Gov. Kotek proposes changes to Oregon school funding and half billion dollar boost in next budget

Oregon's 197 school districts have spent nearly all of their portions of the $1.6 billion in federal COVID relief money awarded to the state and are dealing with large budget shortfalls following years of underfunding. (Getty Images)

With Oregon’s public schools starting down a fiscal cliff this school year as the historic federal investment from the last few years expires, Gov. Tina Kotek is proposing changes.

She’d like to help schools keep up with rising costs in the years ahead by updating the way schools are funded. She estimates that those changes would bring a $515 million boost to the State School Fund during the 2025-27 school years.

The state’s 197 school districts have spent nearly all of their portions of the $1.6 billion in federal COVID relief money awarded to the state since 2020. The money expires in September and with it, some of the services, programs and staff that it has paid for. 

“Across the country, school districts are facing budget shortages caused by the expiration of federal pandemic relief dollars, declining enrollment, increasing costs due to inflation and many other factors,” Kotek said in a news release Wednesday announcing the changes.

They come amid growing calls for funding help from districts. After teachers in the state’s largest district, Portland Public Schools, went on strike for more than a month last fall – in part because of low pay and poor working conditions – Kotek vowed she would review school funding and compensation issues in Oregon. 

Leaders in other big districts also issued warnings about their dire budget predicaments following the strike, and in May, several superintendents released a video calling school funding in the state a “crisis” as they explained their decisions to cut hundreds of jobs to keep schools solvent.

They implored the Legislature to increase education spending. 

“This is a terrible and devastating, heartbreaking moment for us,” Salem-Keizer Public Schools’ Superintendent Andrea Castañeda said in the video, “and it is not one we’re using to levy blame. It’s one that we’re using to ask for help.”

Officials from various education groups in Oregon expressed relief and gratitude over Kotek’s announcement. 

Morgan Allen, deputy executive director of the Coalition of Oregon School Administrators, said it was “hugely positive.” Emielle Nischik, interim executive director of the Oregon School Boards Association, called it a good start. 

“The essential work we do for students has to be tied to adequate and reliable funding,” Nischik said in an email. “This doesn’t fix our funding challenge, but it will facilitate a more honest State School Fund debate in the Legislature.” 

Years of underfunding

During the long legislative session in 2023, lawmakers passed a $10.2 billion school funding package, the largest public K-12 education budget ever allocated in Oregon. Of that, more than $8.8 billion went to the State School Fund, which pays for the bulk of district budgets. 

But school leaders afterwards said that was still not enough following years of underfunding and rising costs due to inflation. Legislators have historically not fully allocated to schools the amount recommended by the state’s Education Quality Commission, which is tasked with ensuring Oregon operates “a system of highly-effective schools” and presents a proposed budget to the governor and the Legislature every two-years.

Oregon school funding has further been stymied by two voter-approved ballot measures passed in the 1990s that have capped the state’s ability to tax property to fund schools. School funding from property taxes dropped by two-thirds in the following years, with the Legislature drawing a greater share of funding from the state’s general fund, which is needed for myriad services in the state. 

Sen. Michael Dembrow, D-Portland, chair of the Senate Education Committee and the Statewide Educator Salary Task Force formed by the Legislature in 2023, said improvements to the State School Fund are desperately needed. But he said he’s concerned about where the additional money will come from with no new tax increases or revenue streams proposed alongside them. 

“It’s an open question as to what else in the budget might have to be cut in order to bring in this extra half a billion dollars,” he said. “Personally, I worry that it could come from higher education, which is already very much underfunded.”

Proposed changes

The first change Kotek proposes to the State School Fund is to give schools 49% of their allocated budget in the first year of the two-year budget cycle, and then the remaining 51% in the second year, rather than splitting them evenly each year. She said this would help boost funding in subsequent two-year budgets since they are based on the amount allocated for the second year of the previous education budget. This would also help schools cover expenses that might be higher by the second year of a two-year budget. This change would give districts at least $217 million more in their 2025-27 budgets, Kotek’s advisers estimate. 

The second proposed change would involve data the state uses to project future compensation. By narrowing the data the state uses for its projections – using the last 10 years of salary data instead of 20 – about $500 million would be added to the money available to schools to hire teachers and classified and administrative staff in the 2025-27 budget. 

Lastly, Kotek proposes that the Legislature incorporate annual changes in local property tax revenues. Historically, the Legislature has only taken into account revenue from the first year of a biennial budget when considering what to allocate in the next budget. This limits the state’s ability to send schools more money if property tax revenues rise during a year that’s not counted. 

By accounting for local revenue changes every year, state officials could bring in an additional $55 million to the State School Fund for the 2025-27 school year, Kotek’s office estimated. 

“The governor said she was committed to this, and she is showing that she is,” Dembrow said of the latest changes. “Looking at how this gets funded in her budget, which will come out in December, will be really interesting to see, because obviously that’s where the proof in the pudding will be.”

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