Lawmakers scramble to find cash.

Byline: David Steves The Register-Guard

SALEM - Let's say you've just paid your month's bills and your checkbook balance is less than $100.

Your next paycheck - and the next stack of bills - is still a week away.

So when an unexpected bill comes - payment due upon receipt - you spend the night pacing the kitchen floor.

It's one thing when you know weeks ahead of time that a bill's coming due; quite another when it hits you after you're almost broke. Tempted to float a check or skip a bill payment? Don't even think about it. Staining your good credit is absolutely not an option.

Do you go without groceries? Hitchhike to work because you can't buy gas? Cancel your child's doctor appointment?

Or do you check the coin dish on your dresser, empty the kids' piggy banks, close out your savings account - whatever it takes to get through the week?

On a much larger scale, state leaders - and the millions of Oregonians who count on them to keep schools open, serve the frail elderly, and operate prisons - are in a similar predicament.

Their unexpected, last-minute bill could be huge. Economic advisers last week predicted that Oregon could come short $300 million or more in the final four months of its two-year budget cycle, which ends June 30. And the Oregon Constitution forbids deficit spending.

With few options and a weak stomach for more program cuts, lawmakers are looking for stashes of one-time money to tap into or borrow against.

It's a poor way to manage the state's budget, but the best of the bad choices available, said Rep. Bob Ackerman, a Eugene Democrat who likens Oregon's situation to a household financial emergency.

"If my wife was sick and my only choice was to mortgage the house, I would do it," he said. "And this is just that serious."

Running out of solutions

Taxing its way out of the problem isn't an option, even if the Legislature wanted to go that route. State budget director Theresa McHugh recently told lawmakers that there's not enough time to pass a tax increase, wait the mandatory 90 days before it can take effect, and then collect enough revenue to offset the shortfall.

The time crunch also makes it difficult for the Legislature to absorb the shortfall through budget cuts. Already, the state has cut $1.7 billion from the general-fund budget approved by the Legislature. But those cuts have been spread out over many months.

The most recent batch of cuts is being implemented in the wake of last month's defeat of the tax referral, Measure 28. And across the political spectrum, lawmakers agree that this round of $310 million in reductions has been painful for social services, public safety and education; so much so that the assembly is working on a plan to undo $15 million of those cuts.

When the Legislature reduced the general fund budget by $386 million last June, the reduction amounted to 8.5 percent of the $4.6 billion left to be spent. In contrast, reducing spending by $300 million, effective March 1, would take away 34 percent of the $892.5 million that will be left to spend in the remaining four months of the budget cycle.

Even critics who say the state continues to squander money through inefficiency, excessive management ranks and duplication concede that there's not enough time - or waste - to cut $300 million from a budget that will be down to $892.5 million by March 1.

"I don't see how, in four months, we cut our way to $300 million," said Rep. Jeff Kruse, a Sutherlin Republican whose district includes eastern Lane County.

The most the Legislature is realistically going to be able to cut at this stage in the budget cycle is between $35 million and $50 million, according to the co-chairmen of the Joint Ways and Means Committee, Rep. Randy Miller, R-Lake Oswego, and Sen. Kurt Schrader, D-Canby.

They belong to a group of lawmakers trying to piece together a solution to the latest budget woes that - if the dire projections hold true - could take effect March 1.

One-time money

If program cuts and increased taxes aren't going to fill a $300 million shortfall, what's the alternative?

The same plan that the Legislature turned to more than any other during its five emergency sessions last year: Spending one-time money that was never intended to pay for the ongoing cost of operating government programs.

Although they've come under fire and even criticized the practice themselves as imprudent, lawmakers spent last year emptying one-time accounts, drawing on reserves and inventing accounting maneuvers.

Despite previous warnings that they'd emptied the state's available reserves and had run out of accounting tricks, legislative leaders have come up with a list of $293 million in one-time dollars that could be used to fill the hole. The two biggest single sources would be:

$125 million, all that's left in the Education Stability Fund that was created last fall by voters when they converted it from the $278 million, lottery-fed Education Trust Fund.

$120 million in borrowing, which would be paid back by giving investors the right to $400 million the state expects to get from its share of the national tobacco settlement. That would be an expansion of the $150 million in borrowing on an additional $400 million approved by the Legislature last year - effectively preventing lawmakers from using any of the roughly $100 million a year the state will receive from the settlement for the next eight years.

The remaining one-time accounts range from a $15.5 million trust that's designated for housing projects and a $14.8 million Employment Department reserve to the $1.9 million that counties are supposed to receive from video poker profits and the $600,000 in the state's Waste Tire Recycling Account.

If the Legislature went ahead and used all those one-time dollars, lawmakers said, they'd have exhausted the reserve they might want to tap as they confront a shortfall of $2.4 billion or more for 2003-05 budget, which begins July 1.

"Then there is nothing there. It's all just to get us to zero-zero-zero on July 1, 2003," said Senate President Pro Tem Lenn Hannon, R-Ashland. "And then there is no ending balance. No cushion. Nothing there."

In fact, the state still has hundreds of millions - perhaps billions - of dollars in dedicated reserves and accounts. But legal and political considerations would make those pots of money more difficult to break into. Still, some have suggested going after that money.

Rep. Phil Barnhart, D-Eugene, said he's concerned that such talk is continuing to circulate.

"That's just nonsense," he said.

While such reserves indeed exist, they are legally or constitutionally dedicated to specific uses: The state-owned workers' compensation business, Saif Corp., has hundreds of millions of dollars in surplus, according to lawmakers who want to privatize it and use some of the money for state projects. However, business groups and the corporation itself are likely to oppose such an effort on the grounds that the money is obligated to the employers that pay into the fund.

The state's unemployment insurance fund is made up of money from payroll taxes that's supposed to go toward jobless benefits. The Common School Fund, which dates back to the statehood in the mid-1800s, is constitutionally obligated to remain in trust, with only the investment returns being used to pay for education.

To go after money in those sorts of funds would be to face enormous political opposition from the entities that are supposed to benefit from it, Barnhart said, as well as to risk lawsuits that may result in the Legislature having to pay the money back with interest.

"The fact is, it's not our money and we can't spend it," Barnhart said.

The economists and budget officials who are advising lawmakers on their latest fiscal crisis have said the $300 million shortfall is hardly a sure thing; when the next two revenue forecasts are released on Feb. 28 and in mid-May, it could fall well short of that level, said State Economist Tom Potiowsky.

But coming so late in the budget cycle, lawmakers are being cautioned not to hope for the best; if the worst-case scenario materializes in the biennium's final weeks, it could be too late to make a fix. By June 1, for example, budget officials say, there will be just $150 million left in the general fund.

"We have no choice" but to assume a shortfall in the neighborhood of $300 million, said Miller, the House budget chief. "We just have to be prepared for whatever the reality is."

CAPTION(S):

Please turn to BUDGET, Page A4 Budget: Jumphead goes here Continued from Page A1 Budget: Reserve funds are nearly gone Continued from Page A1 Budget: Jumphead goes here Continued from Page A1