SALEM - State Treasurer Randall Edwards is warning lawmakers that the state will have problems paying its bills if they don't adopt a new budget within a month.

A cash flow problem "is fast upon us," Edwards said in a letter sent to legislators Tuesday.

Edwards must take out a short-term loan to have the more than $1 billion needed to pay schools and state agencies through August.

In a similar cash flow crunch last year, the Legislature passed a law authorizing the treasurer to borrow using notes backed by future tax revenue.

But Edwards said Tuesday he can't do that again until there is an approved, balanced budget because the state must demonstrate to potential investors that it can repay the notes.

"It is imperative that a signed, balanced budget be in place by the first week of August," Edwards said.

Chuck Deister, spokesman for House Speaker Karen Minnis, R-Wood Village, described the warning as "an interesting point and concern."

"Hopefully it will provide some incentive to get out of here sooner than later," he said.

Deister said daily budget negotiations continued Tuesday between Minnis, Senate President Peter Courtney and Gov. Ted Kulongoski.

When the flow of general fund income - mainly income taxes - runs short of paying current bills, the treasury often borrows from the reserves of state agencies.

But the state's tight budget crunch over the past two years has left too little in reserve to cover the shortfall between expected revenue and the $1 billion due soon in payments, said Todd Jones, a spokesman for Edwards.

Edwards said the bills will be paid, but that if lawmakers don't meet his deadline for approving a budget "the tools to patch together financing would be extremely expensive."

Payments due this month are larger than usual because legislators last year - to balance the 2001-03 budget that ended June 30 - shifted $257 million in local school and community college aid funding from that budget to the 2003-05 budget period.