Budget may not be rousing success.

Byline: DAVID STEVES The Register-Guard

SALEM - When the Oregon Legislature brought to a close the third session of the year at 5 a.m. Sunday, it succeeded in closing an $860 million shortfall and even buying back almost $30 million in cuts to public schools.

For those fearful of even deeper cuts - including students, the elderly, disabled and citizens who demand adequate public safety services - it could have been much worse.

And considering that higher taxes on tobacco and a phasing-in of an income tax break for middle- and upper-income households amounted to just 20 percent of the overall package, the Legislature's solution will be lighter on taxpayers' wallets than it might have been.

But for those who think borrowing, accounting schemes and siphoning from trust funds and reserve accounts is a lousy way to run the government, the special session was hardly a rousing success.

Lawmakers approved the sale of $225 million in bonds - debt that will have to be repaid with interest. They erased red ink in the current two-year budget cycle by pushing off $267 million in payments to schools and community colleges into the next budget cycle. They grabbed a combined $110 million from five pots of one-time money that were never intended to pay for the ongoing operation of government services.

They also punted to voters - asking them to approve in September a 60-cents-per-pack increase in the cigarette tax. Also referred to the September ballot is a measure asking voters to take part of a lottery-funded education endowment to create a rainy day fund for education - and then immediately release $150 million of it to schools.

"Shame on us," Rep. Chris Beck, D-Portland, scolded fellow lawmakers as they approved one of several such proposals in the push for adjournment of a session that had dragged on since June 12. "This is just an extension of what we now know corporate America has been doing for years."

Beck is one of several Democrats who wanted taxes to play a larger role in providing a permanent solution to closing the gap between revenue and spending levels. Instead, the Legislature put together an $889 million package that includes an estimated $611 million of one-time money - and as a result, leaves a $1.4 billion projected shortfall in the 2003-05 budget for next year's Legislature and new governor.

"We're mortgaging, we're borrowing, we're fund-shifting and we're taxing, and that puts us in no position to pass a sustainable budget in 2003," said Sen. Ted Ferrioli, a John Day Republican who wanted deeper cuts to bring spending levels closer to the amount of revenue the state expects to collect in the next budget cycle.

Gov. John Kitzhaber, who has railed against a borrow-and-spend fiscal policy since the Legislature's first budget-rebalancing special session in February, will have to decide how much, if any, of these maneuvers to veto. He has been in France since Wednesday and was scheduled to return Sunday night.

But all those bonding, borrowing and accounting ploys would make it difficult for Kitzhaber to endorse the package, Steve Marks, his chief of staff, said.

"This isn't a pay-as-you-go budget, and that's got to be a concern to the governor," Marks said. "Instead of making things better for '03-05, this is making it worse."

Marks said the most troubling element in the legislative package is $175 million in lottery-backed bonds, which would offset any revenue drops that might materialize later this year. Selling such bonds would come on top of the other steps taken to close the current $889 million budget hole.

But some lawmakers say the pay-as-you-go bar set by the governor was unrealistically high. Raising taxes and cutting programs by hundreds of millions of dollars above levels approved by the special session would have been the most fiscally responsible way to close the budget gap without pushing off tough choices to the next budget cycle, conceded Sen. Peter Courtney, D-Salem.

"We could never have done those things, given the magnitude we were up against," said Courtney, who helped break the Senate's two-week-long impasse over the budget by putting $50 million more on the table - money that becomes available by bonding $50 million and repaying it with part of the Legislature's boost in cigarette taxes.

Kitzhaber's proposal called for a three-year increase in income taxes, which would have pumped an extra $583 million into the budget gap. That proved too high a tax increase to be given serious consideration in a special session that concluded less than five months before the next election.

Likewise, a package of $148 million in spending cuts - nearly three times the $54 million that won final approval early Sunday - failed in the Senate, demonstrating that legislators had their limits when it comes to squeezing universities and community colleges, human services and jail beds for criminals.

Rep. Ben Westlund, a Bend Republican and the House budget chief who helped put the package together, readily acknowledged that the use of one-time money struck many of his colleagues as an irresponsible way to solve the state's budget problem.

"What would have been even less responsible would have been to do nothing at all," he said. "You can criticize any one of the individual pieces in this jigsaw puzzle, but if you look at the whole thing as a package, it's pretty good."

It was the backdrop of election year politics that made the short-term fixes the most attractive to a majority of legislators. House Speaker Mark Simmons, Senate President Gene Derfler and Kitzhaber - all lame ducks who will step down by year's end - lacked the leverage to force rank-and-file members to go along with more politically risky proposals.

Lawmakers who wanted to position themselves as successors to those leadership posts were reluctant to march out of step with their respective parties' philosophies about taxes and spending. And lawmakers up for re-election were especially sensitive to charges of wanting to cut too deeply or tax too much.

Sen. John Minnis, R-Wood Village, who successfully pressed for bonding a portion of the cigarette tax increase to stretch more money out of it, said election year politics aside, a regular session of the Legislature is the only realistic venue for rooting out unnecessary spending and putting together a tax package.

"You can't do that long-term solution in a special session," he said. "We were being asked to produce a product very quickly, and I'm actually happy with our result."

Those who'd advocated against proposed cuts, and saw the Legislature's initial package of spending reductions gradually whittled down from $100 million to $54 million, had mixed feelings about the short-term fixes.

"It's very Enron, but they patched it together," Jacqueline Zimmer Jones, a senior services lobbyist, said of the Legislature's borrowing, bonding and accounting ploys.

She said it won't be long before she and other human services advocates turn their attention from the cuts they fought to stave off in the current budget cycle to the deeper reductions they'll have to defend against in the 2003 legislative session.

But lobbyists, like legislators, were forced to concentrate on the here and now - when short-term fixes that come with costs down the road were better than some of the alternatives.

"It served its purpose," Zimmer Jones said.

"If it keeps people from being hungry, it's fine. It'll do."

BUDGET PACKAGE

Here is the Legislature's final budget-rebalancing package, along with the amounts that will result from each element. The Legislature finished action on the package before adjourning at 5:05 a.m. Sunday.

Delay into the next budget cycle a payment to local school districts and community colleges: $267 million

Refer to the September ballot the taking of part of an education endowment to create a rainy-day fund for education, and authorizing use of the money for the current budget cycle: $150 million

Spend reserves in state ending balance, emergency fund, light rail bond reserves, Common School Fund and the 911 telephone system fund: $110 million

Refer to the September ballot a 60 cents-per-pack increase in the cigarette tax, with a portion used to pay back an additional $50 million in bonds: $115 million

Phase in the Measure 88 income tax break: $108 million

Use one-time money from Oregon's share of the national tobacco settlement: $85 million

Reduce state general fund budgets: $54 million

Total: $889 million