Speaker Fahey predicts voters will reject gas tax, says K-12 PE ‘worth looking at’

Presenter: Oregon’s Speaker of the House predicted that voters will reject the gas tax on the ballot this May. She also suggested the legislature look at reducing K-12 costs by removing the requirements for physical education. Before the Neighborhood Leaders Council on  March 24, Speaker Julie Fahey: 

Speaker of the House Julie Fahey: We just wrapped up the legislative session a few weeks ago, the beginning of March. So for those who don’t know, the Legislature meets every year, but alternates with a long session and a short session. So in the odd-numbered years, we meet for five and a half months, which I think is a little too long, and then the even-numbered years we meet for five weeks, which is not enough time.

So, when you go into a short session, we have to have some key priorities. We can’t do it all. Oregon has a lot of challenges right now, and we just can’t, within five weeks you can’t knock down every challenge that we face. So we made progress on a number of key issues and then set some top priorities heading into the session.

The big things we were focused on were, first and foremost, we’re required to balance our budget at the state level, but the federal level, you know, they can run a deficit. So they passed a budget bill last year that had a bunch of tax cuts that flowed through to Oregon, made a bunch of cuts to federal funding which we all needed to respond to.

We ended the long session, had a balanced budget, budgeted fairly conservatively last year, and then a few days after the session ended, Congress passed HR 1, ‘The Big Beautiful Bill,’ and that immediately reduced the resources we had available to us in Oregon by almost $1 billion. So we balanced our budget and then overnight it was out of whack. A lot has changed in the last few months.

So we headed into the session with the No. 1 goal of rebalancing our budget and to do it in a way that protected education and core services like public safety and health care and wildfire services. So that was our top goal and the thing that we were required to do.

But we also needed to respond to the rising cost of living in Oregon and around the country. There are lots of things happening right now, even since we adjourned, that are driving up the cost of essentials. And that is the No. 1 thing on voters’ minds right now. So that means housing, health care, basic essentials.

Then the third thing was we needed to respond to all the things that are coming at us from the federal government. So that was a long list of things: everything from immigration enforcement that we are seeing in the streets to attacks on health care, public lands, and other topics.

So I want to talk about each of those three things, and what we were able to get done in five weeks. 

We did a lot in five weeks—maybe too much—but that is the world that we are living in right now. There are a lot of challenges both within and without our state.

So on the balancing the budget: We did that through what I think was a pretty balanced and measured approach. So we trimmed some agency budgets without going into core services. That meant that, you know, they’re going to hold some positions vacant for longer than they otherwise might have, or limit travel, things like that.

We did some cuts to our agency budgets and then we filled the rest of the hole by disconnecting from some key tax breaks that the federal government passed in the budget bill last year. Oregon automatically attaches our tax code at the state level to the changes that happen at the federal level.

That may have been a good decision a few decades ago when that decision was made. But with the wild swings in tax policy we’ve seen out of the federal government over the last decade or so, that is creating much larger challenges for us at the state level.

You know, the federal government makes decisions. They don’t have to balance their budget. We do. So we, there were three key tax breaks that we said that might make sense for the federal government, but it doesn’t make sense for Oregon—two related to businesses and then one related to individuals, buying a new car.

So that helped us balance our budget, the remainder of the budget gap. I’ll also say that, you know, we’re required to balance the budget in the short term. But over the long run, the thing that will actually matter for Oregon’s prosperity is that we’re able to grow our economy here, create jobs, and focus on the long-term prosperity of the state.

That’s what will help us when I look over the next five to 10 years and the budget picture, we’re going to see—we knew that we had to have a more intentional focus on economic development. Again, limited in what we can accomplish in five weeks, but we were able to pass an agenda that cut some red tape for businesses, that created a jobs tax credit for businesses that create good-paying jobs, that made a number of other changes to try and make sure we’re jump-starting economic development here in Oregon.

Our growth as a state was pretty great before the pandemic. We were doing fairly well and our unemployment rate was very low. That growth has slowed, and so, you know, I think a more intentional focus on job creation and economic development is something that we’ve started in this legislative session and will continue for the next few years.

It’s what’s needed to make sure that we have a healthy economy for the next decade.

So that was balancing our state budget.

From an affordability standpoint, the thing that I’m most proud of is that we passed the largest increase in what’s called the ‘earned income tax credit’ in Oregon history. The earned income tax credit is a tax credit for working Oregonians, low- and moderate- income households, and so by increasing that tax credit, it just puts money directly into the pockets of folks who are struggling the most.

So that was a big policy. We did that as part of the tax package that I talked about. And then we also took on some important consumer protections. Things like reigning in predatory lenders that found a loophole in our lending laws that were allowing them to charge 100% or 200% interest rates. And some other consumer protections around ticket scams and other things related to housing policy that were a big focus this session.

And then finally there was an intentional focus on all of the things that the federal government is doing, whether you agree with ’em or not: Making sure that Oregon is protected and insulated and that our values reign supreme was a big focus of the session.

So that was, you know, protections against what we were seeing on immigration enforcement. We strengthened some civil rights in our immigrant communities, required law enforcement to identify themselves and restrict when they could use masks, things like that.

We also protected state funding for Planned Parenthood. So one of the things that the big bill did last year was—you know, federal funding is already not allowed to be used for abortion, but that bill cut funding specifically to Planned Parenthood for other health care services. The 90+ percentage of things that are cancer screening, birth control, basic health care.

And so Planned Parenthood wasn’t eligible for federal, federal funding for any of that work at all. And so at the state level, they’re a pretty important provider here in Oregon. It’s where, someone I know had their cancer, cervical cancer diagnosed there. And losing access to those clinics would be a really really devastating loss for primary care here in Oregon. So we made sure that they were eligible for funding going forward while they’re not eligible for federal funding.

We also did some things around vaccinations, making sure that vaccinations will still be covered regardless of what the CDC does. Nothing about mandates, just insurance will still cover them here in Oregon, regardless of what happens at the federal level.

And then there were some pieces around renewable energy. There’s some federal tax credits that were expiring and there are projects particularly in eastern Oregon around solar and wind that were in process that were hoping to get those federal tax credits and so we helped expedite those projects and hope that they can get access to those tax credits.

The last thing I’ll highlight on the federal side is that, there’s some concerns about what’s called McKinney(-Vento) policy at the state level, which has to do with how homeless students are treated in our school districts.

There has been some talk about dismantling that law or making significant changes. And so we codified that law in the state law so that if whatever happens at the federal level, we can make sure that our old students are taking it.

So that was like a very high level overview of the big things that we did. Meanwhile, there were smaller things on health care, making sure we can remove barriers to getting more health care providers. There’s a whole housing agenda that I could get into if people are interested.

But those are the big-picture things. There’s a number of other things going on locally that I could talk about if folks are interested: The PeaceHealth ER situation. So I really just, I want to know what everyone else is interested and what you want to talk about. 

Presenter: With the first question from Amazon Neighbors, Randy Prince. 

Randy Prince (Amazon): One big thing that’s been in the news a lot is this issue of funding the Department of Transportation. (Mm-hmm.) There was a bill, opponents, conservatives said it was loaded up with a lot of other stuff. They petitioned. Then there’s this whole argument which has dominated: When should it be voted on?

Speaker Fahey: All great questions. The bigger picture, kind of zooming out on transportation, is that every state in the country, not just Oregon, is facing challenges funding their transportation department. And that is in part because almost all states fund their transportation departments primarily based on gas tax revenues.

So a little bit on registration fees and some other fees, but primarily based on gas tax revenues and with inflation, the cost of maintaining our roads and bridges is increasing substantially, and vehicles are getting more fuel-efficient. There’s more electric vehicles on the road.

Electric vehicles don’t pay a gas tax or really into the system at all except for slightly higher registration fees. So states are in various parts of reckoning with that trend. And Oregon over the last four or five years, the Oregon Department of Transportation has been cutting and cutting their budgets on operations and maintenance.

And last year got to the point where like, there’s no more to cut really. We no longer are bringing enough in revenue to just do the basic operations and maintenance for our roads and bridges. (Gas tax revenue.) Gas tax revenue. Right.

And so, and the cities and counties are also facing that challenge, right? They rely on gas tax revenue too. We share half of the gas tax revenue at the state level with cities and counties. That’s a pretty generous percentage. And then some cities have their own, like Eugene, Springfield have their own gas taxes. So that’s the main problem we were trying to solve last year.

The bill that was proposed in the long session that did not pass—it had the support in the House, but not in the Senate—was a larger package. There were, it wasn’t just, you know, gas tax to fund basic operations and maintenance. There were investments in, you know, Safe Routes To School, which is the program that helps build sidewalks and other ways for kids to go to school, and rail and multimodal transportation that like businesses use to get their products on the rail or ship through ports.

So it was a larger package that didn’t pass. And so after the long session, we kind of regrouped and said: What is the bare minimum that we need to do to keep ODOT afloat and just do the basic road maintenance work? And so that’s what passed in a special session in the fall—a scaled-down version of six-cent gas tax increase, you know, modest registration increase. So that passed.

And then immediately there were some Republican legislators that worked to gather the signatures to refer it to the ballot. So that happened. They got enough signatures. That means the funding is put on hold until the voters get a chance to vote on it.

And so we in the legislature, we’re required to balance the budget, so we had to balance the ODOT budget in February, until folks vote on it. So we did that as part of our work to rebalance the budget in February.

And then, the election date of May, which is not uncommon. Just about every time the legislature refers something or people refer something to the ballot that has to do with funding over the last 30 years, we have done it at an earlier election than the November date so that we can get certainty about the funding. So we’ll know more in May.

So that’s what will be on the ballot and it revenue gets split about 50-50 between the state and the cities and the counties. The city of Eugene is really invested in it as well.

We are contingency planning at the state level. So the governor announced last week a group that she’s convening to plan for, if that doesn’t pass at the ballot, what are we going to do about it next year in the 2027 session?

So in the meantime, we’re contingency planning and trying to regroup, probably unlikely that voters will approve a gas tax increase at this moment in time, in history. Since all of this has happened, the war in Iran has started and gas prices have increased by 92 cents in Oregon in the last month. World events and affordability being big concerns of voters, it feels likely that the referendum will not (pass) .

Presenter: From the Downtown Neighborhood Association, Noah Birnel:

Noah Birnel (Downtown Neighborhood Association): I’m curious about why gas tax has been done as a flat rate, almost any other tax I can think of is a percentage. It seems like a decision that is guaranteed   generate legislation because you have to pass legislation to address inflation.

 Is it politically difficult to go, okay, we’re just going to do like 6% or 3% that terrifying for elected officials? 

Presenter: From the Churchill Area Neighbors, Oregon’s Speaker of the House Julie Fahey: 

Speaker Fahey: That’s a great question. There’s two ways you could address it being a flat amount.

One is, there are more than a handful of states that index their gas tax to inflation. the last time the gas tax package passed 27 years ago, they tried to index to it to inflation in 2001. They were not able to get that through the legislature. Had they done that, we wouldn’t really be in this situation because it would’ve been indexed to inflation 25 years ago.

So, what you’re talking about a percentage that could be challenging because of how, for just from a government perspective, based on how much gas prices fluctuate, we could never have predicted that the price of gas was going to go up 92 cents in a month.

And so then, ‘Is it difficult for politicians?’ Here’s what I will say, as the speaker of the house. In past transportation packages, so there’s one passed in 2001, in 2009, and in 2017.

Those packages mostly were able to pass the legislature because they were loaded up with projects for legislators in their districts. Some of those projects were good ideas. Some of those projects were not good ideas. But that was how it worked. And as speaker coming into this conversation, I said, we are not going to do it that way.

They did that at the expense of funding for the basic operations and maintenance and the 2017 package that passed for transportation, a single digit percentage of the resources in that package went to just the basic paving of roads, filling of potholes, striping of lanes, signage work.

So we have starved the operations and maintenance in the legislature in favor of doing all these funding projects. And some of them are really important, right? Like there’s a project on 58 about passing lanes that we had to put on hold because of these resources are on hold. That was a big, important project that probably will save lives and.

There are other projects like a rail reload center in Millersburg that you probably drive by on I-5 if you drive north as I do every day. And it hasn’t shipped a single shipping container since it opened. So all of that to say, I was committed to doing it a different way and that was much harder politically. That was a lot on transportation, but it is a really important issue. 

Presenter: From the South University Neighborhood Association, Jason Aucilino: 

Jason Aucilino (SUNA): Looking in your crystal ball next session, do you see K-12 education as being a major priority? 

Speaker Fahey: Absolutely. So it’s not too soon, I’ve already started having meetings about what are the big priorities for ’27 and what is the work that we need to undertake to get from here to there.

So transportation is likely going to be one of those. Medicaid will have to be another one. Over the next five or six years, we will have, Oregon will have $12 billion in federal funding cut from our Medicaid program—$12 billion. We are not a big state. We cannot just raise $12 billion in taxes just like that.

So we are having some hard conversations about the Medicaid program and how to structure it and are there funding sources to fill the gap. So that’ll be a big focus of next year too.

And then from an education perspective, I would put three things on that list. One is higher ed.

Our, in particular our regional universities are really entering a period where there needs to be some reckoning. Southern Oregon University is at serious risk right now, and PSU is not far behind. So thinking about structurally, are there changes that need to happen in higher ed?

And then funding is one piece of that on K-12. I think K-12 is obviously undergoing significant strain right now. I think there is a confluence that we could talk for a long time about why that is.

There’s a confluence of factors that are happening. Overall enrollment statewide is declining, and it’s declining more in some districts versus others. The districts’ spending is based on their enrollment and so that is causing hardship in some districts where enrollment is declining more than others.

At the same time, the federal COVID funding, that has ended. And so that was sort of one-time funding, but many districts built it into their ongoing budgets and are feeling that now.

So funding is a key part of it. The distribution of that funding. And without getting too technical, how much weight we give to a student living in poverty versus special education students—that will be a topic of conversation next year.

And then educational outcomes. It’s really hard to say this, but we have some of the worst outcomes in the country, in the state of Oregon. So in Mississippi, they have done a complete turnaround of their reading policies. Early literacy has been one of the keys to their turnaround in Mississippi.

And so we have started down that path in the ‘23 session in Oregon. We have invested in the work about the science of reading and making sure schools are transitioning to the science of reading. Bethel was an early adopter some years ago, and they’ve seen huge success in transitioning to the science of reading, the way that we teach kids how to read.

So that’s a key part of that, examining how is that working, but I think more of a focus on outcomes and what we need to do to improve our outcomes is really needed. We passed a big accountability law for districts last year. And so we’ll have to figure out how that’s working. 

There are always conversations about unfunded mandates for school districts, like always, and the school districts are saying, ‘Don’t,’ you know, ‘Don’t provide us with unfunded mandates.’ There are a handful that I think are probably worth looking at. I would put PE instructional time as one of those things.

That was a favored policy of past Senate President Peter Courtney. And so there was a desire to not mess with that for a little bit of time. But I think looking at that in particular, because PE requirements are quite expensive, it’s not to say that it’s not important that kids are moving and learning all that.

My aunt was ‘National PE Teacher of the Year,’ so she is hopefully not listening to me say this, but I think there are certainly things that we can and should take a look at that we require of school districts. 

Presenter: She was also asked about Medicaid. 

Speaker Fahey: Just a little background, probably 16-17 years ago, 2008-2009 timeframe, Oregon shifted our Medicaid program to a managed care program. So that’s when we had coordinated care organizations that come in and managed care for a population within a region.

So for a number of years it was PacificSource and Trillium in the Lane County area. PacificSource is exiting. 

I think the idea behind CCOs and managed care is a good idea, right? Like in concept, like in theory. The idea was to manage the overall health of a person, to like, give a set amount of money per person that is covered for the CCOs to manage their care. 

And so that incentivizes preventative care and incentivized primary care instead of specialized care. The idea was that would help bend the curve. You would get more people with primary care, with preventative care, fewer people in the emergency room.

That was the idea. It hasn’t necessarily worked out that way in practice, in the way that we would like. And some of that is larger forces in the health care industry. Some of that is, I would argue, there was a big fight way before I was in the Legislature. There was a big fight when setting up the system about whether we should allow for-profit CCOs.

There was a former legislator (who has since passed away) named Mitch Greenlick, who was a big part of setting up the system. He was a vociferous opponent of for-profit CCOs, and he did not win that fight. And so I think that is part of it as well. 

The federal funding cuts are going to make us reckon with what is the overall system that we are using here.

And so there is a whole group of folks, tables of folks talking about: What do we do about the structure of our Medicaid system? We were not going to fix that in a five-week short session. And so that really is a conversation that we’re setting up for 2027. Lane County is like, we’re like ground zero for some of this.

Presenter: Speaker Julie Fahey shares an overview of the 2026 short session, and takes questions from the Neighborhood Leaders Council. You can learn more about the NLC from your neighborhood association.