SALEM, Ore. (AP) - The state's first rainy day savings fund neared reality Thursday when the Oregon Senate voted to divert nearly $300 million from corporate tax credits to protect key state services in hard times.

The bill passed after two Republicans - Sens. Frank Morse of Albany and David Nelson of Pendleton - sided with the majority Democrats to send the measure to Democratic Gov. Ted Kulongoski, who's made a rainy day fund a priority.

On Friday, Governor Ted Kulongoski signed the fund into law.
     
"This is smart legislation that makes sense to everyone and means immediate savings of millions for the state," said Sen. Ryan Deckert of Beaverton. "Oregon will benefit for years to come by the creation of this fund."
     
Thursday's vote also marked the latest chapter in Oregon's one-of-a-kind kicker law. Passed by the Legislature in 1979, it says that at the end of the two-year budget cycle, if the taxes collected by the state exceed the state economist's estimate by 2 percent or more, the excess must be returned to taxpayers.
     
Kulongoski and other rainy day advocates say that with Oregon enjoying some of its most robust revenue growth in years, this is the time to divert the corporate kicker money for a rainy day fund.
     
However, no policymakers are seriously advocating canceling kicker refunds to individual taxpayers, which are expected to total $1 billion this year.
     
The House endorsed the rainy day measure last week after days of negotiations over inheritance and corporate tax provisions, since dropped.
     
The Senate gave final approval to the rainy day measure after rejecting a substitute version backed by the minority Republicans that would have left corporate kicker rebates intact and instead drawn on money from the state's general fund for the rainy day account.
     
Senate Republican Leader Ted Ferrioli said the GOP version would use "thrift, not theft" to set money aside.
     
"You can't achieve the right ends by using the wrong means," the John Day lawmaker said.
     
Most major business organizations - including Associated Oregon Industries and the Oregon Business Association - supported the one-time diversion of corporate kicker money.
     
Oregon's tax system, with its heavy reliance on the income tax, can flood the state with tax revenue in good times but leave its budget dry during times of economic hardship. In 2003, with Oregon in the throes of a deep recession, the Legislature cut budgets for schools and social services.
     
"This bill is a good start, but it is not the solution to solve a broken fiscal system we have in this state," Morse said. "I'm hopeful this discussion, while it's the beginning, will not be the last to address the fiscal affairs of this state."

The bill is HB2707.
     
(Copyright 2007 by The Associated Press.  All Rights Reserved.)