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Legislators head back to work facing fiscal crisis

Oregon legislators face a dilemma next week when they grapple with a budget gap that could further harm a faltering economy.

If they follow through with proposed trimming of government services, it will result in fewer jobs, pushing up the employment rate.

At the same time, when the legislative session begins Monday, the Democratic majority wants to take action to stimulate the economy to reduce the jobless rate and provide social safety net programs that help those who are out of work.

"We really have to reverse the downward spiral," said Rep. Peter Buckley, an Ashland Democrat who is co-chair of the Joint Ways and Means Committee.

Gov. Ted Kulongoski has recommended a $15.8 billion general fund budget for 2009-11, a 5-percent increase from the $15.1 billion in 2007-09.

Maintaining current service levels would require $17 billion because of increased demands on government, Kulongoski has said, citing the downturn in the economy and the need to pay for Measure 57, the anti-crime law approved by voters Nov. 4.

The $1.2 billion shortfall will be made up by reductions in care for seniors above certain income levels and mental-health and addiction services. The governor has asked to scale back the scope of services offered by the Oregon Health Plan.

In Jackson and Josephine counties, about 850 health care jobs could be lost and about 2,500 seniors and people with disabilities could see their health care reduced or eliminated, according to analysis of a study commissioned by the Campaign for Oregon's Seniors and People with Disabilities, an alliance of groups that included AARP Oregon.

The governor's plan is sitting on every legislator's desk and is widely viewed as a starting point in churning out a budget that will be further complicated by continued reports of downturns in the economy.

Buckley said he's hoping to sustain the budget for two years to ride out the recession.

The cutbacks should also be designed to navigate around reductions in jobs, he said.

For a Democrat who sees the role of government as helping people, Buckley says something will have to give.

"We are going to have to say 'no' to a lot of people whose programs we firmly believe in," he said.

While some tax increases are likely, Buckley doesn't foresee a sales tax, which has proven unpalatable to Oregonians.

Some fiscal conservatives might recoil at the thought of any taxes, but Buckley said the Democratic majority will ensure that some strategic tax revenues are enacted. Democrats outnumber Republicans 36 to 24 in the House and 18 to 12 in the Senate.

"It's the exact majority we need to raise revenue," he said.

Buckley said the increases in the last legislative session offset a more than 20-percent reduction in spending during 2001 to 2003, when the state's economy dipped.

Those cuts led directly to increases in class sizes, fewer police patrols and less health care, he said.

"You can play with the numbers any way you want, but the facts are that it has an effect," he said. The increases in the past legislative session helped restore some of those reductions, he said.

Rep. Dennis Richardson, R-Central Point, said the state's current budget problems are the result of ill-conceived fiscal decisions in the past.

While the state's revenue grows at an average annual rate of about 6 percent a year, spending after the last legislative session increased by 21 percent, said Richardson.

He anticipates that every state economic forecast this year will show a downturn, which will put greater pressure on any budget plans put forward by Democrats.

"They have the opportunity to show the people of Oregon how they can maintain a system where they can have their cake and eat it too," he said.

Sen. Alan Bates, an Ashland Democrat who co-chairs the Ways and Means Subcommittee on Human Services, said that if Oregon is somewhere near the bottom of the recession, the state is somewhat prepared to weather the fiscal crisis.

However, if the economy gets worse, all bets are off.

"Everything is off the table if this is not 1979, but 1932," he said, referring to the last major recession and the Great Depression.

Bates said conservatives, who still maintain that government is the problem, are urging lay-offs and extreme cutbacks in government spending, which he thinks will only make the recession worse.

During the early part of this decade, the Legislature followed this philosophy, which led to more severe problems in Oregon than in the rest of the nation, he said.

Bates said the state will likely enact legislation quickly that will build much-needed infrastructure, particularly for education and other public works projects.

The state could tap into the $700 million rainy day fund for schools and other services.

In addition, Bates is hopeful that a federal stimulus package will contribute up to $600 million over a year and a half to help the health services sector of state government.

He anticipates increasing revenues — through taxes on cigarettes, corporations and a provider tax on hospitals — to raise $670 million to help add 80,000 children and 75,000 adults to the Oregon Health Plan.

"It's time to do some carefully targeted tax increases," he said.

Rep. Sal Esquivel, a Medford Republican, said Democrats have it all wrong if they think government is the solution to improve the economy.

"They want to create jobs through government, not the private sector, and that's the worst way," he said. "If you grow government, you take away jobs from the private sector."

He said the Legislature was warned in 2007 not to increase government because it would not be sustainable, particularly if the economy went south.

He doesn't like the hospital provider tax because he believes it will financially hurt rural hospitals.

"I really don't have much say in it," he said. "They've got the votes now to do it."

Reach reporter Damian Mann at 776-4476 or dmann@mailtribune.com.