Build a budget reserve.

Byline: The Register-Guard

This is the year for the Oregon Legislature to mop up after the budgetary storms earlier in the decade.

Helping state programs begin to recover from the damage they've suffered is a happy task. The repair job won't last, however, unless lawmakers patch the leaks that allowed the damage to occur in the first place. Public services can't be sustained unless Oregon establishes a reserve fund adequate to carry the state through the next recession.

A down payment toward such a reserve is readily at hand. Oregon's kicker law is scheduled to return $275 million to corporations this year, but business groups say they don't want the money. Seriously: The state's leading business organizations would rather see their rebates placed in a state savings account to provide budgetary stability. The Legislature would have no excuse for doing otherwise.

Oregon's kicker law says that when state income tax revenues exceed projections by 2 percent or more, the entire amount must be refunded to taxpayers. The law applies separately to personal income and corporate income taxes. A stronger-than-expected economy will trigger record kicker refunds and also has allowed Gov. Ted Kulongoski to propose a 20 percent increase in state spending in the 2007-09 biennium.

The kicker illustrates the volatility of state income tax revenues, which are rarely within the 2 percent target range. Oregon kicks money back to taxpayers at the crest of the economic cycle, and then cuts programs when revenues enter a trough. Business groups understand the problems caused by such erratic budgeting: Not long after the state succeeds in providing adequate funding for essential services, along comes another round of cuts.

Business groups also can see that unreliable funding for state programs hurts the economy, while periodic rebates of income taxes provide temporary stimulus at best. Speaking to the House Revenue Committee, University of Oregon economist Phil Romero, a former chief economic adviser to California Gov. Pete Wilson, said recently that the kicker destabilizes public services on which businesses depend while yielding few benefits in terms of employment or growth.

The Legislature ought to take the $275 million and put it in a savings account right away, so that bond rating agencies can note that Oregon is making progress toward establishing a healthy reserve. The lottery-funded education stability account is expected to contribute an additional $450 million. The governor and the chairmen of the House and Senate revenue committees have other ideas for boosting the reserve total to about $900 million.

A truly healthy reserve fund would have permanent sources of income that would not rely on legislative action, but $900 million would be a good start. Indeed, setting such an amount aside for the future will be lawmakers' most important budgetary action this year.

It's not enough to repair the damage caused by cuts in the past. The Legislature also must insure against further damage in the future.