Oregon’s new state economist comes bearing gifts to lawmakers and taxpayers alike

Oregon lawmakers and taxpayers both got a lot more (theoretical) money to spend Wednesday.

All it took was a new state economist.

Releasing his first-ever quarterly revenue forecast, newly hired State Economist Carl Riccadonna predicted the state would haul in nearly $950 million more in the current two-year budget period than previously estimated.

As a result, taxpayers are now expected to receive nearly $1.8 billion back in early 2026 under the state’s unique “kicker” tax rebate — up from a projected $1 billion three months ago.

But the windfall didn’t stop there. Riccadonna and his team told lawmakers to expect an extra $1.3 billion in the 2025-27 budget cycle, as well.

The new forecast, used by the Legislature as a guidepost to determine how much tax revenue it can budget, is likely to create welcome breathing room as lawmakers work to pay for roads, schools, wildfire prevention and much more in next year’s legislative session.

But the estimate has little to do with a sudden bonanza playing out in Oregon.

Instead, Riccadonna told reporters Tuesday he had incorporated a more optimistic view of the nation’s economic future into the forecast, and rejiggered a predictive model used by his predecessor, Mark McMullen.

That model has resulted in forecasts that repeatedly underestimated how much personal income tax the state would receive, and led to a series of escalating kicker tax refunds for the last decade.

The state’s kicker law is triggered when personal income taxes and some other revenue streams come in at least 2% higher than was predicted when lawmakers set a two year budget. When that happens, all the excess money is returned to taxpayers.

Related: ‘OPB Politics Now’: Why Oregon’s kicker tax rebate just keeps growing

And taxpayers have received a lot recently. Earlier this year, the state issued a massive $5.6 billion rebate — by far the largest in Oregon’s history.

“My mandate joining [the Department of Administrative Services] back in September was to really get to the bottom of what’s happening here,” Riccadonna said Tuesday in a press briefing. “What my team has done is kind of deconstruct and reconstruct a lot of the forecast models to figure out what was happening.”

What they found, Riccadonna and economist Michael Kennedy said, was that past forecasters did not incorporate reduced tax revenues brought on by kicker refunds into their modeling. That choice was reasonable at the time, both men said, but wound up distorting forecasts.

“What we saw happening was kickers were creating an unstable equilibrium in the modeling,” Riccadonna said.

The new economist also said that McMullen and his colleagues built assumptions into past forecasts about how Oregon’s economy would perform that were overly pessimistic.

While recent forecasts did not assume a recession would hit, Riccadonna and Kennedy suggested they didn’t adequately account for the increasing possibility the nation might bring down high inflation without triggering a recession — a so-called “soft landing.”

“The cards look to be coming into alignment,” Riccadonna said. “It does look like policy makers are going to achieve the holy grail, if you will.”

The combination of tweaking their forecasting model and incorporating a sunnier economic outlook led to a lot of new assumed money that lawmakers may be able to use.

Kennedy said that the additional $945 million economists are expecting the state to receive in the current budget cycle would create a pot of $2.8 billion not accounted for in the 2023-25 budget. That could be set aside to pay for kicker payments or spent.

“That’s money that’s on the table this biennium that’s not spent,” Kennedy said.

The forecast also predicts the state will receive roughly $140 million in corporate income not anticipated in the last report. As a result, more than $1 billion would flow to K-12 schools as a result of Oregon’s corporate kicker, which sends excess corporate tax revenue to education.

McMullen stepped down earlier this year to take a job at a business-focused think tank. He had served as Oregon’s state economist for more than a dozen years, but faced mounting pressure over inaccurate forecasts.

The state announced in September it had hired Riccadonna, who’s spent much of his career on Wall Street analyzing national economic trends for major financial firms.

The new economist’s approach to forecasting comes with a potential downside: Recent forecasts have been off. But since they underestimated how much money the state would have, they never led to budget cuts.

Riccadonna said Tuesday his way of doing things was as likely to overestimate Oregon’s tax revenues as underestimate them — a situation that could leave lawmakers scrambling to fill budget holes.

“Some years it’ll come in high,” Riccadonna said, “some years it’ll come in low.”

Top Democrats largely cheered the forecast on Wednesday, saying it showed the state is on strong economic footing. One also nodded to Riccadonna’s altered forecast model.

“The state economists have an obligation to accurately estimate revenue levels so that the Legislature can invest in key services that Oregonians rely on,” House Speaker Julie Fahey, D-Eugene, said in a statement.

Not everyone was cheering, though. Senate Republicans released a statement that signaled worry that future forecasts, by being more accurate, would reduce or eliminate the kicker rebates that have sent more than $11 billion back to taxpayers in the last decade.

“The kicker is the people’s money, and it should remain so,” said state Sen. Lynn Findley, R-Vale. “While this biennium’s kicker appears secure, changes to the revenue model could lead to smaller refunds in the future, and we need to ensure taxpayers are treated fairly.”