Federal Funds: Grants and direct federal support allocated to specific state programs, particularly in healthcare and human services.
The budget building process begins well before each biennium. State agencies develop funding requests based on their projected needs, which are then reviewed by the governor’s office and the Department of Administrative Services. These evaluations culminate in the Governor’s Recommended Budget (GRB), which sets the administration’s priorities and funding levels for the upcoming biennium.
The GRB is presented to the legislature several weeks before the beginning of its session in an odd-numbered year.
Ultimately, only the Legislatively Approved Budget (LAB) matters.
Soon after submitting the GRB to the legislature, the Legislative Fiscal Office and Chief Financial Office come together to better define the resources and program needs. Through the 2025-27 Tentative Budget, budget writers get a look at potential fund shifts and other potential discretionary funds.
In a normal legislative session, the GRB and Tentative Budget shed light on where spending shares will land across major program areas. Unfortunately, this year this look-ahead will not likely be as insightful as it normally is since both were based on a revenue forecast that was released in November. Since then, the state’s revenue outlook has been revised upward sharply, offering additional resources for legislators to allocate.
Once the legislative session begins, the Joint Committee on Ways and Means, which is comprised of lawmakers from both the House and Senate, takes responsibility for shaping the state budget. This committee, through its subcommittees, conducts hearings to evaluate agency funding requests, assess proposals, and establish spending priorities. It then advances a series of budget bills to the full legislature for debate and approval. Collectively, these bills form the LAB, which may be adjusted during the biennium through supplemental appropriations or emergency measures.
Oregon’s budget framework also includes mechanisms to manage unexpected revenue fluctuations. For example, the “kicker” provision refunds excess revenues to taxpayers if actual General Fund revenues exceed forecasts by 2% or more. Additionally, the state maintains Rainy Day and Education Stability Funds, which acts as a financial reserve during economic downturns or revenue shortfalls.
This foundation of Oregon’s budget structure is critical for understanding how spending has evolved over time and where the state’s priorities have shifted.
To analyze these changes, this report examines 20 years of approved budgets, comparing funding levels and spending priorities from the early 2000s to the most recent 2023–25 LAB. This historical analysis highlights long-term trends in revenue growth, shifts in General Fund allocations, and the increasing role of federal and “other funds” in state spending.
Following this retrospective, the report considers the 2025–27 GRB and how it aligns with past trends. While the LAB is what ultimately matters, until it is drafted it does not shed light on the upcoming biennium. That said, in most years, the spending shares for the largest programs are relatively close when comparing the LAB to the GRB. This outcome is not entirely surprising given that both plans are based on the same revenue forecast and agency requests.
Tracking 20+ Years of Growth: Trends and Shifts in Funding Sources
As Figure 1 shows, net of federal funds and “other funds,” Oregon’s total revenues have grown from $34 billion in 2001-03 to a projected $140 billion in 2025-27iii, reflecting changes in economic conditions, tax policy, and federal funding programs. For the 2025-27 biennium, the Governor’s Budget proposes approximately $137 billion in appropriations across key areas such as education, transportation, and public services.
Shifts in the General Fund — Declining Share, New Revenue Sources: The General Fund, which is the most flexible funding source for state services, remains heavily reliant on personal and corporate income taxes. However, the General Fund’s share of the total budget has declined while the federal and “other funds” categories have grown. In particular, the Corporate Activity Tax, introduced in 2019, has contributed to overall revenue growth and, therefore, has provided an additional revenue source. Most of Oregon’s new revenue sources are dedicated to specific programs, many of which have had large General Fund footprints in past years. One reason for this designation is to keep the programs out of the kicker base. In recent biennia, despite record kicker credits, revenue growth has been so strong and broad-based that policymakers found themselves with significantly larger revenues than when budgets were drafted.
Federal Funds — A Rising Share, Driven by Healthcare: Federal support now represents a significantly larger share of Oregon’s budget, primarily due to Medicaid expansion and federal grant funding. In the 2023-25 biennium, more than 63% of Oregon’s Human Services budget is federally funded, a major shift from two decades ago. The state is increasingly dependent on federal healthcare funding, making Oregon’s budget vulnerable to changes in national policy and economic conditions.
Other Funds — Growth in Consumption-Based Revenue: Oregon has seen the fastest growth in the “other funds” category, which includes revenue sources such as video lottery, the Corporate Activity Tax, transportation-related fees, excise taxes, and healthcare provider taxes. These consumption-based revenues have increasingly replaced traditional tax funding, reflecting a shift in the state’s revenue strategy.
Lottery Funds — Small, but Stable: Discretionary lottery funds continue to play a modest role in Oregon’s budget, primarily supporting education, state parks, veterans’ services, and economic development programs. While other revenue sources have grown rapidly, the share of the budget based on discretionary lottery revenues has declined over time.
Appendix A offers a breakdown of revenue shifts from 2001-03 to 2023-25, but, to summarize, key trends over time reveal:
- The General Fund’s share has declined, while federal and “other funds” have grown.
- Healthcare funding, particularly from federal sources, has become a major driver of state revenue, reducing reliance on income taxes.
- Oregon is increasingly dependent on federal funding, particularly for healthcare and human services.iv
State Budget Appropriations: Priorities and Shifting Allocations
Over the past two decades, Oregon’s budget has evolved significantly, reflecting shifts in economic conditions, policy initiatives, and fiscal constraints. While total state spending has increased across all major categories, the relative share of funding allocated to different sectors has shifted. As Figure 2 demonstrates, human services have taken a dominant role while the share dedicated to education, economic development, and infrastructure has declined relative to overall spending growth.
This section examines how state appropriations have changed between the 2001-03 and 2023-25 biennia, highlighting trends in education, human services, public safety, and other key spending areas.
Education Spending: Rising Investment, Declining Share
In 2001-03, education was the single largest budget category, accounting for 32% of total state appropriations. However, by 2023-25, this share had dropped to 17.8%, despite nominal increases in total education funding.
Key Factors Behind the Shift:
- Shifts in funding responsibility: Ballot Measure 5 (1990) and Measure 50 (1997) restructured K-12 education funding, reducing local property tax revenues and increasing reliance on the General Fund. Measure 50 codified Ballot Measure 5. These property tax controls are now in the Constitution and have essentially frozen revenue growth to this day
- Structural Higher Education Changes: Governance reforms enacted between 2011 and 2014 gave Oregon’s public universities greater autonomy and shifted financial responsibility across multiple sources, including tuition, state appropriations, and dedicated revenue streams. Specifically, reforms transitioned the universities away from the centralized Oregon University System, allowing them to establish their own governing boards that had control over financial and operational decisions. While General Fund support continues, the state has increasingly relied on “other funds” to sustain education funding. v
Despite a declining share of the overall budget, total education funding has grown, reaching $9.5 billion for K-12 schools, $2.19 billion for public universities, and $945 million for community colleges in the 2023-25 biennium. This increase has occurred even as student enrollment has declined.
Oregon is undergoing a significant demographic shift, marked by a prolonged decline in birth rates, which has slowed the growth of the school-age population.
In past decades, student enrollment continued to rise despite declining fertility, but that trend is now reversing. Even school districts that previously experienced rapid growth are seeing stagnation or declines, signaling a fundamental shift in long-term educational demandvii. Overall, since 2019-20, public school enrollment has dropped by 6.05% (35,237 fewer students).viii
As Figure 3 reveals, this trend extends to higher education, where the college-age population has declined from 366,803 in 2019 to 352,882 in 2023, a 3.8% decrease. With the Millennial generation aging out of traditional college years, smaller incoming cohorts will continue to lead to a decline in postsecondary enrollment. Historically, migration has helped sustain Oregon’s student population, but future enrollment trends will depend on whether migration levels recover.
Despite this higher per-student investment, Oregon's educational outcomes have not improved. viii Reports indicate student proficiency in reading, writing, math, and science remains below pre-pandemic levels. National assessments also show declines in key areas. These outcomes suggest simply increasing funding per student does not guarantee better educational outcomes — effective allocation and strategic investment are crucial. (For a more detailed assessment of Oregon’s educational competitiveness, refer to the Oregon's Free Enterprise Report: 2025 Edition.)ix
Human Services: The Largest and Fastest Growing Budget Category
The most striking budget shift has been the expansion of human services spending, which grew from 25.1% of the total budget in 2001-03 to 44.8% in 2023-25. x The 2025-27 GRB proposes $62.2 billion, reflecting a 15.2% increase from the previous cycle.
Medicaid Growth and Rising Healthcare Costs
Medicaid expansion and increased federal funding have been major drivers of human services growth in Oregon. The Oregon Health Plan (OHP)—the state's Medicaid program—accounts for a significant portion of the Oregon Health Authority's (OHA) $39.64 billion budget for the 2025-27 biennium. While federal matching funds help offset costs, changes in the Federal Medical Assistance Percentage (FMAP) rates and the expiration of temporary federal COVID-19 aid require the state to allocate more General Fund dollars to sustain services.
To stabilize Medicaid financing, the Governor’s Budget proposes renewing provider assessments on hospitals and insurers, a key mechanism for securing federal matching funds. Additionally, the budget increases investments in hospitals, maternity care, and graduate medical education while addressing compliance issues in behavioral health programs. These targeted allocations aim to strengthen Oregon’s healthcare system while managing escalating costs.
Beyond Medicaid, broader healthcare expenditures—including hospital reimbursements, long-term care funding, and behavioral health programs—continue to place financial pressure on the human services budget. As Oregon’s population ages and demand for services grows, ensuring long-term funding stability will remain a critical challenge. The state’s response to these pressures will shape the sustainability and accessibility of healthcare services in the coming years.
Aging Population and Rising Long-Term Care Needs