Governor Tina Kotek is taking decisive steps to prepare state agencies for significant budget challenges ahead, including directing them to keep positions vacant for extended periods, suspending all out-of-state travel for conferences, and bracing for substantial budget cuts in the future. This proactive approach comes as the state faces the prospect of losing more than $15 billion in federal funding over the next decade.
In her communication to state agencies, Kotek highlighted an immediate budget shortfall of approximately $372.7 million. This gap is compounded by an analysis from her office, which suggests that federal funding for essential services like health care and food assistance could be drastically reduced under the proposed One Big Beautiful Bill Act.
Kotek urged agencies to reduce spending on services and supplies and to slow the rollout of new initiatives. The state’s chief financial officer is currently developing more detailed budget targets, and Kotek emphasized the need for agencies to prepare for potential cuts during the upcoming 2026 legislative session starting in February.
This budget outlook marks a significant shift from recent years, where higher-than-expected tax revenues allowed Oregon lawmakers to set aside nearly $500 million to cushion the state against uncertainties in federal funding. The change in fiscal landscape has raised concerns about the sustainability of state programs and services.
An ongoing debate is whether the governor would endorse a proposal to decouple the state’s tax code from the federal tax code. Such a move could help mitigate the budget shortfall but would also effectively increase taxes for Oregonians. Currently, Oregon relies on the federal tax code to determine state tax liabilities, meaning any federal tax cuts directly influence state revenues.
Governor Kotek has been cautious in her response to this potential change, indicating that her office is still evaluating the implications of disconnecting the state tax code from federal guidelines. The timing of these considerations is critical, as state lawmakers are set to review Kotek’s proposal to raise billions in funding through increased taxes for road maintenance and public transit on Wednesday. The outcome of these discussions will be pivotal in shaping Oregon’s financial future.
