Oregon faces $700 million budget gap next year

SALEM, Ore. More painful state budget cuts are in store next year as the lethargic economic recovery fails to keep pace with the growth in costs for state services.

A quarterly revenue forecast delivered to state lawmakers Tuesday projects that the Oregon general fund and lottery will be nearly $700 million short of maintaining government services at their already-slimmed down level for another two years.

Still, the deficit is far less ominous than the $3.5 billion gap that lawmakers filled in 2011.

"It's not party time, but it's far less challenging than what we experienced last biennium," Sen. Ginny Burdick, a Portland Democrat who chairs the Senate Finance and Revenue Committee, said of the latest revenue forecast.

Republicans warned Democrats not to increase spending too quickly.

"While there appears to be some growth, there is tremendous pressure building to increase spending next session, which will only continue the cycle of painful cuts and chronic revenue shortfalls," said Republican Vice-Chair of the Senate Revenue Committee Chris Telfer. "It is a tired drumbeat by now, but putting Oregonians back to work is the best and only long term solution to these anemic revenue forecasts."

For the two-year budget cycle that begins July 1, economists project Oregon will collect $16.5 billion in taxes. That's more than the $15 billion the state is expected to collect by the end of the current budget cycle, but it's not enough to keep pace with the $17.2 billion cost of continuing all services at their current levels. The spike in costs is driven by rising health care costs, expanded caseloads for government assistance and rising personnel costs, among many other factors.

The new Legislature, with Democratic majorities in the House and Senate, will take office Jan. 14, but lawmakers won't begin their actual work until February.

"The upcoming session will require a lot of difficult choices, and careful prioritization of the things that matter most," said Rep. Val Hoyle of Eugene, the incoming Democratic leader in the House.

"The signs are positive. The housing market continues to recover. The unemployment rate is coming down. We continue to see growth in our economy and our forecasts continue to be in the back," said Senate President Peter Courtney, a Salem Democrat.

A dose of good news in Tuesday's economic report: Oregon's manufacturing and housing sectors are showing signs of life, and economists expect the recovery to accelerate after the beginning of the 2013. Large businesses and profitable and are sitting on piles of cash they can spend to expand once they feel comfortable doing it, said Mark McMullen, the state economist.

Uncertainty around looming federal tax hikes and deep spending cuts is a drag on growth in the short term, he said.