Governor unveils proposal to boost state school fund

Gov. Tina Kotek has unveiled a proposal to boost the current service level for the State School Fund by an estimated $515 million above the original calculation for the 2025-27 biennium.

The school fund is the primary source of state funding for K-12 public education. Current service level is the amount of money needed in the upcoming biennium to continue existing authorized programs.

“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 response to the way these issues are impacting Oregon students, educators and administrators, I committed to reviewing and updating the methods of how the state funds public schools.

“We are working to be a stronger, more accurate and predictable funder of K-12 public education across Oregon,” she added. “This effort is part of my priority to ensure we are moving the needle on improving education outcomes for our students, from improving early literacy rates to preventing learning loss to increasing graduation rates. And, ultimately it’s about more than just resources — it’s about the specific outcomes.”

Representatives from the governor’s office, Oregon Department of Education, and the Chief Financial Office presented this information July 14 to the legislative Joint Task Force On Statewide Educator Salary Schedules.

This estimate will be updated prior to the 2025 legislative session.

Below are the three steps the governor is directing agencies to take in order to increase funding:

1. Budget distribution - 49/51 split: For the last decade, Oregon has budgeted distributions to school districts on a 50/50 split over a two-year period (meaning districts received 50 percent of funds in year one and 50 percent of funds in year two). This proposal changes the distribution to a 49/51 split.

This will increase the CSL calculation for the next biennium because CSL is built off the funding available in the second year, which increases when districts receive 51 percent in the second year, compared to 50 percent previously, according to Kotek.

The change will also support school districts in planning to cover rising costs that occur in the second year of the biennium after the State School Fund has already been set.

Preliminary estimate: $217 million increase in the CSL for the 2025-27 biennium.

2. Compensation costs: The state’s method to account for compensation costs of teachers, administrators, and classified staff is based on a model that looks back at 20 years of historical data. This model has proven to be very accurate (more than 98 percent) in calculating actual compensation costs, based on the information school districts submit to ODE.

The governor’s direction to close the gap between projected compensation costs and actual compensation costs over the last 10 years — instead of 20 years — will increase the current service level funding. It is believed that this one-time increase will reflect a more precise compensation projection and leads to the largest funding increase in the proposal. Also, this change will roll forward into future two-year budget cycles.

Preliminary estimate: $240 million increase in the CSL for the 2025-27 biennium.

3. Local property tax revenue: school funding to districts represent a combination of local revenue (34 percent) and state revenue (66 percent). The state’s historical practice doesn’t include fluctuations in local property tax revenue in the second year of the biennium. This limits the state’s ability to accurately account for the level of resources available for schools.

Going forward, the governor has directed state agencies to account for annual information for projected local revenue, with the goal of increasing accuracy and precision.

Preliminary estimate: $55 million increase in the CSL for the 2025-27 biennium.