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Tim Fought Associated Press Writer
Published: 01 June 2010

PORTLAND, Ore. (AP) -- Oregonians from the statehouse to the schoolhouse began scrambling last week to plug a budget gap that, by one estimate, could put at risk 4,000 teachers, principals, cooks and janitors.
But the surprising revenue forecast that Gov. Ted Kulongoski's administration delivered on Tuesday may turn out to be less painful than the message he will deliver next month: The state faces a budget monster next year that won't be tamed by economic recovery, borrowing, higher taxes or fiscal tricks.
The outgoing governor has long been warning of a crisis in 2011, after he leaves office. On May 20, just a week before Kulongoski responded to shortfalls in 2009 tax collections by ordering 9 percent cuts across the board in state budgets, a panel of his advisers said the state could no longer afford a ``business-as usual'' state budget.
Their conclusion is decidedly gloomier than that of many in the Legislature, in both parties, and elsewhere.
The Great Recession, it said, shrank the state's economy so much that even a decent economic rebound in jobs and personal income won't be enough to sustain the scope and cost of the state government as it operates today.
``We wanted to dampen the sense of enthusiasm that we could grow our way out of this,'' said Lane Shetterly, a former Republican lawyer and member of the panel.
Instead, the panel said, the state has to make decisions about what services it will provide and ``how it chooses to organize, deliver and control the cost of those services ...'' Kulongoski and his advisers are calling this a ``reset,'' a shrinking of the scope and cost of state government to match the shrinking in the economy.
Exactly what a ``reset'' means to Kulongoski and his advisers they promise to reveal next month. The governor has scheduled a speech at Portland's City Club on June 25 to provide specifics.
By then, Oregon's state agencies and local school boards will have laid out their plans for dealing with the cuts Kulongoski ordered last week after his staff found that tax collections for 2009 fell way short of estimates.
``Some members have already been told they will be laid off next year,'' said Gail Rasmussen, president of the Oregon Education Association. Other teachers have been told their programs will be eliminated or they will be reassigned, she said.
The cuts Kulongoski ordered would equal as many as 4,000 jobs, Rasmussen said.
But districts could decide to shorten school years by as much as three weeks, or combine layoffs and fewer school days.
``Everybody who is talking about cutting days is in the range of 12 to 15 days,'' said Craig Hawkins of the Confederation of Oregon School Administrators. ``It's huge.''
After Kulongoski's announcement Tuesday, bad news continued to flow. A math error was discovered, adding about $15 million to the $560 million budget shortfall. And efforts foundered in the Congress to extend aid to the schools as sort of an extension to the stimulus spending that supported local school budgets this year.
Oregon's share of the federal aid would nearly equal the amount Kulongoski ordered cut from the school aid budget, the state's largest single expenditure.
An estimate from the Obama administration said Oregon's slice of the federal aid would preserve about 3,770 jobs, a number that squares roughly with Rasmussen's and provides an indication of what lies ahead as local school districts and state agencies respond to Kulongoski's order.
And yet such steps are only ``the painful first steps'' of what will be required as soon as next year, said Shetterly.
Kulongoski's ``Reset Cabinet'' consists of agency heads such as Max Williams of the corrections department and Dr. Bruce Goldberg of human services, as well as outsiders such as Shetterly, a Dallas lawyer who has served the Democratic governor over the last eight years as director of the land-use agency and head of a revenue advisory panel.
For months, the state's official revenue forecasts and budget projects have shown a significant gap awaiting the next governor and Legislature when they build a two-year budget next year.
It's estimated at more than $2.5 billion, between 15 percent and 20 percent of the current general fund budget supported by the income tax and lottery proceeds.
Shetterly said the purpose of the May report was to ``offer the prospects of some tough medicine.''
Shetterly said the panel hasn't settled on all of its recommendations to Kulongoski, but its work has prompted speculation and talk about what it ought to include.
House Speaker Dave Hunt, for example, said last week that school consolidation ``should be on the table'' when the state talks about major reforms.
Saving on administration and overhead in the schools by consolidating districts and institutions often means wrenching surrenders of local autonomy and loyalties.
``That is of a flavor of what we might recommend,'' Shetterly said.
He said the panel's recommendations won't be that the state continue the across-the-board cuts that Kulongoski has ordered, but he said the cuts will help in redrawing the budget next year: ``It is one way to begin the reset.''

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