SALEM – Shock waves from the recession continue to wreak havoc in Oregon, punching a big hole in the state budget and prompting Gov. Ted Kulongoski to order hundreds of millions of dollars in cuts to schools and other state programs.
The cuts, if they stand, could eliminate school days, idle some state police troopers, and lead to pay freezes and benefit rollbacks for state workers.
"There will be layoffs," the governor stated flatly.
Although Congress could come through with additional money for troubled states, Kulongoski said he can't count on a federal bailout.
"I have learned -- and am convinced -- that in a situation like this, the best response is swift and decisive action," Kulongoski said. He asked all state agencies to prepare for cuts that amount to 9 percent of their remaining budgets.
Their lists should be ready within two weeks. Once those are in, and Congressional action is more definite, cuts will be made, he said.
The governor's comments came in response to Tuesday's revenue update,which projects the state will have $563 million less than what's called for in the current two-year budget.
The sheer size of the drop stunned lawmakers, who listened in stony silence as state economist Tom Potiowsky and senior economist Josh Harwood went through the numbers. Potiowsky noted the "disconnect," given that the recession has given way to a mild recovery in Oregon.
Harwood said he revised the state revenue numbers downward after income tax collections came in far weaker than expected, including a sharp drop in expected taxes from income on capital gains. Some people, may be paying late, which could help balance the books later, he said. In the meantime, the recent uptick in the economy has not been strong enough to offset the damage done last year.
"We had a horrible storm in 2009," Potiowsky added later. "This is cleaning up the remnants of that horrible year."
Senate President Peter Courtney, D-Salem, complained about the difficulty of getting accurate forecasts to use for budgeting. Unlike the federal government, states must balance their budgets.
"We have been caught by surprise and I'm upset about it," said Courtney, who was briefed on the new budget numbers earlier in the week. "We knew it was down. But not this bad."
Courtney, joined at a news conference by House Speaker Dave Hunt, D-Gladstone, said he didn't see the need to call lawmakers back to Salem for a special session because there's no chance of coming up with more money to fill the hole.
"There's nothing more difficult than the hell of a budget special session," Courtney said, recalling 2002, which included five special sessions to deal with drops in revenue.
Hunt didn't rule out a special session once the budget picture becomes more precise. He said the state still has $175 million in reserves that could be freed up to help schools.
Under state law, if the Legislature doesn't adjust for a budget shortfall, the governor must spread the cuts proportionately throughout state government. On Tuesday, Kulongoski released a list of amounts for each agency to make up the $563 million shortfall.
The Department of Education faces the biggest proposed reduction -- about $252 million, of which $237 million would come out of K-12 school budgets.
For students, the cut could mean reduced school days and increases in class sizes, said David Williams, government relations director for Portland Public Schools. Teachers could see cutbacks to benefits and pay and layoffs.
"There's a lot of options available, none of them good," Williams said.
The proposed K-12 cuts are equivalent to the pay and benefits for 4,000 teachers, said Oregon Education Association President Gail Rasmussen. She said educators are hoping for a slice of the $23 billion in federal funds that Sen. Tom Harkin, D-Iowa, has proposed as a way to avoid nationwide layoffs of teachers, principals, librarians and other school workers.
Kulongoski said he is also concerned about the $51 million slated to be cut from the Department of Corrections, which he called the most "boxed in" agency because of voter-passed sentencing requirements.
Corrections director Max Williams said the department is tightening up "every little place we can look at," but hasn't come up with a detailed cut list. Williams announced an immediate hiring freeze, noting that 24-hour staffing makes up much of the department's expenses.
In addition to calling for agency cuts, Kulongoski said he would continue a pay freeze for all nonunion state workers, and he asked union representatives to meet with state labor negotiators to look at pay freezes, benefit cuts or furlough days as a way to avoid layoffs.
The proposal got an immediate negative response from the union that represents prison guards and some other state workers.
"We are not interested in reopening our contract," said Ken Allen, director of Oregon's American Federation of State County and Municipal Employees. He said "frontline" state workers already have sacrificed, and managers should bear the brunt of further cuts.
The disappointing revenue news led to scathing comments from legislative Republican leaders.
House Minority Leader Bruce Hanna, R-Roseburg, said the shortfall "is a product of the Democrats' massive overspending and the $1.8 billion in new taxes and fees they've passed since 2009." Hunt responded by noting that nearly every budget passed in 2009 did so with large bipartisan majorities.
The two candidates for governor also weighed in. Democrat John Kitzhaber said he "fully supports" Kulongoski's actions. Republican Chris Dudley said lawmakers should revise the budget, not just let the governor make proportional cuts. "If educating our children is our number one priority, we cannot treat it like every other state agency, we must ensure that it is funded," he said.
The forecast included one ironic twist -- corporate income taxes, which make up a small portion of the revenue pie, are projected to be higher than expected. That could trigger the state's "kicker" law, which would mean a rebate for some companies.
Jessica Van Berkel of The Oregonian staff contributed to this story.
-- Harry Esteve