Oregon Budget Woes Grow As Options Dwindle

Oregon officials say they don't intend to borrow any more money to cover a growing state budget shortfall, something that will force lawmakers to choose between raising taxes during tough economic times or cutting state programs further.

The state borrowed its way out of a bind for the current fiscal year by committing a decade's worth of future payments from the national tobacco settlement to pay for $450 million in current state services.

That move will only cover programs through June, however. The state faces an estimated $2.5 billion shortfall for the two-year period beginning in July, when the new fiscal year starts, and both state officials and private observers say Oregon has little left to back additional borrowing.

"I don't think there's anyone who thinks we can borrow our way out of our current mess,'' said Charles Sheketoff, executive director of the Oregon Center for Public Policy. "We've pretty much tapped our resources,'' said Sheketoff, whose group is urging the legislature to consider raising taxes.

Lawmakers would face multiple problems if they turn to further borrowing in the next budget.

The state cannot commit more than ten years worth of future tobacco settlement money to repay bonds, said Todd Jones, a spokesman for state Treasurer Randall Edwards. In addition, the stopgap budget bill for the current year tapped the remaining $112 million from a rainy day fund for schools and other reserves, and Jones said the Treasurer's office is "not aware of any other sources'' to borrow against.

The cost of borrowing now would be higher as well after two national credit rating agencies downgraded Oregon's bond status earlier this month.

Both Fitch Ratings and Moody's Investors Service dropped their ratings for Oregon to the lowest category given to states. The state's lagging economy, voters' resistance to tax increases and a requirement that the state return any surplus tax revenue to voters were among the reasons cited by the rating agencies for their move.

The downgrades are expected to raise the interest rate paid on general obligation bonds by one-quarter of one percent, which would cost the state tens of millions of dollars over the 20-year period of the bonds, Jones said.

Oregon Gov. Ted Kulongoski opposes additional borrowing in any case because he sees it as only a temporary fix, said Mary Ellen Glynn, a spokeswoman for the governor.

"Borrowing additional money isn't going to help us," Glynn said.

The legislature approved the borrowing plan earlier this month after state revenues had fallen $2 billion short of projections used when lawmakers first approved the current year budget in 2001.

Oregon voters in January rejected a special referendum that would have raised income taxes on individuals and businesses for three years. As a result, state and local governments began cutting more than $300 million from law enforcement, health care and other programs before Kulongoski and the legislature agreed to restore $33 million of planned service cuts this month.

With borrowing largely off the table for the next budget, advocates of raising taxes and further cutting state spending are making their case to policymakers.

Steve Buckstein, president of the Cascade Policy Institute, said the state still could cut spending, particularly in the areas of health care, education and corrections. The state could recover another $2 billion by selling the assets of the government agency that provides workers compensation insurance, Buckstein said.

"I think people just don't believe they're operating efficiently with the funds they do have, Buckstein said.

Sheketoff of the Oregon Center for Public Policy said the legislature has been unwilling to make more spending cuts and that raising business and other taxes is the only answer to the problem.

"Oregon is going to be a very different and ugly place unless they find a way to come up with the revenue," Sheketoff said.

Kulongoski doesn't believe raising taxes generally is a viable option after the defeat of the January referendum, Glynn said.

Kulongoski has offered a doubling of car registration fees, a 1 percent lodging tax and wage freezes for public employees as possible solutions.