Oregon State Budget Breakdown: Revenue, Spending, and Pressures

Oregon’s state budget for the 2025-27 biennium totals $138.9 billion in all funds, a 5.9% increase over the previous two-year cycle.¹ Of that total, $39.1 billion is General Fund and lottery money — the discretionary pot lawmakers actually negotiate over — while the rest comes from federal transfers and dedicated fees. The state operates on a two-year budget running from July 1 of each odd-numbered year through June 30 of the next odd-numbered year, so every figure here reflects spending through June 30, 2027.

Where the Money Comes From

Oregon leans harder on personal income taxes than almost any other state. Projected personal income tax collections for 2025-27 are roughly $30.3 billion, compared with about $3.4 billion from corporate income taxes and under $1 billion from other tax categories. Rates range from 4.75% to 9.9%, and Oregon ranks sixth highest in the country in personal income tax per capita and fifth highest as a share of personal income.² There is no state sales tax to broaden the base.

Beyond the General Fund, the $138.9 billion total breaks down this way:¹

General Fund: $37.3 billion
Lottery Funds: $1.8 billion
Other Funds: $56.1 billion (fees, assessments, earmarked taxes)
Federal Funds: $43.7 billion

A separate dedicated revenue stream, the Corporate Activity Tax, funds K-12 education outside the General Fund. The CAT is $250 plus 0.57% of taxable commercial activity above $1 million, with a subtraction for 35% of cost of goods sold or labor costs.³ It is expected to generate about $3.1 billion in 2025-27, with roughly $2.1 billion available for distribution after legislated tax reductions.⁴

The Kicker

Oregon returns surplus General Fund revenue to taxpayers through the “kicker,” a constitutional rule that triggers whenever actual collections exceed the biennial forecast by more than 2%.⁵ It arrives as a credit on your income tax return, not a check. For 2023-25, the Office of Economic Analysis certified a $1.41 billion surplus in November 2025, producing a credit equal to 9.863% of each eligible taxpayer’s 2024 Oregon income tax liability.⁶ The prior biennium’s kicker reached a record $5.5 billion.⁷ The corporate kicker works differently: since Measure 85 passed in 2012, any corporate surplus is redirected to K-12 schools rather than refunded.⁸

Where the Money Goes

Health Care and the Oregon Health Plan

Health care is the single largest spending category. The Oregon Health Authority’s 2025-27 current service level budget is $39.6 billion in total funds, driven by the Oregon Health Plan — the state’s Medicaid program, which covers nearly 1.3 million Oregonians, including roughly half of the state’s children and 60% of nursing home residents.⁹ The budget includes a $343.8 million increase for mandated Medicaid caseload growth and $518.7 million for the Healthier Oregon Program, which covers individuals ineligible for traditional Medicaid due to citizenship status.¹⁰

Two trends keep pushing General Fund costs higher. Hospital and insurance provider taxes are expiring, shifting $1.7 billion of Oregon Health Plan funding onto the General Fund. And Oregon’s federal Medicaid match rate has largely declined since 2017 because the state’s per capita income has grown faster than the national average, meaning the state must put up more of its own money to maintain the same services.¹⁰

K-12 Education

Lawmakers approved a record $11.4 billion for the State School Fund, the primary vehicle for K-12 funding.¹¹ A new cost-estimation formula in House Bill 2140 raised the starting calculation for current service levels by $515 million compared with the previous methodology.⁴ Additional dollars flow to schools through the Corporate Activity Tax’s Fund for Student Success, which supports the State School Fund, a Student Investment Account, statewide education initiatives, and early learning programs.¹²

Housing and Homelessness

The legislature passed a $2.6 billion housing budget bill during the 2025 session.¹³ Governor Tina Kotek’s proposal had earmarked $217.9 million for maintaining existing shelters, $188.2 million for rehousing, $173.2 million for eviction prevention, $105.2 million for long-term rental assistance, and $880 million in state bonds for affordable home construction.¹⁴ The final bill cut some eviction prevention funding, reducing rental assistance and legal aid resources.

Behavioral Health

The governor’s budget proposed $330 million to expand treatment capacity and workforce, including $90 million for 336 additional treatment beds and $50 million for behavioral health workforce education and training.¹⁵

Transportation

Transportation runs on a separate track, funded by fuel taxes and vehicle fees rather than the General Fund, and it entered the biennium short. The Oregon Department of Transportation faced a $242 million to $297 million gap as gas tax revenue slipped on more fuel-efficient vehicles and inflation ate into purchasing power. Rather than raise taxes, lawmakers passed Senate Bill 1601, redirecting about $218 million from other transportation accounts into the State Highway Fund and achieving nearly $80 million in savings through vacancy controls and spending cuts. That reshuffle took $35 million from the Connect Oregon multimodal grant program, $17 million from Safe Routes to School grants, and smaller amounts from other projects.¹⁶ ODOT proposed a longer-term $620 million package of gas tax and registration fee increases in August 2025, but it had not been enacted as of the 2026 session and is expected to be debated in 2027.¹⁷

Wildfire

Wildfire costs have become a volatile line item. The 2024 fire season cost $317.5 million, with net emergency costs of about $122 million after federal reimbursements, and the legislature appropriated $191.5 million in a 2024 special session to cover those costs and replenish the firefighting cash flow fund.¹⁸ For 2025-27, the governor’s budget proposed a $135 million General Fund deposit into a revolving fund for large fire costs and $16 million for aviation and ground severity resources. The Oregon Department of Forestry’s wildfire protection budget for fiscal year 2025 was set at $127 million, a 12% increase from the prior year.¹⁹ A state workgroup is evaluating long-term funding alternatives, having narrowed about 70 ideas to 20, because the existing model of absorbing costs upfront and seeking reimbursement later has become unsustainable.

Pressures on the Budget

Federal Medicaid Cuts

The federal budget reconciliation law signed on July 4, 2025 is projected to reduce Oregon’s federal Medicaid funding by up to $1.4 billion per year, or as much as $16 billion over the next decade. The law forces a gradual reduction in provider tax rates that currently fund about 25% of the Oregon Health Plan. Beginning in 2027, it also imposes work reporting requirements of 80 hours per month on Medicaid enrollees aged 19 to 64. The Oregon Health Authority estimates up to 200,000 Oregonians could lose coverage because of the complexity of those requirements, even though KFF reports more than 70% of current enrollees are already employed. The state also faces hundreds of millions in administrative costs to build the new federal reporting systems.⁹

PERS

The Public Employees Retirement System is the state’s largest long-term fiscal weight. At the end of 2023, PERS had total liabilities of $106.3 billion and was 73% funded, with an unfunded actuarial liability of $23.9 billion including employer side accounts.²⁰ The average employer contribution rate stood at 23.8% of payroll. Contributions are projected to climb from $5.26 billion in 2023-25 to $9.35 billion by 2029, an increase of almost 80%, adding over $4 billion in costs to public agencies across the state.²¹

Reserves, Debt, and Credit Rating

Oregon maintains two reserve accounts. The Rainy Day Fund is projected to hold $2.2 billion by July 2027, and the Education Stability Fund is expected to reach more than $1.25 billion over the same period, together equaling nearly 10% of the state General Fund forecast.²²²³ The enacted 2025-27 budget also carries a General Fund ending balance of $472.8 million, about 1.3% of expenditures.¹ Rainy Day Fund withdrawals are capped at about $1.27 billion and Education Stability Fund withdrawals at $1.3 billion.

As of June 30, 2025, Oregon had $13.55 billion in total outstanding long-term financial obligations, including $8.31 billion in general obligation bonds.²⁴ The state’s roughly $499 million in pension obligation bonds are scheduled to be fully retired in fiscal year 2027. S&P Global Ratings affirmed Oregon’s general obligation bonds at AA+ with a stable outlook in October 2025, citing strong financial forecasting and budgetary management.²⁵

The 2026 Short Session and the Budget Gap

The budget enacted in June 2025 did not stay settled for long. The federal reconciliation law reduced Oregon’s expected General Fund revenue by an estimated $888 million over the biennium, and the state faced about $340 million in additional costs to comply with new federal Medicaid and food assistance rules.²⁶ Combined with the transportation shortfall, lawmakers entered the February 2026 short session facing an estimated $650 million to $750 million gap.²⁷

A February 4, 2026 revenue forecast softened the picture. Stronger-than-expected corporate income tax collections and a higher beginning balance gave lawmakers about $253 million more in General Fund resources than anticipated, converting a projected $63 million deficit into a $198 million positive ending balance.²⁸

To close what remained, lawmakers passed Senate Bill 1507, selectively disconnecting Oregon’s tax code from three federal provisions: new deductions for auto loan interest, bonus depreciation, and the qualified small business stock exclusion. The bill recovers approximately $342 million in revenue over 18 months and preserves a net $291 million after funding a new jobs tax credit and an increase to the state Earned Income Tax Credit.²⁹ It was signed into law with an effective date of June 5, 2026, though opponents filed a referendum petition in April seeking its repeal.³⁰ Lawmakers also directed agencies to leave over 130 positions vacant and used interest from long-term investment accounts to close a $128 million General Fund shortfall.³¹ Even with the improved forecast, agencies were told to prepare for potential 2.5% to 5% budget reductions going forward.²⁸

How the Budget Is Built

Oregon’s biennial budget follows a set timeline. By September 1 of each even-numbered year, state agencies submit funding requests to the Department of Administrative Services. The governor releases a recommended budget by December 1 (or February 1 for a newly elected governor). When the legislature convenes in the odd-numbered year, the Joint Committee on Ways and Means holds public hearings and votes on individual agency budgets and omnibus funding bills, with independent analysis from the Legislative Fiscal Office.³² Mid-cycle adjustments happen in the shorter even-year sessions or through the Emergency Board between sessions.

Several forces push each biennial budget higher than the last. Ballot Measure 5, passed in 1990, reduced local property tax rates and shifted school funding responsibility to the state General Fund.⁷ Health care costs outpace general inflation, Medicaid caseloads keep expanding, and PERS contributions consume a growing share of public payrolls. The inflationary assumptions used to build the 2025-27 budget — 4.2% for services and supplies, 6.8% for non-state employee personnel costs, and 5.6% for medical services — reflect those pressures. Between the 2013-15 and 2025-27 biennia, total funds spending has grown at an average rate of about 15% per two-year cycle.¹

1
Oregon State Legislature. 2025-27 Budget Highlights
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Oregon State Legislature. Basic Facts 2025
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Oregon Department of Revenue. Corporate Activity Tax
4
Oregon School Boards Association. State School Fund Set at $11.36 Billion
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Oregon Department of Revenue. Fact Sheet – Oregon’s Surplus Revenue Kicker Credit
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Oregon Department of Revenue. Revenue Surplus Confirmed
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Oregon Secretary of State. State Finance Facts
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Oregon State Legislature. Corporate Taxation Research Report
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Oregon Capital Chronicle. Republican Tax and Spending Cut Megabill Expected to Take Billions From Oregon Health Plan
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Oregon State Legislature. OHA Budget Presentation
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OPB. Oregon Lawmakers 11 Billion Funding Schools Bill
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Oregon State Legislature. CAT FAQ Report
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OPB. Oregon Housing Homelessness Shelters Budget
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Oregon Capital Chronicle. Oregon Gov. Kotek’s $39.3 Billion Proposed Budget
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Statesman Journal. Oregon Governor Tina Kotek State Budget Request
16
KATU. Oregon Plugs $297M ODOT Budget Hole but Long-Term Funding Fight Remains
17
Oregon Department of Transportation. ODOT Funding Proposal
18
Oregon State Legislature. Wildfire Budget Presentation
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Capital Press. Oregon Increases Budget to Fight Wildfires
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Oregon PERS. Guide to Understanding UAL
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Oregon Capital Chronicle. PERS Reform Starts With Removing Conflicts of Interest
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Oregon Capital Chronicle. Lawmakers Might Tap Two Reserve Funds to Fill Oregon’s Budget Deficit
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Oregon School Boards Association. Revenue Report Gives Oregon Some Breathing Room
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Oregon State Treasury. Bond Program Appendices
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S&P Global Ratings. Oregon GO Bonds Rating
26
OPB. Oregon 2026 Legislative Session Preview
27
OPB. Revenue Forecast Oregon
28
Statesman Journal. Oregon New Revenue Forecast
29
Oregon Capital Chronicle. Oregon Dems Propose Partial Split From Federal Tax Code
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Oregon Department of Revenue. 2026 Summary of Legislation
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News From The States. After Walkouts, Budget Woes, and Tensions Over Trump, Oregon Lawmakers Wrap 2026 Session
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Oregon State Legislature. Oregon’s Budget Process