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State will make more cuts, but spare schools

State revenue has plunged an additional $377.5 million between June and September because of "anemic" growth in employment, state economists announced Thursday.

Gov. Ted Kulongoski warned cuts would be forthcoming but said schools would not face more reductions this quarter.

The losses, a result of reduced personal income tax revenue because of unemployment, bring the state deficit to $1.3 billion. Still, economists are optimistic growth will continue, albeit at a snail's pace.

"There is still growth moving forward, but it's slower than we expected," state economist Tom Potiowsky said Thursday.

Statewide unemployment remained at 10.6 percent in July, with a higher rate in Jackson County, where unemployment is poised at nearly 13 percent.

Senior economist Josh Harwood said the shrinking personal income tax revenue is in line with other states in the nation, but its effect on the state budget is more dramatic because Oregon has made personal income tax revenue its primary resource.

Harwood said Measures 66 and 67 have helped to stem revenue losses, but it's not clear yet how much those tax measures have stabilized revenue.

About $118 million in federal funds from the recent Ed Jobs bill will help offset the shortfall in K-12 schools. The governor also pledged to maintain school funding at the June level of $5.8 billion.

"With school about to start, we want to assure Oregon families and their school districts that even with this revenue shortfall, there will be stability for school budgets, while also maintaining a responsible level of reserves for the last three quarters of this budget period," Kulongoski said.

In addition to the federal schools assistance recently approved by Congress, the governor, Senate President Peter Courtney, D-Salem, and House Speaker Dave Hunt, D-Clackamas County, agreed to move about $34 million in state reserve funds to K-12 education when the state Legislature convenes in February.

About two-thirds of the state education stability fund and rainy day fund will remain in savings to address the uncertainty of the last three revenue forecasts of the 2009-2011 biennium, Kulongoski said.

"We're putting the priorities of Oregon families at the front of the line," said Courtney in a statement. "Our plan keeps the doors of our schools open and the gates of our prisons closed. It maintains care for our senior citizens, assistance for people with disabilities and health care for our most vulnerable. We have taken a deliberate and cautious approach and achieved these priorities without the need for a special session."

However, school officials said they are moving forward cautiously.

Brad Earl, chief financial officer for the 12,000-student Medford School District, said his district would continue to be conservative with money in anticipation of more statewide budget shortfalls.

"We have to be careful how we spend our money in case the state doesn't have these safety nets in the future," Earl said.

"While this is welcome news, it is a short-term fix for a long-term funding problem for K-12," Oregon schools Superintendent Susan Castillo said in a statement.

Vicki Robinson, Central Point schools business manager, said a reprieve for schools this quarter doesn't mean there won't be cuts in the fourth quarter.

"We know this probably isn't the last thing we are going to hear on this," Robinson said. "There is another revenue forecast in December."

Castillo said the Oregon Department of Education would soon provide school districts and education service districts with estimates of how much they can expect to receive in state funding this year.

"I want to commend our school districts for all the hard choices they are making for their students this biennium," Castillo said. "They have had to leave staff positions unfilled, ask their teachers to take pay cuts, slash professional development, turn their thermostats down, cut their sports programs and make many other challenging decisions to minimize cuts to our classrooms and provide as much instructional time for our students as possible."

Reach reporter Paris Achen at 541-776-4459 or e-mail pachen@mailtribune.com.