Prepare for Additional Payroll Tax Withholding in 2026
What’s happening: An effort to refer this year’s transportation tax and fee package to voters likely could overlap the implementation of a key part of that package: the doubling of the state payroll tax supporting public transit. The result will be messy and confusing, and OBI is communicating with relevant state agencies to provide answers for OBI members.
The tax and fee package: Passed during this year’s special legislative session, HB 3991 will raise about $4.3 billion over the next decade through a collection of taxes and fees, from a 6-cent-per-gallon increase in the state gas tax to a doubling of the employee-paid payroll tax supporting public transit. Beginning in January 2026, that tax will increase from 0.1% to 0.2%. Employers must collect the tax and remit it to the state, and the increase may take employees by surprise. OBI has created a tool kit with tips for talking with employees about the increase, which you can find here.
The referral effort: Opponents of the transportation package are collecting signatures to refer it to the ballot for an up-or-down vote (learn more about the effort at www.stopthegastax.com). They have until Dec. 30 to submit about 78,000 valid signatures. On Nov. 25, they reported having collected more than 150,000.
Overlap and potential confusion: Following the Dec. 30 submission deadline, the Secretary of State’s Office will work to verify signatures, a process that could take several days and perhaps longer than a week. Assuming enough valid signatures have been submitted, the referral will qualify for the ballot, and the relevant parts of HB 3991 will be paused, including the doubling of the payroll tax, at the time of qualification. Employers will still have to collect the additional tax between the law’s Jan. 1 effective date and the date at which the referral qualifies for the ballot, however. OBI is working with the state to answer some important questions, including what employers should do with that money until the legal status of the doubled tax is determined. OBI will provide answers to members about this and other questions as soon as they’re available.
Forecast Gives Mixed Outlook on Revenue, Economy
Forecast basics: On Nov. 19, the Oregon Office of Economic Analysis (OEA) presented the most recent Economic and Revenue Forecast, which is for the fourth quarter of 2025. At a high level, the forecast showed that Oregon’s economy continues to struggle. The report shows that the state continues to suffer from private sector job losses and stagnant population growth. The revenue forecast also predicts an increase in projected revenue collections, at least from the previous forecast.
Economic Outlook: As he has done for more than a year, Oregon’s chief economist, Carl Riccadonna, discussed the likelihood of falling into an economy-wide recession. Based on current data, OEA predicts the recession risk is around 25%. In making that assessment, OEA cited car sales, weight-mile revenue, declining tariff uncertainty and other factors.
Slow Oregon growth: Economic growth in Oregon continues to trail the national average, however. The state’s year-over-year growth rate for the second quarter of 2025, 0.8%, trailed the national average of 2.1%. In fact, Oregon GDP growth has averaged only 1.6% over the past four years compared to 2.7% nationally. According to the forecast, Oregon’s labor market continues to struggle, especially in the private sector. From August 2024 to August 2025 (more recent data was unavailable due to the shutdown of the federal government), the manufacturing sector lost 8,500 jobs, the construction sector lost 5,200 jobs, the trade and transportation sector lost 7,100 jobs and the professional, business, and financial services sectors lost a combined 7,500 jobs. Those are the sectors upon which the state relies for economic growth, which creates jobs, funds state services and generates wealth and prosperity. Unless policymakers enact pro-growth and pro-businesses policies, the decline in employment in those sectors will jeopardize Oregon’s long-term economic and fiscal outlook. Even with those substantial declines, jobless claims continue to fall short of recessionary thresholds. However, payroll declines like those Oregon is experiencing are unusual outside of a recession. The report notes that the Oregon unemployment insurance exhaustion rate – an indicator of “labor market fragility” – has risen above pre-pandemic levels and it has been ticking up in recent months.
Slow population growth: Oregon’s population is expected to grow at an annual rate of only 0.5% through 2035. The state’s population is stagnating in large part because 10 formerly growing counties, including Multnomah and Lane, have been shrinking. Since Oregon relies on in-migration for population growth, policymakers need to enact policies that will help attract working-age people. This will require a focus on affordability, housing costs, the individual tax burden and underperforming public schools.
Adjusted revenue outlook: Due to a mild economic upgrade and recent corporate tax payments, the OEA boosted its general fund forecast by $309.5 million from its previous forecast. The OEA warned the increase in projected revenue is not likely to be repeated and should not change the Legislature’s fiscal strategies. These most recent projections result in a negative ending funding balance (-$63.1 million) for the 2025-27 general fund. While estimates were up from the third-quarter forecast, they remain down overall from the “close of session” forecast up on which the budget was set.
Restraint needed: Policymakers should be capable of rebalancing the 2025-27 budget without further increasing the tax burden on Oregon businesses and individuals. Additionally, policymakers should preserve the state’s connection to the taxable income provisions of HR 1. Oregon’s close connection to federal tax law aids taxpayer compliance with Oregon’s otherwise complicated and antiquated tax system. The state’s connection to the tax provisions of HR 1, especially the business expensing provisions, will provide businesses with much-needed tax relief that can be used to hire more workers, pay increased wages and benefits and invest in their communities. Policymakers should resist pressure to increase existing taxes or create new ones. Oregon’s businesses, which already saw their effective tax liability increase 33% from 2019-2023, simply cannot afford to shoulder a bigger tax burden.
You can read the full OEA report here. Below are some key statistics.
- 2025-27 biennium (the current biennium, which began on July 1): Net general fund and Lottery fund resources will rise to $39.1 billion for this biennium. This is an increase of approximately $2 billion (or 5.6%) from the 2023-25 biennium. The general fund is expected to grow by 65% between the 2025-27 biennium and the 2033-35 biennium.
- Reserves: Oregon’s reserve accounts – the Education Stability Fund and the Rainy Day Fund – continue to have a total balance of $3.4 billion, representing a little less than 10% of the state’s General Fund.
OBI Board Issues Oregon Economic Emergency Declaration
On Nov. 14, the OBI Board of Directors approved a resolution declaring that Oregon is in a state of economic emergency and calling upon policymakers to do three things:
- Publicly acknowledge that the state is at a critical juncture and recognize the role businesses play in sustaining and improving economic health;
- Do no more harm – refrain from expanding or adopting policies, taxes or fees that make Oregon less competitive and affordable; and,
- Prioritize economic and business development in partnership with the business community, including, but not limited to, the adoption of incentives and development tools used by other states and the modernization or elimination of outdated policies that erode the state’s business climate and competitiveness.
The resolution listed more than a dozen pieces of information supporting the economic emergency declaration, including:
- Oregon’s year-over-year GDP growth significantly lags U.S. GDP growth;
- Oregon is losing thousands of jobs, with recent reports showing a nearly 25,000 loss from July 2024 to July 2025 and an 18,300 loss from August 2024 to August 2025;
- Private sector employment is generally declining while government employment is growing, which is an unsustainable trend;
- Oregon’s state level total effective business tax burden increased by 33% between 2019 and 2023, eroding an historic competitive advantage.
- Oregon has fallen dramatically, from 7th (2019) to 35th (2026), in the Tax Foundation’s State Tax Competitiveness Index and ranks second worst for corporate taxation.
Go here to read the resolution.
OBI, The Partners Group Team Up for Pooled 401(k) Plan
Retirement plan option: OBI has teamed up with The Partners Group to offer OBI members discounted access to The Partners Retirement Plan – an innovative pooled 401(k) solution. A pooled employer plan (PEP) allows multiple employers to offer a 401(k) benefit to employees through a group structure while maintaining individual company design and control over the benefit – such as eligibility, employer match and vesting. This shared structure is designed to help reduce administrative burden, fiduciary risk and overall plan costs. Through this partnership, OBI members will see even more savings because TPG offers special pricing to OBI members!
Why a PEP makes sense: Oregon law requires employers to offer a retirement savings plan to their employees. Employers can do this through a government-sponsored program (OregonSaves) or through a qualified retirement plan like a 401(k). Many employers are looking for opportunities to reduce costs across their organizations. Many other employers struggle to keep up with the ongoing requirements needed to keep their plans compliant in an ever-changing legislative environment. With The Partners Retirement Plan, the majority of those responsibilities are outsourced to a dedicated team of professionals.
Learn more: Check out a fact sheet about The Partners Retirement Plan here, and contact The Partners Group here. Register here for a webinar with The Partners Group, which will take place on Jan. 22 from 10-10:30 a.m.
Policy and Rulemaking Updates
Revenue bill preview: During the week of Nov. 17, the House and Senate revenue committees met to discuss various revenue issues. The House committee received an update on the implementation of Oregon’s meager semiconductor tax credit while the Senate committee received an overview of various tax reform efforts since the 1990s. Meanwhile, the two committees gave brief and vague descriptions of the bills they will pursue during the 2026 session. Of note, the House committee will have a “vanilla” reconnect bill that (at least as introduced) will keep Oregon’s tax policy consistent with the most up-to-date federal tax laws. The committee also will have a “placeholder” bill that can become almost anything that deals with Oregon’s revenue issues. OBI will urge the Legislature to pass a reconnection bill that would ensure that Oregonians can comply easily with the state’s tax code and receive, at the state level, the tax benefits provided by HR 1. Throughout the session, OBI will continue to oppose policies that would make the state less competitive and push lawmakers to make pro-growth tax changes.
New executive order: On Nov. 19, Gov. Kotek signed Executive Order 25-29, which calls on state agencies to implement the so-called Oregon Energy Strategies pathway. For the most part, the directives in the EO are typical, good government actions. Nonetheless, the EO covers a broad swath of public policy topics, and agencies could find ways to further undermine business competitiveness in Oregon through rulemaking. The order does have clear policy implications for the Clean Fuels Program due to its establishment of a new carbon intensity target (the amount of carbon emissions produced in the production, transportation and use of each unit of fuel). Just 10 years ago, the Legislature determined that fuels should emit 10% less emissions than in 2015. Gov. Brown boosted that goal to 25% in 2020. The Department of Environmental Quality subsequently ignored that number and established an even more ambitious target of 37%. Gov. Kotek’s EO will now increase the goal to 50%. These changes will ensure that fuel in Oregon will continue to become more expensive.
Homeless camping: Sen. Mark Meek, D-Gladstone, has submitted a legislative concept related to OBI’s efforts to improve or repeal HB 3115, which the Legislature passed in 2021. Separately, OBI has filed an initiative petition, the Local control and Safety Act, that would ask voters to repeal the law. The goal is to restore the authority cities had prior to 2021 to manage unsanctioned camping in public. There is overwhelming public support to restore such authority, and OBI believes there is majority support in both chambers. However, there is no guarantee that Meek’s committee bill will pass. OBI will be in touch with ways you can help advocate for this common-sense legislation.
Economic development legislation: OBI is working with a broad coalition of industry advocates and local governments on possible economic development legislation for 2026 in coordination with Sen. Janine Sollman, D-Hillsboro. Among other things, the legislation could address industrial land supply, capital equipment taxation, permitting improvements and incentive modernization. While Sen. Sollman began raising concerns about a lack of attention to job creation months ago, she had few friends in leadership echoing her concerns. However, the chorus of policymakers talking about economic development, competitiveness and other topics OBI has emphasized is growing. OBI is working with several legislators interested in elements of the Oregon Competitiveness Agenda, including permitting and rulemaking.
Universal health care: The Universal Health Plan Governance Board, which is creating a framework to implement a universal health system, met recently to discuss the draft progress report it will give the Legislature this month. The board has recommended that the state create a single entity operated as a public corporation with coverage extended to anyone residing in Oregon for over 200 days per year. How such a program would be funded is an open question. An earlier task force identified the need for $22 billion in new revenue, including personal and corporate income taxes, a hike in corporate activity taxes, an 11% employer payroll tax and an increase in excise and lodging taxes. The board will provide a final report to the Legislature in September 2026.
Health care costs: The Health Care Cost Growth Target Workgroup has recommended a 5.5% cost growth target for the next four years. This is higher than the 3% target in the previous period. Beginning in 2028, the program will have the authority to levy significant fines on health care entities that fail to meet the target, resulting in costs that will ultimately be passed on to individual and employer buyers of health care. While the higher target percentage better reflects the real cost of financing and delivering care, the program itself remains yet another administrative burden layered onto an already heavily regulated health care system. Next, the Oregon Health Policy Board will decide whether to adopt the revised target. It is scheduled to meet again on Dec. 9.
Land use group: Reps. Thuy Tran, D-Portland, Susan McLain, D-Forest Grove, and Sarah Finger McDonald, D-Corvallis, have convened a large and varied group of stakeholders to consider modernizing the first of Oregon’s 19 land use planning goals: citizen involvement. HB 2950, which was introduced during the 2025 session, would have required a process to update the goal, but the bill did not move forward (OBI was neutral on the bill). The group has met once to consider information about how public involvement works today and to hear stakeholder perspectives about whether, and how, to update the goal. OBI approaches this conversation with a holistic view of the state’s land-use system and a particular appreciation for the ninth goal, which focuses on economic development.
Road user charges: Coming out of the 2025 transportation processes and the recently completed special session, OBI is participating in a group convened by Rep. Susan McLain, D-Forest Grove, to consider issues related to implementation of the road user charge system for electric vehicles that will be implemented in the coming years. It is not clear whether related legislation will be necessary or considered during the 2026 legislative session. The road user charge system established in the transportation special session is not part of the referendum currently being attempted. This, this will move forward whether or not the referendum succeeds.
Partner Organizations to Know About
Oregon Leadership Summit
Join the Oregon Business Council on Dec. 8 at the Oregon Convention Center for the 23rd annual Oregon Business Plan Leadership Summit: At a Crossroads. The era of automatic growth is over, and Oregon faces tough choices about how to adapt systems built for yesterday’s challenges to meet today’s realities. Yet our history shows we can turn constraints into progress and risk into renewal.
This year’s summit calls business, community and elected leaders to that tradition once more — to face hard truths, spark new ideas and take on Oregon’s top pressures: housing, education, taxes, wildfires and the business climate.
The day runs from 8:30 a.m. to 4:00 p.m., followed by Food Forward 2.0 at the Redd, celebrating Oregon’s world-class food and beverage industry. Register and learn more.
Business & The Environment Conference
The 2025 Business & The Environment Conference and Expo will take place Dec. 9-10 in Portland. The event – the Northwest’s largest environment conference and expo – will feature keynote addresses by Hillary Franz, president and CEO of American Forests, and Emma Pokon, regional administrator for USDA Region 10. It also will feature a panel discussion involving regulators from the Washington State Department of Ecology, Idaho Department of Environmental Quality and Oregon Department of Environmental Quality.
Over its two days, the conference and expo will offer sessions on emerging technology, sustainable systems, the policy landscape, air and water insights and complex contamination.
To learn more about the event and to register, go here.
Notable News
Oregon income lagging: Oregon’s income growth has slowed markedly over the past two years, raising financial pressures as the state faces a range of economic headwinds (The Oregonian).
Empty Portland apartments: Nearly 1,900 publicly subsidized rental units are sitting empty across Portland, according to new estimates. New data from real estate analytics firm CoStar reveals that 1,863, or 7.4% of the city’s 25,409 affordable apartments, are vacant. That’s a stunningly high vacancy rate compared to what industry insiders consider an equilibrium rate, where supply and demand are in balance and units are being efficiently utilized (The Oregonian).
Software developer moves: Software company Routeware has moved its headquarters from Tigard to Austin, Texas. In a news release, the company said the new headquarters will be a centrally located place to gather the team when needed. Since the pandemic, the company has been operating on a remote-first model (Portland Business Journal).
Rogue bankruptcy: Rogue Ales’ parent company has filed a voluntary petition for Chapter 7 bankruptcy, following the closure of its Oregon brewing operations and restaurants (Portland Business Journal).
Mass timber lab: A state-of-the-art facility for the mass timber industry is planned for the Port of Portland. The University of Oregon will build a lab for testing mass-timber floor-to-ceiling assemblies at the port’s Terminal 2. The project is part of a plan to turn the terminal into a mass timber innovation campus (Portland Business Journal).
Transportation tax referral: Opponents of a recently passed transportation bill say they have enough signatures to refer the package and its related gas tax increase to Oregon voters. The initiative to send the bill to voters in the November 2026 election has gathered more than 150,000 signatures, according to estimates from its chief petitioners (Oregon Public Broadcasting).
Top sports city: Portland has a storied soccer team, a new basketball team, a trendsetting sports bar and a lot of vibes. And that was enough to make it one of the top U.S. cities for women’s sports, according to The Athletic (Portland Business Journal).
Lam expansion: Intel job cuts have rocked the Portland metro, but in Tualatin, there’s a sign of life for the region’s economically vital semiconductor industry — one that rises four stories and includes 120,000 square feet of office space. It’s Lam Research Corp.’s new Building G, which ceremonially opened on Nov. 21 (Portland Business Journal).
Airport volume: Portland International Airport may finally have recovered from its case of long COVID. Nearly 1.7 million travelers passed through PDX in October, according to preliminary figures. That’s just a few thousand shy of the number that flew through Portland in October 2019 — the smallest gap of any month since the pandemic (The Oregonian).
Wildfire season: Despite early forecasts of a punishing 2025 wildfire season, Oregon escaped relatively unscathed (Oregon Journalism Project).
Preschool for All: Preschool for All, Multnomah County’s initiative to provide universal preschool to every child who wants it by 2030, now sits on close to $610 million, marking another year in which the program has racked up its fund balance (Willamette Week).
Phil Knight contribution: Phil Knight has broken his own record for political spending. The 87-year-old Nike co-founder wrote a $3 million check to the Bring Balance to Salem PAC on Oct. 22, according to a new filing with the Oregon secretary of state. Bring Balance was formed in 2021. The PAC spent nearly $5 million in 2022 and just over $5 million in 2024, all in support of Republican legislative candidates (Oregon Journalism Project).
Portland shelters: Portland has opened 890 new shelter beds since Mayor Keith Wilson took office in January, with more expected to be announced soon. But recently released data shows those beds are rarely full (The Oregonian).
Nitrate monitoring rules: More than 30 years after Oregon officially declared the Lower Umatilla Basin’s groundwater polluted, the state is on the verge of adopting rules to monitor nitrates in the area. Should the state adopt them, the rules would require many farmers in western Umatilla County and northern Morrow County to test their own fields for nitrates and maintain the records (Oregon Public Broadcasting).
Oregon nonprofits: A new study from ECOnorthwest offers an important snapshot of Oregon’s nonprofit sector and its contributions to the state. As of 2022, there were about 10,000 nonprofits employing people in Oregon, with another 13,000 without employees, spanning a variety of fields, from health care to the arts to the environment to social services, according to the Portland firm’s Center for Nonprofit and Philanthropic Insight (Portland Business Journal).
Apartment construction: Plenty of policymakers in Oregon say the way to make housing more affordable is to build more affordable housing. That can work, but it often costs precious public dollars. Jay Parsons, a rental housing economist in Dallas, says the way to boost supply of affordable apartments is to build apartments—any apartments (Willamette Week).
Check Out OBI’s Member Benefits
OBI offers members a range of programs that can save money or help small businesses offer benefits normally available only to much larger companies. Benefit programs include:
- HealthChoice: Helps businesses with fewer than 100 employees offer comprehensive health-care benefits through our partnership with Regence BlueCross BlueShield of Oregon.
- Partners Retirement Plan: Allows multiple employers to offer a 401(k) benefit to employees through a group structure while maintaining individual company design and control over the benefit – such as eligibility, employer match, and vesting.
- CompSAFE: Helps eligible companies enjoy workers’ compensation discounts through SAIF Corporation.
- Fuel Program: Helps members save fuel costs through our partnership with Ed Staub & Sons.
- ODP Business Solutions: Helps OBI members save money on office furniture, supplies and other services.
- LegalPLUS: OBI members receive 15 minutes of free legal consulting per month from Innova Legal Advisors.
Go here to learn about all of OBI’s member benefits.