The state's current budget, which was established some 18 months ago at the beginning of the current two-year cycle, would cover the necessary expenses just fine. The issue we currently face is that our actual income from tax revenues is falling way below that 18-month-old budget. If we could spend to the budget, through raising tax revenues or deficit spending, we would not be in a crisis.

Part of the state's current budget crisis can be blamed on all of those kicker refunds we insisted on getting back in the late 1990s. Consider, as a metaphor, the case of Joe Smith, a real estate agent. Realtors make a good metaphor for the state economy, because unlike the typical company employee, realtor income is not constant from month to month, and like the state government, it depends linearly on the condition of the economy in general.

Let's assume that Mr. Smith is more organized than most of us, and sits down in November to decide his budget and spending for the next calendar year. Let's say that he forecasts an average year, and budgets for an income of $60,000. As it turns out, he has an above average year, and he ends up making $100,000. Does he return the excess to his clients? Does he throw it in the garbage? No, of course not. He puts the extra cash into his savings acount.

Next year, if his income drops to $40,000, Mr. Smith has that buffer in savings, so he can maintain his budgeted spending even though his income has dropped.

The issue in the state of Oregon is that we do not allow the state to put anything into its savings account during boom years when income exceeds budget. Because of that, there is nothing available to make up the difference when income falls below the budget, and we are left with crises.

During boom years, we expect the state to stick precisely to its forecasted budget. During lean years, we expect the state to stick precisely to actual revenues. That represents the worst of both situations. Since Oregon continues to do its budgeting on a two-year cycle, it is no surprise that we have a budget crisis, and as long as we keep having operating this way, we will continue to have financial crises like the one we are currently in.

I see several ways to alleviate these problems in the long term. First, Oregon should leave its rural past behind and go to a one-year budget and legislative cycle. The world is too dynamic to think about budget forecasts two years in advance. Next, I believe we should eliminate the kicker refund, and allow the state to put any surplus revenue into a "rainy day" fund. However, that has about as much chance as Mike Tyson would on Jeopardy. I can already hear all the screams of outrage from where I am sitting.

One alternative would be to have the state budget for next year be based on the actual revenues from this year, instead of using the voodoo art of forecasting to get the final numbers. Although this would cause consternation at budget time during a lean year, at least we would not have to worry about running short at the end of a cycle and having to make drastic cuts just to survive.

(Submitted to the Oregonian on 2/27)