Gregoire's next big test: balancing budget without raising taxes

Now comes the hard part.

On her way to re-election Tuesday, Gov. Christine Gregoire pledged not to increase taxes or fees to balance a state budget that's projected to have a $3.2 billion shortfall over the next two years. Given what's happening with the economy, that hole could easily get bigger.

At the same time, she's talked about spending more money — on health care for kids, pay increases for teachers and an economic-stimulus package to boost the state's economy.

Republican Dino Rossi conceded the governor's race to Gregoire on Wednesday, saying, "I want to offer my services and help, and want her to be successful as governor."

With the election over, Gregoire has to figure out how to balance the budget and pay for any new spending — all without increasing taxes or creating fees to bring in more money.

She has already proposed some budget cuts and Republican lawmakers say many more will be needed.

"I don't see how they get around it without raising revenue," State Sen. Joe Zarelli, R-Ridgefield, the ranking Republican on the Senate Ways and Means Committee, said Wednesday.

But Senate Majority Leader Lisa Brown, D-Spokane, didn't rule out the prospect of tax or fee increases.

Brown also said lawmakers could look at targeted taxes or fees, or consider ending certain tax exemptions.

"If you look at a tax exemption and you decide you need to close it or limit it somehow, is that raising a tax? Some of it comes down to definitions," she said.

Gregoire was pretty explicit during the campaign when pressed on whether she'd support increasing taxes or fees next year. She said no and reaffirmed the vow Wednesday.

"Now is not the time you put taxes on people," she said, adding that during the campaign she has met people across the state who are suffering from the economic problems that have shaken the nation.

Still, some Democrats see wiggle room for the governor.

Paul Berendt, a former chairman of the state Democratic Party, said he thinks Gregoire and lawmakers could put together a tax package that would help balance the budget and support new programs — and send it to voters.

That would allow Gregoire to propose additional spending without signing a tax increase.

The fact that voters agreed to raise sales taxes for a $17.9 billion Sound Transit light-rail expansion suggests that approach could work, Berendt said.

When asked recently if she'd support sending a tax increase to voters, Gregoire said, "I will leave that to my colleagues in the Legislature. I will forever maintain that the voters ought to be able to decide that. ... I wouldn't be involved in it. It would bypass me. It would not be something that the governor would sign on to or sign off on."

In describing her stimulus package, Gregoire said Wednesday she favored more spending on some transportation and other public-works projects to help revive the economy and put people back to work.

Gregoire said details will be announced in a week or so.

Transportation projects typically are financed from pots of money outside the main state budget, or general fund, which is facing the projected shortfall.

The state also has put together a $500 million wish list for Congress, which is considering another federal economic-stimulus package. Washington's list includes dozens of projects across the state, from $4 million in new curbs and sidewalks for Bremerton to $60 million for a wastewater-treatment plant near Lake Stevens.

Gregoire was leading her Republican challenger Dino Rossi by more than 130,000 votes Wednesday. In 2004, she won by 133 votes after two recounts and a lawsuit.

In his concession speech Wednesday, Rossi, a former state senator who makes his living in commercial real estate, said he will return to the business world.

Gregoire's margin of success has been attributed to various things, from missteps by the Rossi campaign to effective attacks ads by her campaign.

But the national Democratic surge fueled by President-elect Barack Obama's campaign certainly played a role.

Gregoire tied herself to Obama as closely as possible during the election. And she hasn't stopped.

"I am so excited to have him as a partner in the White House," she said. "Barack Obama is an individual who shares our values, who shares our visions, who shares what we want to accomplish in Washington state."

Andrew Garber: 360-236-8266 or agarber@seattletimes.com