Governor's budget-cut plan is met with a sigh

SALEM — Gov. Ted Kulongoski on Wednesday recommended deeper cuts to benefits for teachers and state workers, frustrating a key constituency with one of his last major policy announcements as governor.

With 40 days left in office, Kulongoski recommended eliminating a retirement program for government workers and cutting pension benefits for workers who have already retired.

Unions representing public employees dismissed Kulongoski's report, saying he'll have no power to implement his suggestions after a new governor and Legislature are sworn in Jan. 10.

Ken Allen, executive director of the American Federation of State, County and Municipal Employees in Oregon, said it's irresponsible for an outgoing governor to recommend deep cuts.

"We look forward to his term being done," said Allen, whose union represents 6,000 state workers, most of them in the Department of Corrections.

The proposal is the latest tension for a governor who was once a labor lawyer but has had a rocky relationship with public employee unions since taking office in 2003. Months after being sworn in, Kulongoski signed a bill that significantly reduced pension benefits for new government workers.

Kulongoski's new report is an update to a June one offering suggestions to reduce the cost of state government. Both reports are the work of a panel he created known as the "Reset Cabinet."

The panel said Oregon needs to restructure the way it thinks about state government and learn to live with fewer services. That's because aging baby boomers will require more tax-funded services at a time when there are fewer working-age adults paying taxes.

The imbalance will persist even as the economy recovers.

Making it harder to qualify for state services, and in some cases cutting back on the size of benefits, is the only path to a balanced budget over the next decade, Kulongoski said. He said there's no appetite in Salem for tax increases.

"The most vulnerable of our citizens will continue to be served," he said. But the cuts will affect some low- and middle-income residents.

"We've got to change," he said.

Kulongoski urged incoming lawmakers to avoid borrowing money or using accounting gimmicks to balance the budget, which he said increases the problem down the road. Tough choices will eventually have to be made; making them now will lessen the impact, he said.

Under Kulongoski's latest proposal, government workers would keep their pensions but would lose a benefit known as the Individual Account Program, which is similar to a 401(k) and requires a contribution of 6 percent of a worker's pay. Most government agencies pay the contribution for their workers.

He also suggested linking increases in government worker compensation to increases in compensation for the entire labor market. "Most of what he's advocating for is balancing the budget on the backs of hardworking Oregonians who are already making sacrifices," said Becca Uherbelau, spokeswoman for the Oregon Education Association, a teachers union.

Union officials said they look forward to negotiating with incoming Gov. John Kitzhaber. They said public employees have already taken pay cuts, and cutting their benefits would renege on past agreements to forgo pay increases in exchange for more generous benefits.

Kulongoski said he's not trying to balance the budget on the backs of employees, and that he doesn't want the public to think government workers are the reason for the budget crisis. "I just don't think it's possible. I don't think it's fair," Kulongoski said.

Still, nearly all the new cuts he recommends draw from public employees. In total, Kulongoski's suggestions would squeeze $792 million from compensation for current and former state workers over the next two-year budget cycle.

He also suggested continuing $1 billion in cuts he made to the current budget and holding back on spending for services and supplies. Kulongoski's recommended cuts would reduce an estimated $3.5 billion shortfall to $1.3 billion.

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