Gregoire announces $240M budget savings

OLYMPIA — Gov. Christine Gregoire, facing a faltering economy and tough campaign criticism, announced immediate budget savings of about $240 million on Tuesday, including a 1 percent across-the-board cut at state agencies.

Gregoire's plan, which could lead to government layoffs, is expected to boost the state's current surplus and help cut the next budget's deficit nearly in half, from $3.2 billion to about $1.7 billion.

Some critical state programs, including education, social services and public safety, are exempt from the 1 percent cut to agencies under Gregoire's control. The plan also includes general savings and money transfers.

Gregoire put much of the blame for the rocky financial outlook on the national economy, which is staggering through an ongoing credit crisis that threatens to plunge the nation into recession.

"Even though today we have a surplus and are better prepared than other states to weather this storm, we will likely face a deficit in the next two years," she said in a statement.

Agency leaders will decide exactly how to save money under the 1 percent cut, but layoffs clearly are on the table, Victor Moore, director of the Office of Financial Management, told The Associated Press.

"I think to a certain extent, it's unavoidable," Moore said.

The Democratic governor has faced intense criticism from Republican challenger Dino Rossi, who says she created the deficit by increasing state spending by $8 billion since she was elected. He's also chided her for not acknowledging the prospect of a shortfall earlier this year.

Gregoire in recent weeks has both acknowledged the projected deficit and increasingly talked about how she'd close the gap.

She's also tried to turn the tables on Rossi, saying he has refused to provide specifics about how he'd deal with the projected deficit. Gregoire also contends some of Rossi's proposals, including his transportation plan, would make the shortfall even worse.

Rossi issued a statement Tuesday accusing Gregoire of playing "budget games" and said the cuts she announced will have almost no effect on the size of the shortfall.

"Many of the items she refers to as 'cuts' are really just budget items where expenditures have come in lower than expected, such as with health-care premiums, or by taking additional federal funds," he said.

Gregoire's budget office is working on a no-new-taxes plan to solve the $3.2 billion deficit projected for the 2009-2011 budget period, which begins next July. The next governor and Legislature will have to solve the budget hole starting in January.

Gregoire's preliminary plan for the shortfall calls for $605 million in savings during the next two-year budget, achieved by carrying forward the cost-cutting actions announced Tuesday and an earlier $90 million freeze on hiring and travel.

Gregoire also would tap the state's new "rainy-day" fund's entire balance to help bridge the gap. Normally, it would take a difficult 60 percent vote of the Legislature to access the fund, but the voting threshold is lowered in times of slack job growth.

The largest chunks of the additional savings announced Tuesday are $76 million in welfare costs, offset by federal dollars; the 1 percent agency cuts, expected to save $45.6 million; and about $25 million in transfers of unspent money, which normally would flow into a school-construction account.

Among other cutbacks were three favorite projects of Democratic lawmakers: Suspension of a proposed paid family-leave program; halting setup work on a sales-tax credit for the working poor; and the rollback of unspent money meant for property-tax deferrals.

Senate Republican budget chief Joe Zarelli, R-Ridgefield, Clark County, gave Gregoire credit for facing the deficit. But he said further projections of state revenue and growth in essential services could take back some of Gregoire's proposed savings.

"The big thing is, where are the sizable spending decreases that are going to make the difference?" he asked.

Senate budget Chairwoman Margarita Prentice, D-Renton, said the general direction of Gregoire's plan sounded prudent. Washingtonians are suffering through the economic downturn, she said, and government also will have to tighten its belt.

"We're all going to have to share in the pain," Prentice said.

Seattle Times staff reporter Andrew Garber and AP Writer Rachel La Corte contributed to this report.