Faced with one of the nation's deepest fiscal crises, Oregon voters have defeated a referendum for a three-year income tax increase, choosing instead to enact government-wide budget cuts halting medical benefits to 12,000 elderly or disabled people, laying off more than 100 state troopers and closing public schools from a few days to six weeks ahead of schedule.

The fallout began yesterday in Portland, where Multnomah County Sheriff Bernie Giusto freed 114 inmates whom he said the county cannot afford to incarcerate without state aid. "It's a party atmosphere at the jail today," he said.

With 99 percent of votes counted by midday yesterday, Oregonians had voted 54 percent to 46 percent against the increase. It was the only state in the country where voters, rather than lawmakers, were asked to make the choice between more taxes and deep program cuts.

Because they were unable to choose, state lawmakers voted last fall to put the proposed tax increase on the ballot -- along with preapproved budget cuts that would take effect if the measure was defeated.

Analysts said this was the closest the famously anti-tax state has come to approving a general tax increase. Oregon voters have repeatedly defeated proposals to create a sales tax.

Early polls showed the proposed three-year, 0.5 percent income tax would fail by 25 points. But 10 days ago, a poll showed voters split 48 percent to 48 percent, prompting Republicans and anti-tax groups who had expected the measure to fail easily to organize a last-minute fight.

"It takes a lot of effort to move a tax measure up in the polls, but it seems to take a lot less effort to push it back down," said Tim Hibbitts, an independent pollster.

GOP legislative leaders said they want state departments to find administrative ways to blunt the cuts' impact -- particularly for the elderly, disabled or mentally ill. "I don't think Oregon voters were voting to throw people out of nursing homes," said House Majority Leader Tim Knopp (R).

But Democrats and Gov. Ted Kulongoski (D) said there is nowhere to cut without causing harm. "The vast majority of the real tough cuts are going to take place," said Senate President Peter Courtney (D). "We're all shook up about this really bad."

The recession and the high-tech collapse devastated Oregon's income tax revenue in the last year. The deficit ballooned to 15 percent of the budget, in part because the state had vastly expanded spending on education and prisons during the 1990s boom without increasing taxes. In addition, the public employees' pension fund is underfunded by billions of dollars.

Multnomah County chairwoman Diane Linn, whose county is the biggest in Oregon and includes Portland, said she now has no choice but to enact "some pretty severe cuts to our public safety, our safety net services and our vulnerable citizens."

Portland school officials said they will have to cut at least 24 days, or five weeks, from the school year to absorb their share of a $95 million cut in state aid to public schools.

The Oregonian in Portland, which like most newspapers had supported the tax increase, editorialized yesterday, "We badly wanted this election to show that change is possible, that Oregonians want something other than the shortest school year in the nation, the highest college tuition in the West or the smallest force of state troopers in modern Oregon history."