Legislators hit partisan snag in budget talks.

Byline: DAVID STEVES The Register-Guard

SALEM - With a budget-balancing special session just two days away, statehouse Democrats and Republicans are at an impasse over taxes and the use of one-time trust funds.

House and Senate Democrats announced Tuesday that they want to increase the cigarette tax more sharply than Gov. John Kitzhaber but didn't endorse his plan to boost taxes on beer and wine and to repeal an income tax cut.

House and Senate Democratic leaders Deborah Kafoury and Kate Brown also said their two caucuses oppose a legislative proposal to borrow about $100 million from the Common School Fund.

The strategy previously had bipartisan support in the Legislature but has drawn a veto promise from Kitzhaber, who calls it "borrowing from the future."

But legislative Republicans are staying firm on their plans to tap the Common School Fund and to oppose any sort of tax increase, including cigarette taxes.

"Tax increases just aren't necessary at this point," said House Speaker Mark Simmons, R-Elgin.

The two parties' positions are hardening as Friday's special session looms large. Kitzhaber and lawmakers hope to close a gap of $830 million in the state's $12 billion general fund for 2001-03.

"We just don't have any wiggle room. We're running out of time, we're running out of space and it's getting to be time to fish or cut bait," said Rep. Susan Morgan, a Myrtle Creek Republican and one of five lawmakers on a bipartisan budget negotiating team that has suspended work because of the impasse.

Kitzhaber, meanwhile, devoted the day to trying to bolster support for his proposals to use program cuts, tax increases and one-time resources to close the gap. He met privately with Oregon business leaders at the Capitol to make his case.

His staff also released the results of three separate polls conducted for business and labor groups showing broad public support from Democratic, Republican and independent voters alike for a combination of higher "sin taxes" on tobacco, beer and wine.

Kitzhaber also publicized a letter sent Tuesday to Simmons that said state investment advisers have estimated it would cost taxpayers $309 million in unrealized investment returns and interest costs to borrow $100 million from the Common School Fund.

The letter came a day after Kitzhaber told a Eugene audience that he would veto any measure that dips into the fund, which was established in 1859 by the Oregon Constitution. It's made up of land holdings and financial investments totaling $730 million. The state is under constitutional and legal obligations to spend only the interest earnings, which are projected at $31 million for 2001-03.

Brown said she and fellow Democrats decided to issue a partisan proposal because the bipartisan budget-negotiating process had stalled. But she took pains to avoid criticizing the plans drawn up by the so-called "Group of Five."

"We consider this a balanced and moderate approach that builds on the work done by the Group of Five and bridges the gap between their budget proposal and the governor's," she said.

The Democratic plan would:

Boost the cigarette tax from 68 cents to $1.18 cents per pack - generating $105 million in revenue. Kitzhaber's proposed 30-cent increase would provide $67 million in new revenue.

Create a rainy-day fund for education, funding it in part with $100 million from the state's Education Endowment Fund, created with lottery money by voter approval in 1995.

Restore $12 million of the $112 million in cuts to human services.

Restore $112 million in proposed cuts to public schools.

Simmons criticized the idea of tapping the Education Endowment Fund. Voters would have to approve such a change, requiring a statewide election in May at the earliest. "It could extend the whole budget crisis into June," he said.

Although Republicans remain opposed to any type of tax increase, Portland pollster Tim Hibbitts said his firm's recent survey, along with the results from polling done by Democratic and Republican survey companies, show that the public is willing to support such increases as part of a solution to the budget shortfall.

His company, the nonpartisan Davis, Hibbitts & McCaig Inc., surveyed 500 probable voters last week and found that 71 percent strongly favor or somewhat favor an increase of 5 cents per drink in the beer and wine taxes if dedicated to prevent cuts in drug abuse prevention and mental health programs.

The poll found 68 percent strongly favor or somewhat favor a 30-cent per pack cigarette tax increase with the money dedicated to the Oregon Health Plan.

Hibbitts said the two tax proposals drew strong support from Democrats, independents and even Republicans, with 58 percent of GOP voters supporting the cigarette-tax increase and 63 percent agreeing to the tax boost on beer and wine.

"I think there's a little more wiggle room for Republicans (in the Legislature) than a lot of them thought," he said.

Kitzhaber chief of staff Steve Marks said the results of Hibbitts' poll, as well as the polling by two partisan firms, should cause Republican lawmakers to reconsider their opposition to tax increases.

"It shows people think we have a serious problem with the state budget and their common-sense solution is to do some cuts and raise some revenue," he said. "And they tend to like the sin taxes on a bipartisan basis."

Simmons, however, said he remained skeptical about any tax increase. He predicted that voters would share GOP lawmakers' opposition if they knew that the state has enough money in trust funds and reserve accounts to rebalance the budget.