"I'm shocked, shocked to find that gambling is going on in here!"

"I'm shocked, shocked to find that gambling is going on in here!"

— Capt. Renault, "Casablanca"

According to The Associated Press, state officials were "shocked" Tuesday to learn that income tax collections had fallen short of estimates, leading to a half-billion dollar hole in the remainder of the 2009-2011 budget. They should not have been.

For months, the headlines have been clear: Oregon's economy is beginning to recover from recession, but employment continues to lag far behind. Oregon relies on the personal income tax for the bulk of its revenue. When people aren't working, they don't pay much in income taxes.

When the "shock" wears off, state officials and lawmakers need to prepare themselves for some tough choices — now, and early next year when the Legislature begins working on the next two-year budget. There are no easy answers.

Gov. Ted Kulongoski has ordered a 9-percent cut across the entire state budget to balance the books for the rest of the biennium. He says he won't call the Legislature into session, and majority Democrats say they won't either.

Senate Minority Leader Ted Ferrioli, R-John Day, says the Democrats are ducking responsibility in an election year and using a hatchet instead of a scalpel to make the necessary reductions.

That's a clever line, but it ignores a fundamental truth: Oregon's budget woes cannot be solved with microsurgery. Lawmakers on both sides of the aisle must come to grips with the reality that state spending cannot continue to grow while its income does not.

Even Democrat John Kitzhaber has acknowledged that in his campaign to return to the governorship, calling for a pay-as-you-go budget that spends only the money the state has rather than maintaining current service levels with borrowing and tax increases.

That's easier to say than to accomplish. Every state program, every state agency has a constituency that advocates loudly for continued funding. From schools to state police to senior and disabled services, thousands of Oregonians depend on state spending.

Lawmakers — and the next governor, whether it's Kitzhaber or Republican Chris Dudley — should prepare themselves to start from scratch with the next two-year budget. Maintaining current service levels is simply not possible when those levels keep rising faster than the money to pay for them.

Piecemeal measures — furlough days for state employees, school days dropped from the calendar — will no longer suffice. Legislators may have to look at eliminating whole programs.

And state employees, who continue to enjoy benefit packages that are the envy of many private-sector Oregonians, must share the burden as well. Cutting in half the rate of increase in benefit spending, as Kulongoski says he wants to do, still leaves an increase. Public employee unions should come to the bargaining table prepared to pay a greater share of their health insurance premiums, just as workers in the private sector have been doing.

There will be more than enough pain to go around. No agency, no program, no employee should expect to avoid it.