Budget wrestling's still name of the game.

Byline: David Steves The Register-Guard

SALEM - Tuesday's report that the state's economy has flattened was neither good news nor bad news for Gov. Ted Kulongoski and the Legislature. It just meant more of the same tough budget choices they've been wrestling with for years.

The revenue outlook called for discretionary spending resources to fall by $60 million - about a half-percent difference in the $12 billion that had been forecast in the previous quarter.

Sen. Ben Westlund, a Bend Republican and one of the assembly's most experienced budget writers, described the report as a mix of good news - that the economic and revenue outlook has stabilized after the wild ups and downs of the past few years - and some bad news:

"We're still in the soup," he said, noting that the modest increase from the current two-year budget won't be enough to make up for case load and inflation growth and the declining availability of one-time money from reserves.

The latest forecast gives Kulongoski and his administration the final revenue figures on which they will base his proposed 2005-07 budget, which will be rolled out Dec. 1.

Theresa McHugh, the former state budget director and now Kulongoski's chief of staff, said the new figures mean the governor won't be making major adjustments to the spending plan he will release next week.

"We've been watching the trends so I don't think we were surprised to see that essentially this forecast is flat," she said. "We knew that it was unlikely that this would be a major correction."

McHugh said the governor remains on track with the strategy he's followed all along in preparing a spending plan for education, health and human services and public safety - the major areas of the general fund budget. She said Kulongoski's realism about the amount of money available to spend has dictated his approach.

"He didn't spend his time talking about `What would I like it to have been, and what does this mean.' He really just stayed focused on, `How can I spend these dollars,' ' McHugh said.

"The way the governor has approached this is he expects he has about $12 billion, and he will first fund those things that are mandated and then move on to picking some priority choices on the remaining amount," she said. Mandatory spending includes prisons to accommodate the voter-approved minimum sentences for violent criminals, elementary and secondary education, and debt service.

Underlying the projections of state revenue - mostly personal income and corporate taxes, along with lottery proceeds - is an economy that is climbing back in fits and starts from the recession that marked the decade's start, state economist Tom Potiowsky said.

"Just like the U.S. is seeing a soft patch, Oregon is seeing this sort of softening that has occurred," he said.

Potiowsky cited dramatic increases in energy prices, sales growth in the tech sector that's lagged below expectations, and Oregon employment growth that has flattened, with a drop in employment numbers for October, the first time that's occurred since July 2003.