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Rick Bowmer, Associated Press
Rep. Peter Buckley of Ashland, is sworn in as the new Democratic co-speaker pro-tem at the opening of the Oregon Legislature Wednesday, Feb. 1, 2012, in Salem, Ore. The Oregon Legislature kicks off a one-month session, the first in an election year since voters decided to create annual legislative sessions in 2010.  Lawmakers are expected to cut spending on social services in response to slumping state revenue and to discuss Gov. John Kitzhaber's efforts to overhaul the health care and education systems.

SALEM, Ore. — As the Oregon Legislature convened Wednesday for the start of the session, key lawmakers proposed spending much of a $56 million dollar legal windfall to help patch a budget deficit and avoid cutting services for the sick and needy.

Three legislators in charge of writing the state's financial plan suggest taking three-quarters of the settlement from a lawsuit victory over tobacco giant Philip Morris, roughly $41 million, to shrink a $200 million spending gap, the rest of which would be closed with service cuts and budget maneuvers.

"Philip Morris' unwilling contribution to our state coffers came at a very opportune time," said Rep. Dennis Richardson, R-Central Point, a co-chair of the budget committee.

The suggestion comes as lawmakers gathered in Salem to begin a one-month session to work on the budget and other issues. It's the first session in an even-year since voters decided to make the Legislature meet annually.

The tobacco money stems from a December ruling by the state Supreme Court rejecting Philip Morris' challenge to part of the punitive damages it was ordered to pay in 1999. The company lost a suit brought by the family of a Portland smoker who died of lung cancer.

Philip Morris had agreed to pay the man's family, but challenged an Oregon law requiring that 60 percent of punitive damage awards go to a state fund that compensates crime victims.

Rosemary Brewer, legal director of the Oregon Crime Victims Law Center, was less enthusiastic about the idea of taking the money from the victims' compensation fund.

"The punitive damages award is supposed to benefit services for crime victims," Brewer said. "Crime-victim services are critical elements of the public safety system."

If the both chambers and the governor sign off, the tobacco money would decrease the severity of spending cuts. But it won't completely protect services already reeling from more than $3 billion in cuts enacted last year.

Budget writers propose cutting $1 million from a job-training program for welfare recipients, $6.6 million from daycare services and $3.5 million from the budget for planning an overhaul of the mental health system.

They want to give the Department of Corrections authority to close the Santiam prison in Salem and move the inmates to other prisons. And they suggest cutting the funding for long-term care for seniors by $13.4 million. That cut would primarily affect service providers, not the elderly, said Rep. Peter Buckley, D-Ashland, a budget co-chair.

"It stresses out the system, but it does not remove anybody from services," Buckley said. "And that was vital to us."

The proposal also suggests $25 million in personnel cuts, largely from middle management. The budget writers suggest increasing the manager-to-employee ratio and eliminating public affairs positions that deal with the media and with the Legislature.

"We're not making the cuts because we want to make them," said Sen. Richard Devlin, a Tualatin Democrat and co-chair of the budget committee. "We're making them because we have to maintain a balanced budget."

Gov. John Kitzhaber supports the Legislature's budget framework, spokesman Tim Raphael said.

In a Senate committee meeting, Kitzhaber pitched his proposal to allow a new education oversight board to create nonbinding achievement compacts with school boards and community colleges.

"We don't have any time to lose in moving these strategies forward," the governor said in urging prompt action by the Legislature.

Dozens of demonstrators, many from the Occupy Wall Street movement, convened on the Capitol steps.