Oregon Takes One Small Step Towards Fiscal Sanity

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Late last week, policymakers in Oregon established the state's first permanent rainy day fund, a significant step forward in improving fiscal stability in the Beaver State. Rainy day funds can be a valuable tool in helping states to weather economic downturns or other fiscal difficulties, as they set aside excess revenues during the good times to help bolster flagging revenues during the bad.The lack of such a fund was one of the factors contributing to the sizable cuts in spending that Oregon was forced to adopt in 2003.

At present, rather than setting aside surpluses to hedge against future deficits, Oregon is required under law to return any tax revenue that exceeds official projections by more than 2 percent to both personal and corporate income taxpayers, in the form of a rebate or "kicker."Projections from the Oregon Office of Economic Analysis issued earlier this month suggested that the "kicker" for the 2005-2007 biennium would amount to roughly $1.1 billion for families and individuals and to approximately $315 million for businesses.

Legislation signed by Governor Ted Kulongoski temporarily suspends the "kicker" for businesses with Oregon sales of more than $5 million and directs the $290 million that they would have received into the nascent rainy day fund.Businesses with Oregon sales below that threshold will still receive a "kicker" totaling $25 million, while the personal income tax "kicker" will go on untouched. The legislation also mandates that 1 percent of general fund revenue be deposited into the fund in all future years.

Still, as the Eugene Register-Guard observes, the legislation signed by Governor Kulongoski suffers from a number of shortcomings.With only a one-time infusion from the corporate "kicker", the rainy day fund will likely be too small to withstand a significant recession and may not be adequately replenished once it is used.What's more, the legislation leaves Oregon's "kicker" system intact over the long-run, a situation that will continue to impair the state's ability to invest in vital public services.

For more on the need for - and the proper design of - state rainy day funds, see ITEP's Talking Taxes policy brief on this topic.

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