Proposed federal cuts could blow a multi-billion-dollar hole in the state’s budget

By Julia Shumway, Oregon Capital Chronicle

Oregon is in a better financial position than other states but could see its budget devastated by federal spending cuts, a framework released Wednesday by the Legislature’s top budget writers shows. 

The framework, an early step toward adopting the state’s next two-year budget, comes against a backdrop of federal uncertainty. Many of the federal grants Oregon and other states use to stretch local dollars are disappearing under the new administration of President Donald Trump, and congressional proposals to cut federal spending by up to 30% could turn a modest state budget surplus into a gaping deficit.

About 32% of Oregon’s budget comes from federal spending. 

“We are better off than many states,” said Sen. Kate Lieber, a Beaverton Democrat and co-chair of the budget-writing Joint Ways and Means Committee. “If you look at what’s happening in Washington and in Colorado and in Maryland, I think they’re really looking at cutting their budgets right now, and we’re not in that position.”

Instead, the document Lieber and House co-chair Tawna Sanchez, D-Portland, presented on Wednesday reflects $38 billion in projected spending to continue current programs and ends with a surplus of $987.5 million, after setting aside close to $600 million for long-term savings.

It contains $11.4 billion for the State School Fund, an increase over the $10.2 billion schools received from the fund during the current budget cycle, which aligns with Gov. Tina Kotek’s recommendations to change how the state calculates school funding.

And it ups spending on human services by nearly $2 billion, which Sanchez and Lieber attributed to higher caseloads and costs per case in social service agencies. 

The framework includes $375 million for expected raises and cost-of-living adjustments for state employees and others represented by collective bargaining units, as well as $100 million for the Legislature’s emergency fund, which lawmakers on the Emergency Board can use to respond to issues that arise while the Legislature isn’t in session. In recent years, that included appropriating extra money to plow roads during a heavy snow season. 

Some areas, including transportation, administration and economic and community development, reflect cuts of tens or hundreds of millions of dollars since the last budget. Sanchez and Lieber said that’s because they’re not continuing one-time spending, such as the $6 million lawmakers provided in the 2023-25 budget to address backlogged unemployment fraud investigations. 

The framework is also based on available revenue now, while the final two-year budget lawmakers must approve before leaving the Capitol in June will be based on the May economic forecast. That could mean budget-writers have more money available than the $39.7 billion they now anticipate being able to spend or save. 

The framework doesn’t include Gov. Tina Kotek’s three major proposed spending increases: $211 million for education needs, $825 million for housing and homelessness and $247 million for behavioral health. The $987.5 million surplus wouldn’t cover all of Kotek’s priorities, let alone any new spending tied to legislative proposals, and Lieber and Sanchez said lawmakers will need 

“Even if we wanted to wholesale adopt her recommendations, which we don’t normally ever do anyway, we wouldn’t be able to afford that,” Lieber said. 

They also looked at what would happen to Oregon’s budget if federal funding for education and human services dropped by 10%, 20% or 30%. Any such cut would lead to a multi-billion hole in Oregon’s budget, as high as $9.7 billion for a 30% cut. 

“There’s no comfortable way that we’re going to get out of any pain here if we get anywhere near that now,” Sanchez said. 

Julia Shumway has reported on government and politics in Iowa and Nebraska, spent time at the Bend Bulletin and most recently was a legislative reporter for the Arizona Capitol Times in Phoenix, Arizona.