Gov. Tina Kotek is directing all state agencies to hold positions vacant for longer, halt all out-of-state travel for conferences and brace for much larger budget reductions in the future, as the state readies itself to lose more than $15 billion in federal funding in the coming decade.
“I am asking you to leave no stone unturned to save tax-payer dollars,” the governor wrote in a letter Tuesday to all state agency heads. “This challenge is not unique to Oregon, but how we respond will be. Our resilience, teamwork, and determination have carried us through hard times before.”
The state is facing an approximate $372.7 million gap in the current budget, the governor noted in her letter to the agencies. Over the next decade, the state could lose more than $15 billion in federal funding for health care, food assistance and other programs under what’s called the One Big Beautiful Bill Act, according to an analysis by the governor’s office.
In her letter, Kotek said state agencies should also start to spend less on services and supplies and slow down implementing or expanding new programs.
The state’s chief financial officer is currently working on more specific budget targets, Kotek wrote. And agencies should start to prepare for cuts made during the 2026 legislative session, which begins in February.
The latest budget news is a departure from the past several years, where tax revenues continued to come in far higher than state economists anticipated. At the end of the most recently adopted budget, Oregon lawmakers were able to set aside nearly $500 million to buffer the state against federal uncertainties.
One outstanding question is whether the governor would support an effort to disconnect the state’s tax code from the federal tax code, a move that could help close the budget gap. But it would also functionally raise Oregonians’ taxes at the same time. Oregon uses the federal tax code in order to determine what residents owe in state taxes, so federal tax cuts also impact state tax revenues.
The governor has been noncommittal on whether she would support such a step, only saying her office was analyzing the idea.
It would come at an inopportune time: On Wednesday, state lawmakers will consider a proposal by the governor that would raise billions — and increase taxes — to help pay for road maintenance and public transit.
