Lawmakers brace for bad news.

Byline: DAVID STEVES The Register-Guard

SALEM - After wondering for months how bad the state's budget problem has gotten, lawmakers will find out on Friday, when the next quarterly revenue forecast is released.

Government officials and the citizens who rely on public schools and state services already had reason to expect that the news coming out Friday would be gloomy. After all, three months ago the forecast called for a $300 million drop in revenue. And since then, the Sept. 11 terrorist attacks have helped hasten the decline of the U.S. and Oregon economies.

"This is the biggest forecast maybe since 1982 when we went into the hole for a fourth time in a row," said Sen. Peter Courtney, a Salem Democrat. Courtney is one of five legislators who served during that budget-cutting and tax-raising period of the early 1980s, when Oregon was mired in a recession.

Courtney - as well as other lawmakers and lobbyists - worries that Friday's forecast and the special session that will follow in January or February won't be the end of Oregon's budget problems. That's because the next quarterly forecast, due in March, could bring another wave of bad news and require yet another round of cuts and possible revenue increases.

"All my feelings are, this thing is not going to turn around as quickly as people think," he said. "It's still diving and we're going to have more than one special session."

Although state budget officials have remained mum about how far the projected deficit has grown since the September forecast, several Salem political insiders said they expect the budget gap to have, at the very least, doubled to $600 million. That would represent a shortfall of about 5 percent from the $12 billion general fund/lottery budget for 2001-03.

"That's probably low right now," Senate President Gene Derfler said of the $600 million shortfall he predicted nearly two months ago. `Word hasn't leaked out, but they're saying, `Well, it's going to be big.' '

Several lawmakers and public-services lobbyists have said they expect the gap to be $800 million or more when the numbers are rolled out Friday before a joint meeting of the House General Government and Senate Revenue committees.

Once those numbers are out, Kitzhaber and his top budget advisers will work out some options to rebalance the budget, which ultimately will go before the Legislature in the special session.

`There's a lot information to process. The work that's being done is to say, `What are your options to reduce budgets?' ' said Theresa McHugh, administrator of the state Budget and Management Division.

Kitzhaber and top lawmakers have agreed not to impose across-the-board cuts but to prioritize programs and distribute cuts accordingly. They have yet to agree on whether to balance the budget solely through cuts, or to consider tax or fee increases - permanent or temporary - to offset some cuts.

Rep. Phil Barnhart, D-Eugene, said he would be among those pushing for a mix of spending cuts and tax increases to minimize the pain for those who rely on state services.

"It doesn't make sense to make cuts you don't have to make if there are sources of revenue available," he said.

So far, however, cuts have received the greatest attention from policy makers and public officials.

Already, Kitzhaber has withheld 2 percent of all state agencies' 2001-03 general-fund appropriations for administrative expenses. In all, state departments have outlined ways to achieve cuts of 10 percent, or $40.5 million, of their administrative spending.

Kitzhaber also has required them to draw up plans to reduce programs by up to 10 percent, which would cut general-fund spending by about $1.3 billion. Among the cuts proposed by state agencies were those that would:

Limit access to community colleges for as many as 85,000 people.

Remove adult dental care for about 190,000 people on the Oregon Health Plan.

Eliminate Project Independence, which provides in-home assistance for frail elderly residents.

Close as many as six minimum-security prisons, releasing inmates into post-prison supervision.

Cut funding for Oregon State University's Cascades Campus in Bend by between $1.8 million and $5.4 million.

For K-12 public schools, a 10 percent cut would amount to $507 million. Each school district would absorb such cuts at the direction of its locally elected school board.

Chuck Bennett of the Confederation of Oregon School Administrators said it would be almost impossible for schools to cut programs during the current school year, should they be forced to absorb such a hit. That's because personnel costs, which make up about 82 percent of school districts' costs, are already set in contracts for the school year.

Bennett acknowledged that if schools must put off cuts until the second year of the two-year budget cycle, that will only concentrate their impact on students. He said it would be of little solace that school teachers, principals and parents would be able to prepare for the reductions that would take effect next fall.

"If they make substantial cuts and force increased class sizes next year, they can at least start telling kids aren't going to be in a classroom of 25, they're going to be in a classroom of 40," he said.

Jacqueline Zimmer, co-chairwoman of the Human Services Coalition of Oregon, said that while she and other advocates for public services will prod lawmakers to offset cuts with tax increases, they also are preparing for Friday's forecast to set the stage for deep reductions to programs.

"It's going to mean cuts. There's no way around it. It's going to mean cuts," she said. "It also means if we don't start pulling in some revenue, it's going to be cuts squared, cuts quadrupled."

Republican legislative leaders warned that tax increases weren't likely to save the day, especially since individuals and businesses who are struggling through an economic downturn will be in no position to send more money to the state.

"Raising revenue is, I don't think, the cure-all," said Senate Majority Leader Dave Nelson, R-Pendleton. "The voter is not going to be in that ballpark, either."

NEXT STEP

State economists will release their quarterly economic and revenue forecast at 9 a.m. Friday at the Oregon State Capitol, Hearing Room A.

The report will be posted Friday morning on the Internet at www.oea.das.state.or.us