Community mental-health providers who were fearing the worst were relieved — even a little surprised — that Gov. Christine Gregoire included an extra $80 million in her budget to restore almost all of the $82 million lost in federal Medicaid cuts.

"I was dreading today," said Cathy Gaylord, the chief executive officer of the Washington Community Mental Health Council, a professional association of providers. "I feel extraordinary relief — like the mother whose son got a stay of execution from the governor."

If the Legislature goes along with Gregoire's plan, Gaylord said, the money will help keep 1,600 severely mentally ill people in residential services and help pay for mental-health services for 43,000 people with low incomes who are not on Medicaid.

But noticeably missing from the budget was funding for a tentative legal settlement reached by Pierce County and the Department of Social and Health Services (DSHS) over claims that Western State Hospital has been dumping unstable patients.

The settlement would have provided an extra $2.5 million annually for the Pierce County Regional Support Network to help at least 100 severely mentally ill patients outside the hospital walls. It would have settled most issues in a 2-year-old lawsuit.

Fran Lewis, the administrator of the Pierce County network, said that she still has to digest the budget but that the lack of funding "puts us back in lawsuit mode."

Hal Spencer, a spokesman for the Office of Financial Management, pointed to the extra $80 million as well as other new funding for psychiatric services. He added that DSHS appears to have significantly improved its patient-discharge procedures at Western State.

The budget also contains $82 million worth of cuts in human-services programs, including a tightening of eligibility for an unemployment-assistance program and a reduction in the number of elderly and disabled people who receive home-based personal care.

Nick Perry: 206-515-5639 or nperry@seattletimes.com