Lawmakers cautious about funding forecast; governor directs agency directors to limit spending increases to 1 to 2%

By Julia Shumway, Oregon Capital Chronicle

Oregonians are likely to see more money back on their state tax returns in 2026 as tax revenues continue to exceed forecasters’ expectations.

The state’s latest quarterly economic forecast, released Wednesday, anticipates a personal income tax “kicker” of $987 million. Oregon’s unique kicker law requires that when the income tax payments are at least 2% higher than budgeted, the excess revenue is sent back to taxpayers.

Meanwhile, lawmakers are expected to have $676 million more available to spend in the 2025-27 budget than anticipated in the March forecast but forecasters warned that the state’s future revenue is uncertain. 

“Even though the collections have outstripped expectations so far, they look low compared to the reported liability,” state economist Josh Lehner said. “It seems to be a little bit more uncertain than in years past.”

Gov. Tina Kotek is already planning on the possibility that revenues could be less than expected. In April, she told agency directors to limit increases in spending on proposed programs and services funded by the general fund to 1% to 2%, depending on the agency. On Wednesday, Kotek and Democrats who control the state Legislature heralded the “stable” economic forecast, while urging a focus on core responsibilities. 

“​​Having a stable state budget will help us continue the critical investments we’ve made in Oregonians, like quality schools, affordable housing, and accessible health care,” said House Speaker Julie Fahey, D-Eugene. “But we also need to remain prudent in how we use taxpayer dollars and stay focused on passing a transportation package next year that will keep our economy moving.”

Republicans, who are in the minority in the House and Senate, emphasized economists’ uncertainty in calling for not increasing spending. 

“Now is not the time to get complacent,” said Sen. Lynn Findley, a Vale Republican who serves on the Senate Committee on Finance and Revenue. “We need to focus on sustainable budgeting practices that protect Oregonians from the uncertainty of the future. Our priority should be ensuring that we have the resources to support critical needs without overburdening taxpayers.”

House Republican Leader Jeff Helfrich, R-Hood River, said lawmakers should refrain from pushing for new taxes in the 2025 session. Conversations about taxes are expected as lawmakers work out a transportation funding plan intended to keep up with stress on the state’s road system, as historic funding sources like the gas tax don’t cover as much as they previously did. 

“This forecast shows that government and government-adjacent bureaucracies are expanding while private industries struggle to keep up,” Helfrich said. “Meanwhile, inflation remains higher than national averages. Many in the current majority will call for new taxes next session, which will make these problems worse. The Legislature should resist the push for new taxes both to ease the cost burden for families and to unleash Oregon’s private sector potential.”

Looming layoffs

The unemployment rate and overall layoffs remain low statewide, but economists cited concerns about layoffs coming from some of the state’s main industries. Nike announced it would cut 740 Oregon jobs this spring, and Intel is set to cut around 3,000 Oregon employees by the end of the year. 

“They’re occurring in some of Oregon’s key industries, some of the things that make our economy more diverse, more unique I’d say overall more productive than the typical state,” Lehner said. “We’re talking about high tech, we’re talking about footwear and apparel and we’re also talking about wood products. We’ve seen major announcements in layoffs in semiconductors and apparel, and then we’ve seen a handful of smaller announcements when it comes to various mill closures or curtailments across the state.” 

The semiconductor industry is particularly notable for Oregon — the state is home to about 15% of the nation’s semiconductor workforce, and lawmakers last year approved more than $500 million in grants, loans and tax credits to grow the industry and compete with other states for a share of national funding. 

The timber industry, meanwhile, is still a major player outside of the Portland area. While a mill closing may have a small impact statewide, the industry accounts for 3% of all jobs in the rest of the state and timber industry jobs pay about 17% more than the average private sector wage in those counties.

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.