FOR IMMEDIATE RELEASE
January 23, 2002

Contact:
Bob Applegate
(503) 378-6496
Jon Coney
(503) 378-6169

Facing an $830 million deficit in the State’s budget, Governor John Kitzhaber today proposed a budget rebalance plan that incorporates approximately $414 million in budget reductions and uses $181 million of existing resources.

In addition, Kitzhaber proposed three new revenue sources to close the remaining gap and increase the State’s ending balance: repeal the income tax cut Ballot Measure 88, which would produce $133 million; increase beer and wine taxes by five cents a drink, which would produce $44 million, and increase cigarette taxes by 30 cents a pack, which would produce $67 million.

Further, Kitzhaber outlined an economic stimulus package that would increase funding for transportation improvement projects, free up lottery bonding for rural infrastructure and increase the State’s ability to attract and retain businesses. He also called for creation of a School Stabilization Fund, which would be available for use in future recessions.

Finally, Kitzhaber said he would call the Legislature into special session on Friday, February 8.

"We have three major challenges in front of us," Kitzhaber said. "We must rebalance the budget without doing long term harm to schools, health care, senior citizens, public safety or economic development. We must act now to do what we can to stimulate job growth by assisting businesses and investing in critical public infrastructure. And we must confront the fact that we are one of only three states with no "rainy-day" fund to help tide us over bad economic times."

Governor Kitzhaber’s balanced budget proposal would reduce spending by $414 million over the next 15 months, compared with the Legislature’s earlier proposal to cut $525 million. Specifically, those reductions would be:

The remaining $78 million in reductions comes from cuts in economic development, transportation, administration, natural resources and consumer services. In the legislative proposal, the university system was cut by an additional $32 million, including a $28 million cut to Oregon Health and Sciences University, and Human Services were cut an additional $48 million.

The $181 million in existing resources comes from the use of $131 million in surplus federal funds, $12.4 million in Department of Revenue collection actions, $4 million in debt service savings, $2.5 million in increased federal funds for the Department of Corrections, $14 million in 911 system surpluses, $13 million in surplus senior citizen property tax deferral accounts, and $3.7 million in anticipated land sales.

"Legislative leadership and the working group they appointed have done a great job in moving us closer to an agreement for a balanced budget," Kitzhaber said. "We need to work together to iron-out remaining differences about an acceptable level of State service reductions and about revenue options that are permanent, legally sustainable and don’t involve accounting tricks or long-term debt."

"For the long-term financial health of the State and for long-term budget stability, it is important that we produce real revenue options," said Kitzhaber. "I would rather see us reduce programs rather than engage in expensive borrowing or questionably legal raids on trusts such as the Common School Fund." Kitzhaber pointed out that the 1982 Legislature used $87 million from the State Accident Insurance Fund (SAIF), was sued and had to pay back $240 million.

Economic Stimulus and Budget Stability Package

Governor Kitzhaber also proposed an economic stimulus package focused on increased road and highway funding, accelerating lottery bonding of vital rural infrastructure and streamlining permitting processes and State financial assistance for business expansion. He will also pursue proposals forwarded by his Economic Strategy Advisory Group that he named in October 2001.

Specifically, Kitzhaber called for increasing vehicle registration fees $15, which would raise approximately $60 million per biennium. Oregon currently has the next-to-lowest registration fee in the nation. With the proposed increase, Oregon would have the sixth lowest registration fee in the nation.

The money would be targeted at the back-log in bridge repair and maintenance and modernization. Currently, the State is beginning $400 million worth of road projects approved by the 2001 Legislature and the Oregon Transportation Commission.

Kitzhaber also advanced legislation that will allow the proposed sale of lottery-backed bonds to proceed. Currently, more than $200 million water and sewer improvements and other projects are in limbo pending outcome of a court challenge to the Oregon Lottery. The legislation proposed by the governor would simply assure bond buyers that the State would repay the bonds even if the Lottery is declared unconstitutional.

Third, Kitzhaber pledged to focus State personnel on fast-tracking permits for business expansion and proposed increasing the State Business Incentive Fund, known as the Strategic Reserve, from $4 million to $7 million.

"This recession is national, even international, in scope and state government can affect it only minimally," said Kitzhaber. "However, that doesn’t mean we shouldn’t do all we can. The road, sewer and water projects we are seeking to fund will both provide employment in the short-term and lay the foundation for growth in the future."

School Stabilization Fund

Finally, the governor proposed the creation of a School Stabilization Fund similar to what 47 other states have. His proposal resembles HB 2299, which he submitted to the 2001 Legislature: a fund capitalized by using the 15 percent of lottery proceeds currently going to the Education Endowment Fund, any lottery revenues in excess of $600 million per biennium, and a one percent tax on the value of real estate transactions, excluding the first $100,000. This would produce approximately $230 million in the coming biennium. The size of the fund would be capped at 10 percent of the General Fund.

Under the governor’s proposal, creation of the School Stabilization Fund would be referred to voters as a constitutional amendment. If created, the fund could only be used after a shortfall in revenue, referral by three fifths of the Legislature and subsequent voter approval.

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