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State budget hit smaller than expected

By JONATHAN J. COOPER

Associated Press

SALEM, Ore. — Millions in proposed budget cuts probably won't be getting any worse.

That's the good news in Oregon's quarterly revenue forecast released on Wednesday. But there was plenty of bad news, too.

An economy that continues to sputter with anemic growth means Oregon's key budget funds will take in $35 million less in tax revenue than was projected three months ago, economists said.

Lawmakers had anticipated even worse news, perhaps twice as bad. But combined with earlier projected shortfalls, economists now predict that the state will collect $341 million less than the $15.1 billion they anticipated less than a year ago.

Reserves built into the two-year spending plan can cover some of the shortfall but not all of it.

The three lawmakers in charge of budget legislation have proposed about $200 million in cuts, including laying off state workers, closing a prison and cutting back on compensation for workers who provide in-home care for seniors and people with disabilities.

The latest forecast provides a clearer picture of anticipated state revenue in the general and lottery funds, the pots of money over which the Legislature has the most control. It's a key step before lawmakers can press ahead on balancing the budget.

Senate President Peter Courtney, D-Salem, said the latest numbers won't require changes to the framework already proposed.

"That means we can move forward with a budget rebalance that will keep our schools open and criminals behind bars," he said.

The proposed solutions have already sparked fights. Groups representing seniors and long-term care workers have demanded that lawmakers find a solution other than slashing $13 million from compensation for workers who provide care that helps seniors and people with disabilities live at home.

Other proposed cuts include $1 million from a job-training program for welfare recipients, $6.6 million from daycare services and $3.5 million from the budget for planning an overhaul of the mental health system.

A $25 million cut would eliminate jobs from many state agencies, particularly positions of people who deal with reporters and the Legislature. The proposed closure of a prison in Salem would also result in some job losses, saving an estimated $1.6 million.

Budget officials have also recommended tapping a crime victims compensation fund to sweep $41 million, the windfall from a legal battle with tobacco giant Philip Morris.

The proposal is still subject to legislative approval.

Economists said the $35 million shortfall was primarily the result of lower-than-expected collections from personal income taxes.

They sounded a cautious tone about the future, saying the recovery is getting a more solid footing but is still slow and vulnerable to setbacks.

"The bleeding has really stopped, and the job losses have stopped even if no hiring has happened," Interim State Economist Mark McMullen said.

Businesses are profitable and have cash, trade is improving, consumers are spending more, and the average workweek for manufacturing workers has risen above 40 hours a week — all positive indicators for future job growth, McMullen said.

Still, economists project that Oregon won't return to pre-recession employment levels until the end of 2014. And they warned that their forecasts assume Europeans avoid a catastrophic recession resulting from debt crises, particularly in Greece and Portugal.

It's unclear how a default on European debt would reverberate through the global economy, said Joe Cortright, chair of the Governor's Council of Economic Advisers.

"As long as we battle perpetually high unemployment and lower than average personal income levels, we'll have a growing need for services and a dwindling income tax base," said House Republican Co-Speaker Bruce Hanna of Roseburg.