Oregon lawmakers sweating uncertain federal funding this year could have an additional $350 million to spend as they work up a new two-year budget.
That’s the latest prediction from Oregon state economists, who unveiled their quarterly economic and revenue forecasts Wednesday morning.
Much of the forecast contains heartening news. Despite frequent chaos and confusion in the early days of President Donald Trump’s administration, the national economic picture remains stable for now, state Chief Economist Carl Riccadonna told lawmakers.
And strong wage growth in Oregon has signaled to economists that they can expect more in personal income and other taxes over the next two years.
Oregon Chief Economist Carl Riccadonna
Courtesy Oregon Department of Administrative Services
The forecast delivered Wednesday included about $550 million more in tax revenue for the 2025-27 budget cycle than predicted just three months ago. That increase is offset somewhat by a roughly $200 million reduction in the amount of money the state is expected to have left over when the current budget ends June 30.
“Newly available tax return data is showing us that wages on tax returns are really strong,” Michael Kennedy, a senior economist at the state’s Office of Economic Analysis, said in a call with reporters.
But there’s a lot of uncertainty too. Inflation isn’t cooling as fast as hoped, and Riccadonna conceded that the impact of mass federal layoffs being carried out by the Trump administration wouldn’t show up in state unemployment data until March.
He noted that tariffs being instituted or threatened by Trump might lead to a trade war that could have an outsized impact on export-heavy Oregon. Riccadonna said that a trade war that emerged in 2018, when Trump was last in office, clipped the state’s surging economic growth.
“Suddenly Oregon downshifted pretty substantially,” he said. “It went from high flyer to kind of growing in line with the national trend.”
Related: Threat of tariffs sends Oregonians on a pre-Trump shopping spree
Oregon lagged behind the average economic growth nationwide in 2024. Riccadonna told lawmakers Wednesday the impact of a trade war in the near future could “push the state into stagnation.”
That sentiment was picked up on by Democrats.
“The Trump administration’s trade policies, including tariffs, pose a real threat to Oregon’s economy — new tariffs could impact key industries in Oregon, creating uncertainty for businesses and workers across the state,” House Speaker Julie Fahey, D-Eugene, said in a statement.
Gov. Tina Kotek said that, while the economy is stable, additional tariffs and other federal actions “present new potential challenges.” She repeated her call for lawmakers to focus their budgetary attention on core services.
“We must lean in on what we see working when it comes to housing and homelessness, mental health and addiction and education,” Kotek said in a statement.
Republicans, meanwhile, signaled they were less concerned by Trump’s policies than by Oregon’s business climate. Riccadonna’s data showed that, while Oregon has seen jobs increases in health care, education and some other sectors, it has lost workers in areas like manufacturing, finance and retail.
“The tariffs, if done properly, can bring manufacturing back to the United States,” said state Rep. E. Werner Reschke, R-Malin, pointing to recent news that Apple is planning new U.S. investment.
“Oregon is raking in tax dollars, but the foundation of our economy is weakening,” Senate Minority Leader Daniel Bonham, R-The Dalles, said in a statement. “If we keep losing working-age Oregonians and making it harder for businesses to thrive, this won’t be sustainable in the long run.”
Christine Drazan, the top House Republican, said the data was a “wakeup call.”
“Taxpayer dollars are funding and growing government and government-subsidized sectors, while private sector jobs in manufacturing, construction, and hospitality — the industries that grow our economy — are experiencing job loss and decline,” Drazan said. “That’s a big problem.”
Wednesday’s forecast also contained something that has been rare in recent years: a slight reduction of the anticipated “kicker” refund likely to be sent to taxpayers next year.
The refund is triggered whenever actual personal income tax revenues come in 2% or more above what was predicted when lawmakers passed a two-year budget. Since economists now predict the state will take in about $90 million less than previously expected in the current budget cycle, the projected kicker refund has been reduced to $1.73 billion, down from $1.79 billion in November.
Wednesday’s forecast marked the second for Riccadonna, who replaced longtime state economist Mark McMullen in September. And it contained far less drama.
In his first forecast, delivered in November, Riccadonna announced he was rejiggering the state’s model for predicting revenues. He has said his predecessors included assumptions in their modeling that distorted results, leading to inaccurate forecasts that have triggered kicker refunds in each of the past six budget cycles.
Related: Funding freeze causes trouble for Oregon transportation projects
As a result, the chief economist predicted the state would take in nearly $1 billion more in the current budget period than previously thought.
Since delivering that November forecast, Riccadonna conceded reading the economic tea leaves has become more difficult. With Trump in office, he said, there is a higher risk of “outsized outcomes” that change the state’s fortunes.
“It’s a double-edged sword,” Riccadonna said. “It could be positive if there are big tax cuts. It could be negative if there’s a really harsh escalation of trade tensions.”
Wednesday’s forecast is a precursor to a much more important report. The revenue outlook Riccadonna will deliver in May is the one lawmakers will use to set the next two-year budget.
“In the face of federal uncertainty, the Legislature must make cautious budgetary decisions focused on the most pressing needs of Oregonians across the state,” Senate President Rob Wagner, D-Lake Oswego, said in a statement.
