The Economic Impact of Oregon's proposed transportation Package: special session update

WHAT WE CAN EXPECT FROM  LC-2

Introduction

Although still large, the proposed transportation package being considered during the current special legislative session (LC-2) has been scaled down significantly relative to what was originally introduced in the May 2025 Session (HB 2025), with proposed revenue increases being cut by more than half. 

While scaled down, revenue increases represent a significant drag on regional economic activity, with increased payroll taxes being particularly burdensome. 

As with most long-term investments, the benefits of the proposed transportation infrastructure spending will compound over time and eventually offset the drag created by additional taxation. However, the return is low, with the net spending per job estimated to be $286,000. 

The current proposal will bring the system closer in line with Oregon’s constitutional requirement that highway funding be split equitably between heavy and light vehicles. With most of the additional revenues being paid by light vehicles, a back-of-the-envelope estimate suggests that light vehicles would be responsible for roughly 70% of both highway costs and revenues this biennium. 

The proposal does not address the long-term needs of Oregon’s transportation system, with many investments that are estimated to generate large returns on investment remaining unfunded. 

UPDATED IMPACT ESTIMATES 

The updated Transportation Package (LC-2) introduces several significant revenue and spending changes. The smaller overall package reduces the tax increase and associated spending by approximately $791 million in the 2025–27 biennium and growing to almost $1.4 billion in the 2033–35 biennium. Overall, the initial tax increase for the Transportation Package as measured by HB 2025-13 was $15.5 billion from FY 2025-FY 2035. The newest special session bill, LC-2, lowers that estimate by almost 2/3rds, to $5.8 billion. 

From 2025 through 2035, most of the tax increase aspects of the newest version of the Transportation Package stem from: 

• Taxes on gasoline of $857 million. 
• Taxes on vehicle registrations of $1.7 billion. 
• Taxes on titles of $1.2 billion. 
• Taxes payrolls of $1.8 billion. 
• New road usage charges of $1.0 billion. 
• Changes to the diesel tax and other transfers/savings. 

Figure 1: Revenue Estimates for HB2025-13, A28, and the Newest LC-2

Key Findings

Oregon’s Transportation ReInvestment Package (TRIP), currently known as LC-2, has large economic impact potential, with negative and positive components. On net – when considering both the tax increases and spending portions – the proposal is costly for each job generated, at $286,000 per job. Overall, the results produce: 

• A 1,558 increase in jobs by 2030 (all figures in this list are 2030). 
• A $229 million increase in GDP. 
• A $192 million increase in Personal Income (mostly workers’ income), but a $21 million decrease in Disposable Personal Income. 
• A $325 million increase in business sales (Output). 
• Inflation rises, by 0.12% in 2030. 

Figure 2: Overall Economic Impact

Portions of the proposal 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 funding for highway operations and maintenance, maintaining existing rail service and expansion to select areas, and public transit, the highway portion is responsible for the return on investment. 

The Transit/Payroll Tax Portion Does Not Produce a Positive Return 

On the payroll tax/transit component: Overall, in 2030, using the payroll tax to pay for current/expanded transit services: 

• Reduces employment by 270 jobs, including a drop of 573 private sector jobs; 
• Lowers business sales by $23 million; and 
• Reduces disposable personal income by almost $200 million. 

The downside effect from higher payroll taxes outweighs the potential positive effects from transit construction for a decade. Most of the downside impact is felt through reduced disposable personal income. 

 Figure 3: Transit and Payroll Tax Portion

Conclusion

Oregon’s current transportation funding system is not sustainable over the long run. The state’s significant dependence on fuel taxes will lead to less effective revenue generation going forward due to a lack of growth in vehicle miles traveled and the increasing fuel efficiency of the vehicle fleet. Alternative funding models have been considered that depend more heavily on fees, road usage charges, tolling and the like. Policymakers may also choose to tap into General or Other Funds if they feel the needs of the transportation system outweigh those of other public programs. For particularly lucrative transportation projects, policymakers may also want to consider aligning the desired development spending with one-time, rather than ongoing, revenue sources. 

CSI’s full report on the prior version of the transportation package is available on our website: https://www.commonsenseinstituteus.org/oregon/research/infrastructure/the-economic-impact-of-oregons-proposed-transportation-package.