Oregon at wave's crest.

Byline: The Register-Guard

Projected kicker refunds due to Oregon taxpayers next year have been revised upward once more. The state's economists were too conservative in guessing how much money Oregon's income tax would generate in the 2005-07 budget period, and the constitution requires that the unanticipated revenue be rebated to taxpayers. Basing public policy on such revenue projections is self-defeating.

The kicker law, enacted by the Legislature in 1979, requires that when revenues exceed projections by 2 percent, the entire amount of the excess must be returned to individual and corporate taxpayers. Oregonians like the kicker law - they voted in 2000 to make it a part of the constitution. Next year's median kicker check will be an estimated $272, and corporations will receive a 67.3 percent credit against their 2007 tax bills.

The problem with the kicker law arises when the state's economy underperforms, and Oregon finds itself without a financial cushion. The state relies heavily on the income tax, the volatility of which is demonstrated by the size of next year's kicker refunds. Sensible budgetary policy would approve taxpayer rebates only after higher-than-expected revenues had been placed in reserve in an amount sufficient to carry the state through a downturn. Oregon, however, can find itself mailing tax rebates at the end of a flush biennium, even as it is forced to cut services because it has entered a lean one.

Each kicker rebate is a testament to the integrity of the state economists and lawmakers. It would be easy for the economists to inflate their projections so that the kicker would never be triggered - easy, that is, if the economists were prepared to fudge the numbers and the Legislature were willing to look the other way. Instead, the Legislature builds its budget on an honest assessment of future economic performance. Then, when that assessment turns out to be off the mark - as most two-year financial projections are - the state must either refund excess revenues or suffer through a downturn without reserves.

In his re-election campaign Gov. Ted Kulongoski indicated a willingness to support suspending part or all of next year's expected corporate kicker refund. The voters did not punish him for that, and even some business organizations have said they would not oppose diverting corporate kicker funds into a reserve. Corporations are expected to receive kicker rebates totaling $275 million, enough to cancel two-thirds of their 2007 income tax liability.

Any move by the state to retain even part of the kicker, however, would be politically difficult. A diversion of kicker funds would require approval either by the voters or by a two-thirds legislative supermajority. What's more, the state economists are projecting that revenues of $15.3 billion will be available for the 2007-09 biennium - 20 percent more than the 2005 Legislature had to spend. Many lawmakers will argue that the Legislature will have plenty of money to support state programs without tapping either individual or corporate kicker funds.

The 2007 Legislature, then, could proceed to spend $15.3 billion, approving healthy budget increases for education, public safety and other services without touching the kicker. The $15.3 billion would become the baseline for future budgets. And when an economic downtown reduces the growth rate of income tax revenue or caused an actual decline, the state would have no money in reserve to sustain earlier spending levels. Such a downturn may already be on the horizon.

Oregon ought to have a reserve equal to at least 10 percent of its budget. The kicker checks due to be mailed this time next year add up to that amount. The checks could be arriving just about the time the governor and the Legislature began debating how to cope with a budgetary crisis. Barring an act of uncharacteristic prudence by lawmakers, voters or both, Oregon will lurch from surplus to shortfall, never having learned to prepare in times of plenty for times of want.