As Oregon state government sheds workers, it foresees rewards for companies that shed workers

Ore. budget outlook: pink slips, business rebates

PORTLAND, Ore. — Oregon’s treasury is so depleted that teachers and state workers are getting pink slips, but the state is nevertheless on course to send millions in tax rebates next year to businesses that have done well through the Great Recession by paring their own payrolls.

One Democratic lawmaker calls it “insanity,” and it’s not something that makes sense to people who have gotten fired because the treasury is short.

But the upcoming corporate refunds, which total about $40 million, result from a business situation that’s common in the nation — the so-called jobless recovery — and a tax provision that’s unique to Oregon:

— In a weak economic recovery, companies are enjoying profits because business is up, although not by so much that they feel they can begin hiring again.

— Under a 30-year-old Oregon law, “kicker” tax rebates are kicked back to companies doing business in Oregon when corporate tax revenues exceed forecasts by at least 2 percent.

The most recent forecast shows corporate tax revenues about $40 million beyond that threshold, making rebates — in the form of tax credits — almost a certainty. The exact size will be figured when the state closes the books on its budget next year.

“I don’t understand how they get a kickback when our budget is $2 billion in the hole,” said Margaret Turner, who this summer lost her job teaching English as a second language at the Oregon Trail School District in Sandy. “Logic has nothing to do with it, I guess.”

Hers was one of the 1,300 teaching positions the Oregon Education Association estimates was lost as Gov. Ted Kulongoski twice ordered across-the-board budget cuts to deal with shortfalls. Still, the state is staring at a gap of $2 billion or more when legislators draw up a new two-year budget next winter.

The Oregon provision is among a handful in the nation that triggers rebates or reduces tax rates in response to revenue surpluses. Others are in Colorado, Massachusetts, Missouri and Ohio.

Oregon’s is the only one that triggers rebates based on revenue forecasts that turn out to be too low, according to research by the National Conference of State Legislatures. And Oregon’s is the only one expected to trigger a rebate any time soon.

The kicker is popular in Oregon because it can apply to individual income taxes as well — the refunds for individual taxpayers show up as checks in the mail right before Christmas shopping.

Three years ago the state distributed more than $1 billion in individual kickers averaging nearly $300 per check, but recession and unemployment persisting above 10 percent mean an individual kicker isn’t in the cards this year.

The business kicker isn’t entirely a sure thing, either. The Legislature could suspend it, as it did two years ago when it diverted money to a reserve account. Such action, though, requires a two-thirds vote.

What the Legislature and governor will do depends greatly on the results of the November election. Democrats, who control state government, are critical of the kicker, saying it keeps the state from building reserve accounts. Republicans defend it on the grounds that it’s fair to taxpayers and keeps a lid on spending.

“What’s the reason for them to spend more just because more comes in?” said Don McIntire, a conservative prominent in initiative campaigns for tax and spending limits.

A legislative staff study said that over the long term the rebates have trimmed state revenues by 3 percent.

As it became clear this summer that a business refund is nearly certain next year, critics called for suspending it.

“It’s a much easier vote to stop sending money to Walmart than to cut a human service budget or the education budget,” said Chuck Sheketoff of the liberal Oregon Center for Public Policy,

Exactly who gets business rebates, and how large they are, is unknown because the tax information is confidential. State taxes, though, are aimed at companies headquartered out of state, so they’d get large shares of the $40 million.

State economists say it’s not peculiar to Oregon that businesses are enjoying profits but lack confidence to start hiring because of uncertainty about the course of the weak expansion. “That’s certainly what you’re talking about at the national level,” said Josh Lehner, an analyst for the state.

One business leader, J.L. Wilson of Associated Oregon Industries, said he suspects the uptick in corporate tax revenue is a result of changes in the way the business taxes are calculated — the result of a tax measure voters approved in January.

The kicker was enacted in 1979 as legislators tried to persuade voters not to go for a property tax limit similar to California’s historic Proposition 13 the year before.

But by 1990, voters had approved an Oregon-style property tax limit, sponsored by McIntire. Voters have also showed their pleasure in kicker rebates. In 2000 they gave it constitutional status, meaning they’d have to ratify any changes the Legislature proposes.

Among those now urging the Legislature to propose changes in the kicker tax is Gov. Ted Kulongoski, in his last four months as governor. Thirty years ago, as a Democratic state senator from Eugene, he voted for the kicker, but now he says the state should use some of the kicker money to build reserve accounts.

“At the time, it was the right vote, but things changed,” said the governor’s spokeswoman, Anna Richter Taylor. “Maybe in hindsight, he wouldn’t have taken that vote.”