believe it’s the right time to put the question of kicker reform before the voters.”