Rating analysts will track Oregon’s transportation special session

Bond rating analysts will monitor closely the outcome of a special session called by Oregon Gov. Tina Kotek in the hope of closing a transportation funding gap and averting layoffs.

The Oregon Department of Transportation announced on July 7 it would lay off 483 employees after lawmakers failed to pass a transportation budget that would cover the cost of basic operations and maintenance for ODOT.

Last week, Oregon Gov. Tina Kotek called a special session for Aug. 29 and postponed layoffs until Sept. 15, the latter contingent on lawmakers finding a solution that will prevent the need for layoffs.

“I am confident that lawmakers will step up next month to avert these layoffs by approving the necessary funding for the state’s transportation needs,” Kotek said in a statement. “I appreciate their partnership and am eager to be on the other side of this crisis.”

Rating agencies affirmed their Oregon ratings ahead of the state’s April pricing of $925.5 million in general obligation bonds.

Moody’s Ratings assigns its Aa1 rating, with a stable outlook; S&P Global Ratings is at AA-plus and stable; and Fitch Ratings assigns its AA-plus rating with a positive outlook.

“Moody’s is closely following the developments in the Oregon transportation budget and is waiting for the results of the August special session,” said Bevin Erickson, a Moody’s assistant vice president and analyst.

“There are potential implications to our view of Oregon’s credit profile, including debt issued by ODOT, depending on the nature of any cuts or project deferrals included in the final outcome,” Erickson said.

Fitch lifted its Oregon outlook in April 2024 to positive based on the high level of reserves in the state’s Education Stability Fund and Rainy Day Fund. 

All the agencies have cited in recent years the state’s economic gains, growing population and the strength of its economic and manufacturing sectors.

“The state has built up strong reserves, which we believe provide it flexibility as it works to resolve this transportation funding shortfall,” said Savannah Gilmore, an associate director for S&P’s U.S. Public Finance Ratings group.

Like Moody’s, Gilmore said S&P will be “monitoring the outcome of the special session, specifically to determine if this will become an ongoing pressure on the state’s finances.”

S&P’s rating reflects the expectation the state’s “strong financial forecasting and budgetary management will help guide executive and legislative actions to make timely adjustments that realign expenditures and revenues,” Gilmore said.

The state treasurer’s office has no ODOT bond sales planned for the immediate future, Jaime Alvarez, the state’s director of debt management, said through a spokesman. The state treasurer’s office declined to comment on the potential implications for the state’s ratings.

Oregon Department of Transportation

Laser-focused special session

Oregon lawmakers will have a streamlined agenda when they gather for the special session.

Lawmakers will focus on three funding streams to fill the $354 million shortfall the Oregon Department of Transportation needs to maintain current service levels for fiscal 2025, said Susan McLain, D-Forest Grove, who co-chairs the joint transportation committee.

“I told the governor we needed to focus on completing 2025 — and then in 2026 and 2027 we could return to work on House Bill 2025,” McLain said.

The plan is to discuss raising the gas tax by six cents per gallon, increasing state Department of Motor Vehicle fees and imposing an additional $30 fee for electric vehicles to close the immediate funding gap. What will not be on the agenda are proposals for long-term maintenance or sustainability of bridges and culverts, McLain said.

Oregon lawmakers spent the fall considering a 10-year transportation plan. It would have raised $14.6 billion from tax and fee increases to fund anchor projects like replacing the Interstate 5 bridge over the Columbia River, adding transit in rural areas and restoring several funding cuts made to ODOT over the past several years. 

But the proposal, House Bill 2025, a plan drafted after what McLain described as hundreds of community meetings and strategy sessions with lawmakers, didn’t make it across the finish line before state lawmakers adjourned on June 30.

“We are committing to completing the fiscal 2025 budget,” McLain said. “Then we will go back to work on stage two in 2026 and 2027, when we resume work on House Bill 2025.”

The priority right now, McLain said, is making sure the state will not have to lay off 483 employees; and to insure the department has enough money to fund basic services like snowplowing and brush clearing to prevent the spread of wildfires.

Lawmakers will save discussion on the 10-year proposal for when session resumes in 2026, she said.

“It was a perfect storm of changes since we began the work to try to land this six months ago,” McLain said.

The obstacles included trying to bring 18 new lawmakers – nine in each body – up to speed on the proposal, plus absences from three lawmakers experiencing extended illnesses, McLain said.

Rep. Christine Drazan, R-Canby, also is ostensibly “new,” though she was the House minority leader from 2019 to 2021, and was renamed to the position in 2025. She resigned in 2021 to run for governor, but lost to Kotek, and then ran in the primary against her replacement in the House and won.

Lawmakers also have spent the time since the Trump administration took office trying to find replacement funding for grants his administration has clawed back in a variety of different areas, McLain said.

The state was the first to run a pilot program in which it charges a per-mile fee for drivers on a voluntary basis.

The program remains, and lawmakers continue to mull shifting toward charging everyone the per-mile fee, though drivers of combustion vehicles, who continue to pay the gas tax, would have a reduced fee, she said. 

“You have to make sure as you add something that you have a pathway of moving away from the gas tax and toward vehicle miles traveled,” she said. “We needed people to understand if you are paying the gas tax, you would pay less for vehicle miles traveled.”

That is the “complication in moving from one type of fee to another, it takes a minute for people to understand,” she said.

“I think it was the size of the package and the complexity of it that sidetracked us at the end,” McLain said. “The bill just came out on June 1. It was too late for some folks to feel comfortable with it.”

The vehicle-miles traveled portion had bipartisan support and McLain said that will likely be introduced as a separate smaller bill.

McLain is optimistic they can close the transportation budget gap, but she faces opposition from Drazan, who opposed the governor’s move to call them into special session.

Republicans have proposed an alternative plan where the state takes the money from the Legislative Emergency Board “to protect maintenance and preserve jobs that impact road safety,” Drazan said in a statement.

Democrats have 17 of 30 state Senate seats and 36 of 60 House seats.

The emergency board is chaired by the state’s Senate president, currently Rob Wagner, D-Lake Oswego, and the House speaker, who is Julie Fahey, D-Eugene. The board has broad powers to allocate general fund resources, lottery revenue, and other state funds for unanticipated government requirements when the state legislature is not in session.