Implements Model That Recognizes Kicker’s Impact on Revenue Forecasts
Oregon’s new state economist says his job is to avoid future kicker tax rebates by making accurate revenue predictions for the state budget. However, he said another kicker refund estimated at $1.8 billion will be returned to tax filers in 2026. Three months ago, the kicker was estimated at $1 billion.
Carl Riccadonna, a former Wall Street analyst who came onboard in September, described his mandate as figuring out why state revenue projections routinely underestimated tax collections for six biennia in a row, resulting in $11.8 billion in kicker refunds to taxpayers. He told reporters last week the fault lies in an outdated personal income forecasting model.
The ironic missing element, Riccadonna explained, was the revenue-lifting effect of ever larger kicker refunds. Oregon individual taxpayers received kicker refunds earlier this year totaling $5.6 billion, the largest in state history.
“If you look back, as the kicker gets bigger, the errors get bigger,” said senior economist Michael Kennedy. From 1979 to 2009, the forecasting error was 0.8 percent. Since 2009, the biennial forecasting error has averaged 6.3 percent, propelling larger kicker refunds.
“Pervasive pessimism” also infected previous forecasts, Riccadonna said. “Former state economists took a national economic forecast and adjusted it downward.” He also noted many economists anticipated a post-pandemic recession, which never occurred as wages rose, unemployment remained low and consumer spending was upbeat. “There were lots of variables that no one could have possibly forecast in advance,” Riccadonna said.
Latest Revenue Forecast Positive
Riccadonna and Kennedy delivered their first revenue forecast to legislators last week. They predict the state will have nearly $38 billion to spend next biennium – $35.4 billion in General Fund revenues plus a beginning balance estimated at $2.78 billion.
There are plenty of suitors lined up seeking larger budget allocations. The Oregon Department of Transportation faces a $1.8 billion budget hole. New housing construction continues to lag Kotek’s annual target of 36,000 new units. K-12 schools are staggering as teachers and staff seek higher wages and push for smaller class sizes. Lawmakers must approve a new Medicaid budget and increase support still fledgling behavioral health services.
Photo Credit:Kristyna Wentz-Graff / OPB
Democrats in control of the 2025 legislative session were pleased and perhaps relieved at the economic forecast. “While this positive economic forecast is welcome news and makes the start of the legislative budgeting process a little easier, we are still entering into a very tight budget cycle,” said Senate President Rob Wagner, D-Lake Oswego. “Current critical services must be maintained and legislators will need to make smart choices about how to sustain prior one-time investments to address the important needs facing every corner of Oregon.”
Additional revenue and the promise of no kicker refund in the next biennium may influence Governor Kotek’s budget and legislative decision-making. “I think truing up the calculation by the new chief economist is really going to be helpful to provide stability when we’re trying to do budgeting every two years, and I think his assumptions around the recalculations made a lot of sense to me,” Kotek said.
Photo credit: Statesman Journal
Republican leaders were more reserved in this assessment. Newly installed House Republican Leader Christine Drazan, R-Canby, said no one should confuse a rosy state revenue picture with thinly stretched household budgets for many Oregonians. “This is a lot of money from Oregonians for government to use wisely to meet its duty to Oregonians,” Drazan said. “It’s time for government to do its part by improving efficiency, strengthening transparency and providing excellent service. This is not the time for politicians to ignore agency failures, then push new fees or increased taxes.”
“The kicker is the people’s money, and it should remain so,” said Senator Lynn Findley, R-Vale, “While this biennium’s kicker appears secure, changes to the revenue model could lead to smaller refunds in the future.” Riccadonna believes that’s why he was hired.
Riccadonna and Kennedy forecast more subdued revenue growth going forward. State revenues between 2021 and 2025 grew by 15.4 percent after subtracting kicker refunds. They foresee revenue growth between 2025 and 2033 rising by still healthy 10.8 percent.
Non-General Fund revenues from the Oregon Lottery, Corporate Activity Tax and marijuana taxes are projected at $5.4 billion. Lottery revenues fund education, economic growth, state parks, natural habitats, veteran services and Outdoor School. Funds are also allocated to gambling counseling and treatment.
CAT revenue is transferred to the Fund for Student Success to support K-12 student health and safety, increased learning time and reduced class sizes, as well as college and career readiness programs and pre-kindergartens. Marijuana-derived revenue pays for enforcement and administration of the tax.
About the Kicker and Rainy Day Fund
Pushed by former Senate President Gordon Smith, R-Pendleton, the 1979 legislature enacted a surplus kicker statute along with a spending limit and a major tax relief plan. Voters approved the package in the 1980 primary election. The 1999 legislature referred a constitutional amendment that voters approved placing much of the kicker statute in the Oregon Constitution.
The kicker is triggered when actual revenue receipts exceed anticipated revenue included the biennial budget by 2 percent or more. Kicker refunds sweep in all revenue above the amount in the approved state budget. The May quarterly revenue report in odd-numbered years provides the revenue total used by lawmakers to finalize the state budget.
Kicker refunds originally went to individual and corporate income taxpayers. During the 2007 legislature, the corporate kicker was suspended. What corporations would have received was diverted to the state Rainy Day Fund. The original diversion was $319 million. The Rainy Day Fund at the end of the current biennium is expected to reach $1.872 billion.
Combined with unspent General Fund amounts and $1 billion in the Education Stability Fund, total state reserves now stand at $4.7 billion.
Oregon was late to the rainy day fund party but now has the 10th largest reserve among all states. Oregon’s reserves can be used to stabilize state budgets during an economic downturn when tax revenues slow or decline.
About Riccadonna and Kennedy
Before taking the state economist job in Oregon, Riccadonna spent two years as chief U.S. economist for the market strategy and economics division of BNP Paribas. Before that, he spent 13 years at Deutsche Bank and worked as the chief U.S. economist for Bloomberg.
As chief U.S. economist at Bloomberg LP, Riccadonna analyzed macroeconomic developments for their implications for the broader economy and monetary policy. He began focusing on U.S. economic research while working for Deutsche Bank.
Riccadonna attended Princeton University where he studied mechanical and aerospace engineering and finance.
Kennedy has 27 years of experience in Oregon working with institutional datasets to inform public policy and administration. He developed models to forecast the Oregon prison population, Corporate Activity Tax (CAT) revenues and revenue streams for the State’s General Fund.
Since 2021, Kennedy has served on the Oregon Commission on Autism Spectrum Disorder, which helps autistic individuals and their families providing more effective and efficient services and supports. The Commission also improves processes and policies in areas such as housing and the criminal justice system.
Kennedy graduated with a degree in business administration from Chapman University and completed coursework for a doctorate in economics at the University of Oregon.
