House, Senate come to terms at last.

Byline: DAVID STEVES The Register-Guard

SALEM - At long last, the Oregon Legislature put together what appeared to be the final deal to close an $860 million budget shortfall and adjourn its third special session of the year by early this morning.

But before lawmakers can breathe easy, they'll need assurances that the governor will sign off on the package after he returns this evening from a brief vacation in France.

And they'll need to win the support of voters in September. Nearly one-third of the approximately $889 million raised by the legislative package materializes only if voters approve ballot measures boosting the cigarette tax by 60 cents per pack and withdrawing $150 million for schools from a lottery-funded endowment that would be converted into a rainy-day fund for education.

In the end, it took an assortment of last-minute sweeteners - from an extra $10 million to offset cuts to schools to continued funding for a statue of the late Gov. Tom McCall - that helped lawmakers swallow a bitter dose of program cuts, tax increases, one-time money shifts, bonding and accounting gimmicks.

"We've done some good things, we've taken care of public education," said House Speaker Mark Simmons, R-Elgin. "Yet this isn't a budget with a lot of winners. It's mostly just a lot of pain. And we're doing our best to spread it around in a manner that's equitable."

The deal came together Saturday after nearly two solid days of negotiating between the House and the Senate to reconcile differences between a plan passed by the House on June 15 and a version approved Thursday by the Senate.

The Senate won on its proposal to ask voters to convert a lottery-funded education endowment into a rainy day fund for schools, and to then transfer $150 million from it to schools. That was lower than the $180 million sought by the House, and it reflected the Senate's concerns that voters would be wary of such a ballot referral it it was too close to the $220 million transfer plan rejected in the May primary election.

The Senate also prevailed in putting out such a ballot referral without a funding backstop for schools should the measure fail. The House version of the rainy-day fund would have triggered the sale of lottery-backed bonds to make up the difference should the measure fail.

But House negotiators didn't give in to the Senate on every point of contention. The cigarette tax increase will be referred to the Sept. 17 ballot rather than enacted by the Legislature, reflecting the House version of the bill.

House budget negotiators ended up with several budget items they were seeking when trying to reconcile their package of $53 million in "targeted" cuts with a $31 million cuts package approved by the Senate.

House members reduced a $1.2 million cut in judicial salary increases for 2002-03 to $500,000. The final package also restored $13,230 that had been eliminated for the McCall statue, which is likely to be built in Salem.

The spending item's leading advocate, former McCall aide Rep. Jackie Winters, R-Salem, said she was aware that fellow Republicans had scoffed at the budget item's survival through round after round of budget cuts. But she said the state money was worth spending because it would leverage far greater contributions from private donors.

"Are we so callous that we don't want to leave a legacy for our kids?" she said, defending the spending item.

As has been the case since the Legislature began with a proposal to cut $100 million before the special session began on June 12, the list of spending reductions lawmakers were able to approve has gradually shrunk over time.

The only proposal to cut more deeply failed with the Senate deadlocked last week on a package of $148 million in cuts - the centerpiece of a failed GOP-backed no-new-taxes proposal.

Sen. Jason Atkinson, a Jacksonville Republican who had pushed for the deeper spending cuts, said he and other conservatives would take away from that bill's failure a resolve to get more like-minded candidates elected to the Legislature in November. But, he conceded, it was frustrating to see a Republican-controlled Legislature rely more on taxes and money-shifts than spending reductions to close the budget gap.

"We went from a hole of over $800 million to $31 million in cuts," he said. "Is it frustrating? Yes. But we were outnumbered, so we work hard to not be outnumbered next time."

Besides working out the differences between House and Senate versions of the package, lawmakers spent much of Saturday trying to get the 18th vote needed to approve a House-passed delay in the Measure 88 income-tax break. Instead of increasing the deduction for federal taxes from $3,000 to $5,000 this year, it would increase to $3,250 this year and increase in steps to reach $5,500 in 2006.

Until Saturday, 12 of the Senate's 14 Democrats and five of its 16 Republicans had been willing to support the change, which captures an additional $108 million in revenue for the state. That left the Senate with 17 votes, one short of the 18-vote supermajority needed for revenue-raising legislation.

With GOP members unwilling to budge, that left either Sen. Rick Metsger, D-Welches, or Sen. Mae Yih, D-Albany, a staunch anti-taxer, to reverse themselves.

Metsger finally consented to cast the 18th vote, but only after negotiators agreed to come up with $10 million more for schools, the money coming from an $18 million increase in the distribution from the Common School Fund.

With that coming on top of the $20 million captured through cigarette-tax bonding for schools, the Legislature would reduce from $112 million to $82 million its cut to K-12 spending for 2001-03.

As one of two Senate Democrats who voted to refer Measure 88 to the ballot, he said it was not an easy choice to support a phase-in, rather than letting it take full effect this year. But he said he was determined to take full advantage of his role as the pivotal vote by holding out for more education money.

"I was in the fortunate position to be a deciding factor in whether we did more for students," he said.

Once the Legislature completes its work, as it's expected to sometime this morning, the focus will shift to Kitzhaber.

Chief of Staff Steve Marks reiterated Kitzhaber's comment last week that despite his objections to borrowing and one-time budget solutions, he was stopping short of issuing veto threats.

But he added that didn't mean the governor would automatically sign off on every detail in the package.

"He's going to have to look very closely at the bonding and the borrowing," Marks said.

BUDGET PLAN

Here is the Legislature's final budget-rebalancing package, along with the amounts that will result from each element. The Legislature began voting on parts of the package Saturday night and was expected to finish work early this morning.

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

Refer to the September ballot the creation of a rainy-day fund for education, and authorize use of money for the current budget cycle: $150 million

Spend reserves in state ending balance, emergency fund light rail bond reserves, Common School Fund's unclaimed properties 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

WHAT'S NEXT

If the Legislature concludes its special session as it plans to early this morning:

Gov. John Kitzhaber must decide whether to sign, veto or allow to become law those bills sent to him by the Legislature.

Voters must decide in a Sept. 17 special election whether to approve a 60-cents-per-pack increase in Oregon's cigarette tax and the creation of a rainy-day fund that would then transfer $150 million to schools.