Washington budget short about $2B through mid-2011

Higher costs for government services have driven the state's projected budget shortfall to about $2 billion, Gov. Chris Gregoire's budget office said Friday.

And that's not all: The deficit is likely to grow even larger next week, when state economists issue a new forecast of expected tax income for the current budget period, which runs through mid-2011.

The combination has Gregoire and Olympia's majority Democrats in a grim mood with less than two months until the Legislature goes back to work.

Democratic leaders already were forced to reduce spending on many of their priorities last session, en route to fixing a $9 billion budget shortfall. But the deficit has grown, and officials are starting to warn there's not much room left to absorb spending cuts.

Gregoire and top lawmakers also have put tax hikes on the table - a sharp change in tone from earlier this year, when the newly re-elected governor tamped down any discussion of tax increases.

House Ways and Means Chairwoman Kelli Linville, D-Bellingham, said the Legislature will have to be open to all options, including the elimination of some state services. The Legislature largely avoided those kind of cuts last session, instead opting for across-the-board reductions and one-time budget fixes.

"Now we're down to: Do we do the service, or do we not do it?" Linville said.

The Statehouse's minority Republicans still see room for savings through a major restructuring of how the state delivers services. The GOP also says the Legislature should make those moneysaving moves quickly, rather than spending money for months on programs that will eventually have to be cut.

"Timing is everything," said Senate GOP budget chief Joe Zarelli, R-Ridgefield.

Linville agreed with Zarelli's push for quick action, and said her colleagues in the House have spent the summer compiling lists of moneysaving ideas.

She and Zarelli also agreed that the majority may look first at closing some tax loopholes, rather than straight-ahead increases of the state's sales, business, or property taxes.

Doing so likely would require Democrats to suspend Initiative 960, a measure pushed by anti-tax activist Tim Eyman that voters approved in 2007. The initiative says lawmakers must approve all tax increases with either a difficult two-thirds majority, or vote of the public. But lawmakers will be able to amend that law with a simple majority vote for the first time next year.