Cash-flow issues spur budget push.

Byline: DAVID STEVES The Register-Guard

SALEM - Unless the governor and the Legislature can hammer out a budget-rebalancing agreement in the next couple of weeks, the state may not be able to secure the short-term financing it needs for a $600 million payment to public schools, State Treasurer Randall Edwards said Wednesday.

With Oregon in a deep recession that's caused revenues to plummet hundreds of millions of dollars below projections, state money managers have been forced to borrow money for a few weeks or months at a time from internal funds. Edwards said the practice is akin to a family dipping into a savings account to pay first-of-the-month bills because payday isn't until the 15th.

But the recession has made Oregon government's cash-flow problems so severe that it soon will not be able to borrow enough from this "Oregon Short-Term Fund" to distribute the $600 million payment to schools scheduled for May, Edwards said.

Because of this, Edwards plans to borrow money on the bond market through "tax anticipation notes" - low-interest notes that would be repaid within 13 months. These notes are now available at a 1.5 percent interest rate and are commonly used by local governments and school districts and states to bridge temporary cash-flow shortages.

The Legislature in this month's special session gave the Oregon treasurer authority to borrow money in this way. But Edwards said it will take more than this new law to allow him to borrow money in time for the May schools payment - he needs a balanced budget.

"Given the circumstances, it is imperative that a signed, balanced budget be in place by the first week of March" to give him time to arrange the borrowing, he wrote in a letter to legislators and Kitzhaber.

In an interview Wednesday, Edwards said he can't wait beyond then to make preparations if that financing is to be secured in time for the May schools payment.

"It's a pretty tight timeline to prepare to sell this in the marketplace," he said. "We need to know what the budget looks like so we can tell our story to the bond markets and the rating agencies."

State cash managers commonly tap into the Oregon Short-Term Fund for brief periods of time. The fund is where the state and local governments "park" their tax collections and other funds that will eventually flow out in payments for services and other expenses.

For the past decade, treasurers have borrowed from the fund for a few weeks at a time to keep these payments and transfers on schedule. But it has been dipping into the fund on a continual basis since last August, and will have to do so until mid-2003 because of the recession and other factors.

Besides the state's budget shortfall, which Kitzhaber this week estimated at $930 million, its cash-flow problems have been worsened by last year's $254 million "kicker" income-tax rebates.

The possibility that a budget crisis could put schools' May payment from the state at risk is a real concern, said Ozzie Rose, executive director of the Confederation of Oregon School Administrators.

"Most districts will have to borrow money if they don't get that payment," he said. "So of course it's a concern."