Federal Funding Cuts Dampen Expectations for Oregon’s Budget Over the Next Two Years

Concerns about federal funding cuts announced by the Trump administration played a significant role when lawmakers compiled a framework for Oregon’s 2025-27 budget, released this week by the Joint Committee on Ways and Means.

The budget was drafted to cope with federal funding cuts between 10 to 30 percent, translating to a shortfall of $3.6 to $10.7 billion.

Announcing the financial strategy for Oregon over the next two years, legislative budget originators Senator Kate Lieber and Representative Tawna Sanches said they were guided by four main principles – maximizing value, mitigating uncertainty, prioritizing key investments, and protecting core services.

Oregon Relies on Federal Funding for Education, Health, and Transportation

Oregon relies heavily on federal funding to provide core services like education, health, and transportation, and the lawmakers said prudent budget planning was necessitated by potential federal funding cuts that finance 32% of state expenditure.

The budget nevertheless projects a $987.5 million surplus that will be spent on Governor Tina Kotek’s recommendations – providing more housing and increasing investments into education and mental health. However, despite a healthy surplus, it still falls short by $295.3 million of the Governor’s initiatives.

The lawmakers’ budget allocates $11.4 billion to the state school fund, $100 million to the wildfire relief emergency fund, double that of the previous year, and $16 million for aviation fire protection.

The largest increase in expenditure is for human services, with an allocation close to $2 billion. The money is needed to reverse a backlog of caseloads at the Oregon Health Authority and the Department of Human Services.

$300 Million Set Aside for State Employee Pay Increases

The budget also sets aside $300 million for state employee pay increases over the next two years.

Lawmakers are addressing traffic infrastructure and improvements to Oregon’s roads as a separate issue, necessitated by a multi-billion-dollar shortfall. A bill under consideration will help generate new revenue streams by increasing vehicle registration fees and taxes on gas and tires.

The two lawmakers clarified that their budget is merely a suggested framework that will have to be put on hold until May when the state revenue forecast will be announced.