Official: Oregon is falling into a 'pit' of deficits, unemployment, cuts

SALEM, Ore. (AP) — Oregon is falling into an economic pit.

That's according to Tom Potiowsky, Oregon's state economist. He tried to give lawmakers a handle on just how deep and long the recession would run Friday during his quarterly revenue and economic forecast.

He projects recovery to be more than a year away. What's more the state's shortfall has grown to $850 million for the current biennium and will reach nearly $3 billion for 2009-11, forcing even deeper cuts than anticipated.

"We're falling, basically, into a pit," Potiowsky said. "We hit the bottom sometime mid this year."

Even then, he said, Oregon's economy and unemployment rate will stay there for some time before slowly clawing their way out.

"The perfect storm is here and Oregon is feeling the recession stronger than many other states," Potiowsky told lawmakers. "We're not seeing any sort of relief, truly, until we get to the second half of 2010."

For months, Oregon lawmakers have been working to rebalance the budget while waiting on Potiowsky's forecast for the official numbers.

Back in January, Potiowsky gave legislators a sneak peak. He estimated then that the current biennium's shortfall would be near $740 million.

Anticipating the worst, the state's budget writers released a way to balance the budget this week, assuming a shortfall of $800 million. They used a combination of federal stimulus dollars and $350 million in painful cuts to education, human services, public safety and others.

Now they're on the hunt again for an additional $50 million either in cuts or additional reserves, with a balanced-budget deadline of the first week of March.

Advocates for the hardest hit areas continue to call on the Legislature to use the education stability and rainy day funds, which hold hundreds of millions of dollars.

Cuts now likely would mean fewer state troopers, a shorter school year — by an average of five days — and the elimination of some programs for low-income families.

"Cutting services and schools right now is the opposite strategy of what President Obama and the federal stimulus is intending, which is to shore up state services," said Holly Pruett, the state director for Stand for Children. "If teachers go without pay either because school days are cut or because they work without pay, that's money that doesn't go into the economy."

Republican legislators want to use the reserve funds, as well. "Democrats say they want to cut school days, but Republicans believe that classrooms and kids shouldn't be held responsible for the fiscal mismanagement of Salem," said Senate Republican Leader Ted Ferrioli of John Day.

"We should use reserves from the Education Stability Fund to keep schools meeting a full school year."

Gov. Ted Kulongoski, however, has threatened to veto any attempt to tap into those funds.

The new question is whether the suggested cuts to K-12 education, social services and public safety will have to grow to make up the difference.

Sen. Margaret Carter, a Portland Democrat and one of the chief budget writers, said Friday she wasn't yet sure where they would find another $50 million.

"We are hoping that education won't see any more cuts in this" biennium, Carter said. "That's really, really important. That's a security measure, in my own mind, our kids' education."

With the latest forecast, however, attention has largely turned away from the current deficit, which is almost solved, and toward the looming $3 billion shortfall lawmakers will have to deal with for the upcoming biennium.

"I have to tell you, I think 07-09 was yesterday's nightmare," Carter said.

At $3 billion, the deficit is nearly 20 percent of the total operating budget. Lawmakers haven't even begun to fill that hole, but they said Friday that everybody would have to suffer — some through lost programs, some through increased taxes.

"We're going to do a combination of budget cuts ... and revenue increases in order to get through this situation," said Rep. Phil Barnhart, D-Eugene, chairman of the House Revenue Committee. "This is one of those cases where we're all in this together and everybody is going to sacrifice some."

Some possible revenue streams include a medical provider tax, transportation fees and taxes, a higher corporate minimum tax and an increased income tax for higher-wage earners, Barnhart said. "I have to tell you that I don't think that's the end of it."

If there was any good news Friday, it was that Potiowsky said he doesn't believe the deficit will grow much by his next forecast in May. The only thing that might affect that would be some sort of financial crisis at the national level.

"I think this is pretty much set," Potiowski said. "I don't expect a big change."

Of course, he said, back in September he didn't expect a Wall Street meltdown, either.