To square Oregon’s budget, lawmakers say many state agency jobs must go unfilled

The moves should cover the state general fund’s remaining $128 million deficit during the next 18 months, and the nearly $289 million deficit at the Oregon Department of Transportation, sparing the agency from hundreds of layoffs. Federal tax changes passed by congressional Republicans during the summer that stymie some state revenues and add costs, and a lack of action on sustainable transportation funding during the 2025 long session, contributed to the dual deficits.

“We can do this budget for a little while,” Sen. Kate Lieber, D-Beaverton and co-chair of the budget-writing Joint Ways and Means Committee, said about the transportation budget at a Friday media briefing.

But both the transportation department and the general fund will need long-term fixes to sustainable revenue streams in the years ahead, she said.

“This is not a good budget,” Lieber continued about the transportation budget. “This is a very, very, very difficult budget, because it’s taking services away from Oregonians in a very real way.”

The changes are detailed in amendments to Senate bills 1601, 5701, 5702, 5703 and House bills 5203 and 5204 — released Sunday. Public hearings on the omnibus spending proposal will be scheduled early in the next week, according to Lieber and Ways and Means co-chair Rep. Tawna Sanchez, D-Portland.

Although lawmakers just eight months ago passed a $39 billion two-year budget for the state during the long legislative session, they need to rebalance spending in the current short session. That’s due in largest part to revenue losses and added costs anticipated from the federal tax and spending cut megalaw passed by congressional Republicans during the summer.

Oregon is one of a few states that automatically replicates changes in federal tax law at the state level, rather than selectively choosing provisions to mirror. That will, however, change slightly under a bill passed last week that allowed some disconnections to federal code, clawing back a net $291 million in tax revenue for the state in the next 18 months.

Lawmakers also needed to get creative about addressing the budget problems at the transportation department, which had an immediate $289 million funding gap and long-term funding issues tied to increasing project costs and shrinking gas tax revenue as Oregonians drive more fuel-efficient vehicles.

Finding a long-term solution was a priority during the 2025 legislative session, but lawmakers failed to negotiate a fix before the clock ran out on the six-month session. During a special session in the fall, they approved smaller increases to the state gas tax and vehicle registration fees.

But Oregonians never had to pay those higher fees after the Republican-led No Tax Oregon campaign this winter paused implementation and anticipated revenue for the current budget cycle at least until a statewide vote in November. Democrats are trying to move that vote to May.

Transportation hole

To cover the nearly $289 million transportation funding gap, Lieber and Sanchez said their proposal offers a temporary “pause” and redirection of spending until lawmakers can come together during the long 2027 session armed with sustainable solutions.

It doesn’t rely on the outcome of the gas tax and vehicle fees referral to keep the transportation agency funded for the next 18 months, but if the new revenue streams aren’t approved, the agency and lawmakers will be on worse footing when they come together to budget in 2027, Lieber said.

About one-quarter of the hole will be covered by cost savings from leaving more than 130 positions vacant. The agency lost about 360 employees since July due to budget uncertainty, Lieber said, and there are about 700 total vacant positions within the agency since early 2025, Interim Director Lisa Sumption recently told lawmakers, forcing workers to take on additional roles.

“People left that agency because of what’s happening. Because of all of the kerfuffle that happened around it. These were real jobs that were lost. And we’re sitting here, very dryly, telling you the math problem, but these are human beings who were helping us,” Lieber said.

The proposal also reduces agency spending on capital improvements and maintenance on its buildings and other infrastructure by about $4 million.

The other 75% of the budget hole will be covered by redirecting to general operating costs money the agency has for specific projects, but that hasn’t yet been spent or tied to immediate spending.

Lieber said nothing was being used that had already been obligated to a specific project, or taken from future funding years.

Many of the redirects Democrats are now proposing were ones Republicans had called for during the 2025 session, in an effort to solve the transportation agency’s problems not with increased revenue options but decreased spending.

Lieber said the difference between what she and Sanchez are proposing now and what Republicans wanted in the long session, is permanence. They want to make sure programs like Safe Routes to Schools and Connect Oregon are not done away with completely.

“I mean, you can do anything for a short period of time, but this idea that permanently redirecting these funds is the solution, I think, should be examined very closely. Because it is damaging for our infrastructure, for that agency, and quite frankly, for the Oregonians who use the streets,” Lieber said.

Although lawmakers prioritized preserving money in transportation programs meant to protect health and safety, Lieber said Oregonians will notice the lack of staff and redirected funding from other critical functions of the agency.

“People are going to see things like longer waits at the DMV, much longer waits for street sweeping and filling up potholes and plowing,” she said. “It is at a bare minimum, right now, with this budget.”

Other topline cuts

To cover the rest of the state’s $128 million general fund deficit, some agencies will cash in on earned interest in long-term savings and investment accounts, leave vacant roles unfilled and shift spending, particularly at the Department of Early Learning and the Department of Human Services.

Lieber was adamant that no one would lose access to affordable preschool or child care options because of the funding shifts, which mostly reallocate unobligated funds to free up unrestricted dollars. The early learning agency was already operating with $45 million less than requested during the next two years after the Legislature reduced funding by 3% during the last session.

Overall, the $128 million hole is down significantly from the $650 million gap lawmakers were staring down at the beginning of the session, including a $271 million price tag for administering new costs associated with safety net programs under the federal Republican tax and spending law.

The recent passage of Senate Bill 1507, which allows the state to disconnect from three of 115 new federal tax code provisions, helped close nearly half the anticipated budget losses for the current biennium. An early February revenue forecast showing temporarily higher than expected corporate income taxes also helped.

Republicans have threatened to send the disconnect question instead to Oregon voters in a ballot referral by the November general election, something Lieber said would devastate the state’s budget.

If voters chose not to accept the disconnects and reconnect completely to the federal tax code, the governor could either call a special session to undertake large budget cuts from education and human services, which are the state’s largest expenses, Lieber said. Or, the governor could do an “allotment,” something Lieber described as a “draconian” method where every agency is ordered to quickly cut a percentage of spending across the board.

“It’s not a scalpel, it is a bludgeon across every single agency,” Lieber said.

She warned that as difficult as rebalancing the current budget has been, the next few years will be significantly harder. An August analysis from Oregon’s chief financial office found that cuts to federal programs in last summer’s congressional megalaw plus new costs shifting from federal to state governments will cost Oregon $15 billion over the next decade.

“We are facing large budget deficits in 2027-29 and 29-31,” she said. “This budget was a bit minor leagues compared to the budgets that are coming ahead of us.”

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