Oregon Gov. Ted Kulongoski used his final state of the state address last Friday to warn that he sees a fiscal "storm" coming unless lawmakers take action to tame the state's boom-and-bust budget cycles.

"Even with economic recovery, Oregon will face budget challenges that will limit the state's ability to meet its core responsibilities of education, human services and public safety," the two-term Democratic governor said. "That's why I describe the state of our state this way: Skies clearing — and a potential storm brewing."

The state will spend most of the reserves it built up in the last expansion to keep its budget in balance during the current biennium, which ends in June 2011. It also won't be able to return to taxpayers for more money after having convinced voters to accept an a $730 million tax hike earlier this year.

"Much of what cushioned the blow for the current budget will no longer be available when the legislature meets in January 2011 and tries to balance the budget for the next biennium," Kulongoski said. "So while we are striding toward recovery, we are also speeding toward a budgetary cliff."

He said the government needs to reconsider the level of services it delivers as the economy begins to expand again and to reform an income-tax rebate system to increase the amount Oregon saves for rainy days.

The state's kicker law requires the state to rebate taxes to individual and corporate taxpayers when revenue exceeds forecasts by at least 2% during a biennium.

Earlier this year, Kulongoski proposed a constitutional amendment that would direct as much as half of the kicker-tax rebates into an emergency reserve fund that would build up until it reached 10% of the previous general fund budget.

The governor's fellow Democrats, who control the Legislative Assembly, rejected the proposal, saying the time was not right for another fight over taxes so soon after January's bitter election over the income tax hike.

"There's the kicker — Oregon's one-of-a-kind debit card that makes it impossible for the state to put money aside during good times to help us weather the bad times," Kulongoski said.

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