SAN FRANCISCO — Outgoing Oregon Gov. Ted Kulongoski has pitched an austerity roadmap to help rescue the state from a $3.5 billion shortfall for the upcoming two-year budget.

The projected shortfall represents a fifth of the upcoming budget for 2011-2013 and is being driven by plummeting tax collections, according to a December report from the state Office of Economic Analysis.

“Deficits in the range of 20% are projected for the next decade if we don’t take immediate and decisive action now,” Kulongoski said in a statement Wednesday.

The Democratic governor’s blueprint includes reducing benefits for public employees and retirees, keeping state and school worker compensation “in step with all working Oregonians,” and freezing spending for services and supplies.

The proposals are based on ideas from his Reset Cabinet, which consists of public and private sector advisers. The cabinet initial report outlined similar budget actions in June.

If the incoming legislature and Governor-elect John Kitzhaber adopt the measures, the budget gap could be reduced to $1.3 billion deficit, according to Kulongoski.

The proposal mentions that during the 2001 recession, state revenue was poised to decline by 12% before the Legislative Assembly borrowed $450 million by issuing appropriation-credit bonds to balance the 2001-03 budget.

“The governor certainly doesn’t recommend bonding for operating purposes like other states have done and gotten in trouble doing,” said Anna Richter Taylor, a spokeswoman for the governor.

The proposals are meant to provide a menu of options for the incoming governor and legislature, she said.

Kitzhaber, a Democrat, described the Kulongoski’s recommendations as “a responsible set of proposals to address the budget” in an interview with the Register-Guard.

The incoming governor also faces both political and fiscal challenges.

State voters split the Oregon House between 30 Democrats and 30 Republicans, with the Senate leaning toward Democrats by only two seats. With no precedent for breaking the tie in the House, stalemated lawmakers will be left to themselves to decide how to share power when the Legislative Assembly starts its new session at the beginning of the year.

The tight division could make it harder for lawmakers to agree on a budget and to move quickly to bolster Oregon’s soft economy.

Preliminary job numbers fell after posting gains in the first and second quarter, according to the December report by the state Office of Economic Analysis. The Oregon unemployment rate held steady at 10.5% in October and has changed little the past 12 months.

State personal income tax collections totaled $1.14 billion for the first quarter of fiscal year 2011, according to the report. That’s $44.4 million short of the forecast.

Moody’s Investors Service assigns the state’s GOs a Aa1 rating, Standard & Poor’s gives them a AA, and Fitch Ratings gives them a AA-plus. Moody’s rates the state’s COPs Aa2, Standard & Poor’s rates them AA-minus, and Fitch rates them AA.

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