Oregon: Budget takes another wallop


JAMES MAYER, The Oregonian

SALEM, OREGON-- Oregon's battered budget took another hit Wednesday.

New projections show that even if voters approve a tax increase in January, revenues will fall $126 million short of paying for state programs with only five months remaining in the two-year budget period.

The quarterly forecast also toughens the biggest job facing lawmakers and the new governor: producing a balanced budget for 2003-05. Revenues won't cover $2.3 billion of what's needed to keep schools and other state programs operating at current levels, figures released by state economist Tom Potiowsky show. Budget-writers may have about as much to work with as they did four years ago.

The culprit is the economy, which is struggling to recover from a recession that has damaged government finances more than the much deeper downturn that devastated the state 20 years ago. Potiowsky characterized the state's economy as "skating along the bottom." Job growth has been flat since the beginning of the year, and he doesn't expect a return to prerecession job growth rates until the last half of next year.

"This latest revenue forecast clearly points out to all Oregonians just how important it is that we focus on ways to grow our economy and create good jobs," Gov.-elect Ted Kulongoski said. "These tough budget times show us the importance of having the Legislature and governor work together to make these touch choices facing our state."

The rest of the nation is mired in the same swamp. States face a total budget shortfall for the current fiscal year of about $40 billion, the worst financial crisis since World War II, according to a report released this week by the National Governors Association.

Although the news was not exactly good, lawmakers who already struggled to make up $1.7 billion in previous shortfalls this year seemed relieved that the new hole wasn't bigger.

"We dodged a bullet," said Rep. Dan Doyle, R-Salem. "Many of us expected it to be $200 to $300 million. This is a number which is manageable."

Taxes and other general fund revenues are down $133 million from estimates made three months ago. But lottery revenues are up $7 million.

The shortfall comes on top of $310 million in budget cuts that are scheduled to take effect if voters reject a temporary income tax increase Jan. 28, as polls suggest they will.

Doyle said the Legislature should reserve the first few weeks of the 2003 session, which opens Jan. 13, for resolving the 2001-03 budget before tackling the 2003-05 situation. He said that in addition to filling the new shortfall, lawmakers should consider restoring about $100 million of the scheduled cuts if the tax measure fails.

Kulongoski, a Democrat, said he would try to restore some of the $95 million in cuts to K-12 schools through cuts in other programs.

Rep. Karen Minnis, R-Wood Village, who will be House speaker when the Legislature convenes, suggested two places to look to make up the shortfall: the Common School Fund, a trust for education established at statehood, and a lottery-fed rainy-day fund for schools that voters created in May.

Tom Towslee, spokesman for Gov. John Kitzhaber, said the current and future governor will have to talk about how to handle the new shortfall. He said Kitzhaber could use his budget authority to make additional cuts before the 2003 Legislature meets.

Towslee said it was highly unlikely the governor would call a sixth special session of the current Legislature. "A lame-duck session on Christmas Eve is not my idea of a good time," he said.

As the economy recovers during the next two years, Potiowsky's figures show, it will pump tax money back into the budget, an estimated increase of 18 percent in revenues over 2001-03. But that still is $500 million less than previous estimates and will fall far short of paying for current services.

Theresa McHugh, state budget director, said the money available in 2003-05 will be just about enough to provide state services at the level they were in 1999-2001. Most of the growth in state spending over the past two years has been supported by reserves and other one-time income sources tapped by lawmakers through five special sessions this year.

Minnis said the revenue forecast points to a need to examine the Legislature's typical budget practices.

"We shouldn't expand programs or add new ones during the next legislative session," she said. "I'm encouraged by Governor-elect Kulongoski's comments (Tuesday) that he wants to live within our means as he develops his executive budget."

The Democratic governor will submit his spending blueprint to lawmakers early in the session. But it will be up to the evenly-divided Senate and the Republican-controlled House to come up with a final plan.

The announcement Wednesday was the sixth consecutive quarterly forecast to show a revenue decline. In all, revenues have fallen by $1.8 billion from what lawmakers expected they would be when they approved the current budget in July 2001. During that period, revenues have declined 17 percent, topping the previous record of 16 percent that prompted a series of special sessions in 1982.

The early 1980s recession hit the average Oregonian harder than the current downturn, but this recession has carved a bigger hole in the state budget. The reason, said Michael Kennedy, a state revenue economist, is that the current recession hit a different set of people, many of them well-off Oregonians who got hurt when the stock bubble burst. These people pay most of the taxes. The 1980s recession struck much harder at blue-collar people.

"If you lose 50 percent of $10 million, that means a lot to you, if it's you," Kennedy said. "But that's a lot different than 100 people losing their jobs for one or two years." James Mayer: 503-294-4109; jimmayer@news.oregonian.com


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