June 25, 2025

THE ECONOMIC IMPACT OF OREGON’S PROPOSED TRANSPORTATION PACKAGE 

WHAT WE CAN EXPECT FROM HB2025

Introduction

Oregon is currently facing the most challenging environment for transportation funding in its history. Local governments have been unable to maintain their current infrastructure, and traditional sources of state transportation financing are becoming less effective over time. Making matters worse, federal funding sources for the largest infrastructure investments are increasingly at risk.

Having kicked the can down the road for several years, Oregon’s transportation infrastructure is in desperate need of investment and has forced policymakers to focus on triage rather than investments that stand to generate the largest returns. In addition, transportation funding has become increasingly inequitable, with the sources of funds not matching where the benefits are accrued.

State policymakers have not enacted a comprehensive transportation package since 2017. Many of the investments called for in that package have yet to materialize, with project costs having risen significantly in the eight years since its enactment. During the current legislative session, state policymakers and stakeholders have been forced to focus on how to maintain the current transportation system, and fulfill the promises made in 2017, leaving out any consideration of new investments that have the potential to generate substantial benefits over many years. In hindsight, significant investment opportunities have been lost in recent years as borrowing and construction costs have risen significantly.

Even after the state digs its way out of the current investment hole, resources will remain constrained for the foreseeable future in the absence of major reforms. The primary issue on the revenue side is the eroding effectiveness of traditional fuel taxes. Growth in vehicle miles traveled over time is no longer the norm, and the fuel efficiency of the vehicle fleet continues to improve rapidly. As a result, fuel tax revenues have been unable to keep up with the costs of maintaining and improving the transportation system, with the resource gap sure to widen going forward.

During the current legislative session, policymakers have floated a wide range of revenue increases in addition to higher fuel taxes to support transportation investment. Many of these have been included in HB2025 (HB2025 2025 Regular Session – Oregon Legislative Information System) which has now passed out of committee. On the spending side, most of the proposed funding has been dedicated to operations, maintenance and preservation with relatively few investments in new capacity aside from completing projects that were authorized in the last transportation package in 2017.

The package also includes additional funding for public transit funded by additional payroll taxes.nHowever, these investments remain controversial as some policymakers have argued that Oregon’s limited funds should be spent on roadways, with fewer investments made in public transit, climate adaptation, and pedestrian/bicycle projects.

Major reforms of the transportation funding system will likely need to wait for now. Oregon has done extensive research on road usage charges, tolling, congestion pricing and the like. However, all these alternatives face significant opposition among voters and stakeholders. In part, many Oregonians are calling for a more direct connection between such revenues and the projects that they will be devoted to.

While the overall revenue shortfall is daunting, Oregon faces the additional challenge of maintaining equity in its highway financing system. Oregon’s constitution requires that revenues generated from light versus heavy vehicles match the costs that different vehicle classes impose on the system. Since 2017, the system has become inequitable, with heavy vehicles paying more than the costs that they impose on the system.

In addition to generating enough revenue to fund the overall system, policymakers will need to adjust revenue sources and/or the pattern of investments to better serve heavy vehicles.

With little time left in the legislative session, the nature of the potential transportation package is now taking shape. However, some parts of the legislation could still change as policymakers debate the scope and nature of the package in order to ensure its passage. The following report does not attempt to advocate for any specific policy solutions. Instead, it details dynamic economic impacts of some of the core proposals being considered in HB2025 in an effort to better inform Oregonians about the return on investment in the challenging funding environment.

Key Findings

• Oregon’s Transportation ReInvestment Package (TRIP), legislatively known as House Bill (HB) 2025, has large economic impact potential, with negative and positive economic impact components. On net – when considering both the tax increase and spending portions – by 2030 the proposalgenerates:

• An increase of 5,094 jobs.
• A $1.1 billion increase in GDP.
• A $635 million increase in Personal Income (mostly workers’ income), including a $214 million increase in Disposable Personal Income.
• A $1.8 billion increase in business sales (Output).
• Prices rise marginally, by 0.36% in 2030.

• Portions of the proposals have positive returns compared to others that turn out to be losers when viewed from the lens of Oregon’s future economic position.
•  Of the three main components – expanded highway construction and maintenance, maintaining existing rail service and expansion to select areas, and public transit, the highway portion is responsible for the return on investment.
  • On the payroll tax/transit component: Overall, using the payroll tax to pay for current/expanded transit services reduces employment by 457 jobs, business sales by $29 million, and disposable personal income by $352 million. The downside effect from higher payroll taxes outweighs the potential positive effects from transit construction. Most of the downside impact is felt through reduced disposable personal income.
  • Like the payroll tax – transit relationship, the REMI results for using the Vehicle Privilege Tax to pay for existing rail and selected improvements produce a loss (in 2030) of 248 jobs, lower business sales by $88 million, and a drop in disposable personal income by $24 million.
  • The state may want to consider using some of the growth in personal income tax derived from transportation-related activities to fund some or all of the proposed projects. For instance, the current General Fund revenue biennium revenue forecast made in March 2025 suggests total revenue collected of $28.0 billion. A 6% growth rate on top of the $28.0 billion would be $1.68 billion in new, biennial revenue. Presuming approximately 17% of the $1.68 billion stems from transportation-related sectors, then $286 million of the tax increase could be avoided by simply shifting growth to more productive resources, such as expanding the economic infrastructure in the state. This is especially relevant given declining population growth and less demand for other government services.
• The Modern Transportation Funding component has at least one consequence that appears counterproductive. By calling for raising the gas tax when inflation and (generally) gas prices are high, it has the effect of making inflation worse. Generally, when inflation is a problem, governments typically don’t want to be in the business of making inflation worse. HB2025 does soften the potential annual increases by putting 3% ceiling on the amount the tax rate can grow each year.
  • 25 states use some type of inflation-indexing for their gasoline tax rates.
• Given that development is typically a one-time component, and that population may shift from growth to decline in the coming two decades, policymakers may be best served aligning the desired development spending with one-time rather ongoing tax revenue increases. Of course, a portion of the proposal includes an ongoing maintenance component that would be best served with ongoing funding.
• Given the significant increase in fuel taxes included in the proposal, additional equity considerations arise. It is likely that rural and low-income households will bear a relatively high burden from taxation.

Background

The Transportation Reinvestment Package (TRIP) (HB2025) currently under consideration by the Oregon Legislature requires Oregonians to contribute more to transportation-related taxes and fees. The clearest impact will be on fuel prices at the pump. Oregon’s state gasoline tax is currently $0.40 per gallon: under TRIP, this will incrementally increase to $0.50 by January 1, 2026 and to $0.55 by January 1, 2028 and thereafter rise with inflation. This $0.15 per gallon rise – implemented in increments of 10 cents and 5 cents per gallon beginning on January 1, 2026 – means drivers will pay more when they fill up. For example, a commuter who purchases 500 gallons of gas a year would eventually pay an extra $75 annually once the $0.15 increase is in effect by 2028.

In addition to the gas tax increase, the proposal includes price increases on motor vehicle registrations, title transfers, vehicle purchases, tax increases on when businesses use the roads, and an increase in the employee payroll tax.

In exchange for higher prices at the pump, at the registration desk, and for businesses, the TRIP includes spending on projects deemed high priority by the Oregon Transportation Commission[i]. Among the list of priorities are I-5 Rose Quarter, Abernethy Bridge, Interstate 205 widening, Newberg-Dundee Bypass, State Highway 22/Center Street Bridge retrofit, and the remaining infrastructure improvements allocated through the standard 50/30/20 formula (state/counties/cities)[ii] Additionally, the package earmarks 1.37% of the county share for small county distribution and modifies the distribution, effective July 1, 2027, to include $125 million to the Great Streets Fund, $25 million for Safe Routes to Schools Fund, and $5 million to the Wildlife-Vehicle Collision Reduction Fund, among other allocations.

Revenue Side Impact

The most recent documents on the TRIP – contained in HB2025[iii] – includes on the revenue side: