May Revenue Forecast: a mixed bag for kids

This morning the Oregon Office of Economic Analysis released its much anticipated May forecast. The importance of this particular forecast is two-fold: first, it determines whether or not the kicker kicks, and second, it lets lawmakers know how much money they’ll have to budget for the coming biennium.

For kids, the result was a mixed bag.

Both the personal and corporate income kickers were triggered. In the case of the personal income kicker, $473 million will now be returned to taxpayers as a tax credit according to the amount filed by tax payers. This means that approximately $550 for every kid in Oregon will be diverted from critical services and, for the most part, go to wealthy taxpayers. In fact, the richest 1% of taxpayers will receive a credit 37 times larger than the median taxpayer.

Projected Average Kicker Credit by Adjusted Gross Income

Average projected kicker credit by Adjusted Gross Income

The corporate kicker also “kicked,” but because of Measure 85 in 2012, the $61 million will bolster the State School Fund rather than flow back to corporations.

In terms of good news, the state economists predict that the net amount available in the General Fund for the 2015-17 biennium will be $264 million higher than they had previously forecast. 40% of this increase had already been earmarked for the State School Fund, meaning $105 million more will go to support schools in the next 2 years. This leaves approximately $160 million more that is now available to invest in programs that support children and families.

$160 million can make a difference for Oregon’s children and their families if used wisely. Child poverty is still 10% higher than it was at the end of the recession and 25% higher than before the recession. This illustrates the need for reinvestments in human services programs so that every child can live in a safe and economically secure home. For example, Employment Related Day Care could be expanded to eliminate the waiting list for families — ensuring that all families in need would have access to high-quality, affordable child care. Additionally, the Co-Chairs’ Budget Framework reduced investments in early education; Career Technical Education; and Science, Technical, Engineering, and Mathematics programs in the Governor’s Recommended Budget from $220 million to $60 million — a difference of $160 million. These are just two examples of how the state could further invest in children’s education, health, safety, and economic security.

Although $160 million is too little to be invested in all the programs that could make a difference for kids and families in Oregon, it is a significant boost. Furthermore, the legislature has options that would strengthen these programs even more — for example, by diverting the personal income kicker instead of giving large tax credits to the wealthiest tax payers or by repealing Gain Share.

The revenue forecast was a mixed bag for kids only because the state has chosen to put itself in the situation where good news can mean bad news. Higher revenue should mean more resources for critical programs that serve our state’s most vulnerable — but instead it means diversion from these programs. This doesn’t have to be the case and the legislature can take action to invest in Oregon’s kids. The question is: will they?

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When kicker kicks, kids lose

Oregon’s “kicker” law looks like it will trigger when the state economists release the May forecast this coming Thursday. If revenues from personal income taxes collected during the 2013-15 biennium exceed 2% of the amount originally forecast in May 2013, the kicker will “kick.” If that happens, every dollar above the revenue prediction will be returned to taxpayers in the form of a tax credit on their 2015 state tax filing. Based on the current best guess, if the kicker kicks it will mean at least $350 million being credited to taxpayers.

So everyone wins, right? The short answer: no.

$350 million is approximately $400 for every child in the state that won’t be spent on proven, evidence-based programs like home visiting, which has been shown to improve the lives of children and even save taxpayers money in the long-run. If the money is given to taxpayers as a credit, it has to come from somewhere in the budget. In fact, to give a sense of what the money could mean for children and families, $350 million represents more than one-third of the total General Fund allocations in the current draft of the 2015-17 budget that would go to the Department of Human Services for its child welfare, self-sufficiency, and vocational rehabilitation programs. Child welfare and self-sufficiency programs in particular serve the state’s most vulnerable children and could take a serious hit if the kicker kicks.

Moreover, the nature of the kicker credit rewards the richest taxpayers at the expense of these critical programs for vulnerable kids. The credit will be a percentage of filers’ gross (pre-credit) tax, meaning that the higher your income, the more money you’ll get from the state. In fact, based on 2013 tax return data [Excel file], the average credit the bottom 95% of taxpayers will receive is about $120 — meanwhile, the top 5% will on average receive more than 10 times that amount, with the top 1% alone receiving nearly one-fifth of the total kicker.

In other words, if the kicker kicks, the winners will be the richest Oregonians — and the losers will be the kids who benefit from already underfunded services like abuse prevention, public education, anti-poverty programs, and other critical investments.

How would you spend $95 million?

Every budget cycle, Oregon lawmakers wrestle with issues from the big – like how much to spend on K-12 education – to the small – like whether or not to offer tax breaks to purchasers of luxury cigars. But sometimes, the issues are a hybrid: policies with large price tags that only benefit a small number of people or businesses. The Legislature is grappling specifically with one of these programs this session, Gain Share.

First, some background. In 1993, Oregon created the Strategic Investment Program (SIP), which allows counties to selectively waive portions of property taxes in order to attract business investment and encourage job growth. However, because property taxes are used by local districts to supplement the allocations from the State School Fund, waiving these property taxes negatively affects school funding. In response, the Oregon legislature created the Shared Services Fund, otherwise known as Gain Share, to compensate counties for the foregone property taxes.

Gain Share, in effect, spreads the cost of local counties’ property tax breaks across the state. Counties gamble that by offering rebated property tax payments to large employers, any spending by the business and their employees will return in equal measure to the community. The state as a whole then takes a loss by transferring money from the General Fund back to counties. During the 2015–17 biennium, Gain Share is expected to cost the state $95 million — with one county (Washington) receiving all but $700,000 of it to reimburse for tax cuts given to two corporations. Gain Share isn’t up for renewal until 2019, but Oregon lawmakers are deciding this session whether the benefits warrant the cost.

The key question is, could $95 million be put to better use?

At the same time that Gain Share is being discussed, there is an effort led by Representative Alissa Keny-Guyer to renew and expand several child- and family-focused tax credits that would have an enormous impact on the lives of thousands of Oregonians. The proposed changes would combine two separate tax credits set to expire this year (the Working Family and the Child & Dependent Care credits), which reimburse families for costs like child care, and create one new credit, the Working Family Child and Dependent Care Tax Credit. In all, the newly streamlined tax credit would mean that low-income families get back more of their taxes to help pay for basic expenses. For example, a family of three living just above the poverty line paying $12,000 per year for child care for their one-year-old would receive $3,420 more in tax credits per year – a significant amount for any family, let alone one living paycheck-to-paycheck.

An additional proposal would expand the state’s EITC program specifically for families with young children. Currently, Oregon’s program is 8% of the federal credit, for an average of $229 per participating family. Expanding EITC, the most powerful anti-poverty program we have, would mean hundreds of dollars more per year for struggling families. The expansion only applies to families with young children in order to focus the investment where it is most likely to have the largest return — children’s current and future well-being.

The co-chairs of the Joint Ways and Means Committee have pencilled in the full $95 million to extend Gain Share, but they have only budgeted $14 million for all other tax credits expiring during the current biennium. To streamline and extend the Working Family Child and Dependent Care Tax Credit alone through the end of the biennium would be $32 million.1 In other words, there isn’t enough room in the budget for both Gain Share and a dependent care credit for low-income families. If Gain Share is maintained, thousands of Oregon families will lose out on an opportunity to see their taxes lowered and spendable incomes expanded – and Oregonians will lose out on the economic boost that would occur as a result. On the other hand, if the $95 million is saved by repealing Gain Share, the state would be able to afford to provide a tax credit to low-income families for at least some of the extraordinarily high cost of child care, thereby encouraging such families to work. Even more, with the newly streamlined credit there would still be enough money left over to more than double EITC for low-income families with children under six.

Oregon faces a choice of how to spend $95 million – reward one county for giving hundreds of millions of dollars in corporate tax breaks or extend and expand tax credits that directly benefit thousands of Oregon families living paycheck-to-paycheck. Which would you choose?

⌃1. The co-chairs have budgeted $14 million for tax credit extensions. However, because the credits under review sunset midway through the 2015-17 budget cycle, $14 million reflects only half of the biennial cost of any extension. Likewise, $32 million reflects only half of the biennial cost of the Working Family Child and Dependent Care Tax Credit because the two credits it would combine are set to expire halfway through the biennium.

Home Visiting — Pay Now or Pay Later

In 2003, the child abuse and neglect rate in Oregon was virtually identical to the United States average. And yet, 10 years later, Oregon’s rate had declined by only 2% while the national average had decreased by 25%.

Source: US Department of Health and Human Services, Child Maltreatment Report

Source: US Department of Health and Human Services, Child Maltreatment Report.
note: Oregon 2011 numerator from Oregon Child Welfare Data Book; all data for 2003 to 2011 uses duplicated victim counts

Oregon’s lack of progress on reducing its child abuse and neglect rate is especially troubling given the growing consensus that early abuse, neglect, and trauma have lifelong consequences. Moreover, as can be seen in the chart below by ZERO TO THREE, the foundations of later brain development are built within the first year of life — when abuse and neglect rates are the highest. The rapid, critical brain development that occurs early in life paired with both the high rates of abuse and neglect at this age and the lifelong consequences of such maltreatment make early interventions especially important.

zero to three brain development

Luckily, as discussed in our most recent Progress Report, programs backed by rigorous research have demonstrated proven success in providing resources to parents and reducing rates of child abuse and neglect. Home visiting programs, which hire trained professionals to visit new parents in their home and help build positive, nurturing parental relationships, have been shown to save at least $2 in future spending for every $1 invested in the programs. These savings accrue through a number of benefits, including reduced child injury rates, increased cognitive development, and even lower rates of incarceration.

Yet, despite the overwhelming research proving the effectiveness of home visiting programs, Oregon leaves such programs critically underfunded. In fact, evidence-based home visiting programs reach only 15% of Oregon children in the most need. This legislative session there is an effort to increase the reach of these programs by allocating an additional $10 million to Healthy Families Oregon, one of the state’s evidence-based home visiting programs for young children. The issue will be considered in the Ways and Means Subcommittee on Education this Wednesday as part of the Early Learning Division’s budget request. In the short-term, this $10 million is critical to reaching the 1,100 children currently turned away due to a lack of funding — and in the long-term, is critical to helping reduce Oregon’s child abuse and neglect rate. With funding for Healthy Families Oregon under consideration this week, the only question is whether the state will invest in prevention or wait to deal with the problem until the full emotional, physical, and fiscal costs of abuse and neglect are felt.

Oregon expands lunch access to thousands of kids

When Governor Brown signed HB 5017, the bill that set the State School Fund at $7.255 billion for the next biennium, she also helped expand free school lunches to 30,000 more kids around the state. The bill eliminates the 40 cent co-pay for school lunches among children who qualify for Reduced Price, but not Free Lunch, based on their family’s income.

Eliminating this co-pay has been shown to boost participation rates in the lunch program and ensure that more children have access to nutritious food during the school day. For example, when some Portland Public Schools eliminated lunch co-pays through the community eligibility provision, participation in the school lunch program increased by 18 percent.

Access to nutritious lunches during the school year is especially important for children who live in families that struggle to put food on the table — a problem faced by nearly one out of every six Oregon families, as our most recent Progress Report shows. Research has demonstrated that children who come to school hungry are less likely to learn during the day. The elimination of lunch co-pays under HB 5017 directly addresses this problem by guaranteeing that thousands more Oregon students will be able to learn with a full belly.

To learn where these 30,000 students live and the counties that will be most affected by the elimination of lunch co-pays, explore the map below — hover over a county to see more information.