I started my career as a legislative staffer in 2009 in the wake of the Great Recession. The devastating impacts on the state budget led advocates to fill the Capitol with calls to use the Education Stability Fund.
I’m one of those advocates now, and the calls around me for tapping the fund are again growing loud. The circumstances are different, but the potential for crippling school budget cuts is similar.
Like then, we need to protect our schools from sudden drops in funding.
In 2009, the federal government was trying to stabilize the economy, and thousands of Americans were losing their homes and retirements. The economy was in the tank, and our state budget reflected that.
This time the primary source of our shortfall is policy decisions being made in Washington, D.C.
The Oregon Legislature concluded the 2025 session in June with an adopted budget that included a $473 million ending fund balance, meaning money for unexpected expenses. On July 4, HR 1 (aka the One Big Beautiful Bill Act) was signed into federal law, making a range of federal tax cuts for individuals and corporations.
Oregon is one of a handful of states that automatically connect to the federal tax code, meaning when a new deduction reduces someone’s taxable income for federal tax purposes, it also reduces their taxable income for Oregon tax purposes. In August, the state’s economist estimated that these federal tax changes would result in Oregon bringing in $888 million less in tax revenue than had been expected when the budget was adopted. That blew through the entire ending fund balance and still left the state hundreds of millions short.
Other provisions of HR 1 dealt with federal programs, primarily Medicaid and the Supplemental Nutrition Assistance Program. Notably, the federal government would shift a substantial burden of the cost of these programs onto the states, increasing Oregon’s budget shortfall.
Oregon’s next revenue forecast in November showed the state had collected a bit more in tax revenue than had been expected in August. The revenue shortfall appeared to be shrinking, but the overall budget hole was still projected in the hundreds of millions of dollars.
That minor bright spot on the revenue front was tempered with the Oregon Department of Human Services and Oregon Health Authority telling the Legislature in January that they believe they need close to $340 million more this biennium to cover the changes from HR 1.
So, what exactly is the shortfall as we head into the legislative session that begins Monday, Feb. 2? Unclear, but we will have a better idea when the next revenue forecast is released Wednesday. Even then, some program cost estimates still need to be finalized.
The Legislature can’t have a zero balance because, unlike the federal government, the state can’t run a deficit budget. Oregon always needs some cash available for unexpected expenses. Legislators have said they would like to maintain at least $350 million to weather any new costs through the remainder of the biennium, which will end June 30, 2027.
Back of the envelope calculations show that If the upcoming revenue forecast is in line with recent forecasts, the shortfall would be somewhere in the $600 million to $800 million range, depending on how those other costs shake out.
Gov. Tina Kotek asked all state agencies to prepare potential cuts lists in the fall. For K-12, the list included possible cuts to the State School Fund as well as to programs such as the Educator Advancement Council or to career and technical education programs such as Future Farmers of America. Any of those would be devastating to districts across the state.
Reductions to the State School Fund would be especially challenging. A 1% reduction would mean nearly $100 million less in funding for districts’ budgets this biennium.
These cuts would come on top of any reductions districts are already facing, including the Eugene School District, Portland Public Schools and the Springfield School District. With a new fiscal year starting in July, districts would have just a few months at most to identify cuts and adapt their budgets. That doesn’t allow much time for strategic decision-making that could protect student-facing staff and services.
That’s why we are calling on the governor and the Legislature to utilize the Education Stability Fund to prevent further cuts to schools in this biennium. The fund can typically only be accessed when defined economic triggers are met around drops in state revenue or unemployment increases. It’s not yet clear whether the state’s financial situation meets those criteria, but the governor can also declare an emergency to access those funds.
The Legislature ultimately used $394 million from the fund in 2009. The fund has been accessed nine times since its inception, most recently in 2020, when the Legislature allocated $400 million to help get through the COVID-19 pandemic.
The Education Stability Fund had over $1 billion at the start of the 2025-27 biennium. With the will of the governor and the Legislature, the state could prevent additional cuts to schools and still maintain a robust reserve account.
We recognize this isn’t a long-term strategy. This isn’t about waiting for the economy to bounce back. Rather, we are facing long-term shifts in funding and support from the federal government that will influence our state budget for the foreseeable future.
Oregon needs a long-term strategy for addressing this new reality. That requires thoughtful planning and nuanced strategy. The Legislature will be considering a variety of tools this session, including bills related to revenue collection and determining whether we should continue or change our practice of connecting to the federal tax code.
In the meantime, the Education Stability Fund is one of the levers the Legislature needs to use to chart a path forward.
School districts need stable funding to most effectively spend their budgets. Sudden reductions lead to chaotic losses of programs and staff, and mid-biennium cuts are the worst.
The Education Stability Fund’s purpose is right there in the name. We need to use the fund to buy districts time for thoughtful and orderly budget adjustments as the state recalibrates what it can do.
– Stacy Michaelson,
OSBA Government Relations and Communications Director
