Gregoire's plan to fill budget hole: cuts, taxes, federal help

OLYMPIA — Gov. Chris Gregoire proposed Tuesday what she called a "responsible, balanced approach of painful cuts and new revenue" to close the state's $2.6 billion budget shortfall.

But Gregoire's latest budget blueprint — which relies heavily on hoped-for federal money and one-time fund transfers — did little to answer long-term questions about the sustainability of current spending levels.

In her annual State of the State address to lawmakers and subsequent testimony to a state Senate panel, Gregoire said the state should tap $780 million in new revenue to avoid eliminating key services such as subsidized health care and scholarships for low-income families.

"Like you, I do not want taxes to harm the economic recovery of our families and our businesses," she said during her 40-minute speech. "But I also cannot abandon my values, eliminate the safety net for our most needy and cripple our economic future."

Gregoire offered few details about where the new money would come from but said she hopes the federal government will come through with at least $500 million. She proposed no general tax increases, but hopes to raise about $100 million by closing tax loopholes, primarily by requiring out-of-state credit-card and financial companies to pay taxes on business they do here.

The governor's plan still calls for more than $950 million in service cuts, including money meant to reduce elementary-school class sizes and hundreds of millions in cuts to human services.

The rest of the general-fund budget shortfall would be patched together with one-time fixes including taking $229 million from the state rainy-day fund, and transferring nearly $400 million from other state budgets.

Gregoire also announced a proposal to create up to 40,000 jobs through tax incentives and retrofitting public buildings to save energy. Specifically, Gregoire said she'll propose a tax break for small businesses that hire new full-time employees.

"Jobs are the way out of this recession," Gregoire said.

She also said she'll order state agencies to extend time limits on development permits for two years on projects delayed by the economy.

Republican leaders complained that Gregoire's proposals won't solve the state's long-term problems and argued for more cuts to the size of government.

"We can't continue to kick this can down the road anymore," said Sen. Linda Evans Parlette, R-Wenatchee, who chairs the Senate Republican caucus.

In some cases, accepting federal money with strings attached may only worsen the state's condition later, warned House Minority Leader Richard DeBolt, R-Chehalis.

But Gregoire told The Associated Press she prefers federal aid to major tax increases, worrying that higher taxes would affect economic recovery.

"If I hadn't heard about the potential for federal tax dollars, I was ready with a tax package," she said. "And during the course of the session, if it comes to that, I'll be happy to share it with the Legislature."

Testifying before the Senate Ways and Means Committee, Gregoire said she was in frequent touch with the White House and the state's congressional delegation and is confident they'll come through with federal money — both this year and in the future.

Badly outnumbered in both the state House and Senate, Republican leaders acknowledged they can do little — beyond talking — to influence budget deliberations during the 60-day session.

On the other side, a coalition of human services, education, labor and other groups is urging Democratic leaders to save even more programs from the budget knife — even if that means raising taxes.

The group, the Rebuilding Our Economic Future Coalition, issued a statement Tuesday calling on lawmakers to "pursue further options for generating new revenue" to protect services, including assistance on prescription-drug co-pays to low-income elderly people and work-study programs for college students.

Some Democratic lawmakers praised Gregoire's budget as a good start, but said they want to look at additional tax options — especially tax loopholes and outdated exemptions — to raise more money.

Rep. Ross Hunter, who chairs the House Finance Committee, said he wants to scrutinize the details of Gregoire's proposed tax break for small businesses that hire new workers to make sure it would really create new jobs.

"It can't be a bad thing, but is it the best thing you can do with the money?" said Hunter, D-Medina.

Gregoire also talked up her efforts to streamline and reform state government. Noting she already had eliminated 73 state boards and commissions by executive order, Gregoire said she'll target 78 more. The governor also asked that lawmakers approve her plan to close all or part of 10 state institutions, including five prisons. She has pledged to do that without releasing any prisoners early by consolidating inmates in more efficient buildings. Gregoire noted the state has not taken the politically difficult step of closing a state institution since the 1970s.

"Now is the time to have the courage to close institutions that may be an important fixture in a community, but are no longer cost effective, or whose services are no longer needed or can more effectively be provided elsewhere," Gregoire said.

Referring to the recent police killings, including the November slayings of four Lakewood police officers by Arkansas parolee Maurice Clemmons, Gregoire pledged a package of reforms, including changes to bail laws and supervision after inmates are released.

She also backs increased benefits for the families of slain officers to "ensure the legacy of these fallen heroes."

Gregoire plans a news conference today to announce specifics.

Jim Brunner: 360-236-8267 or jbrunner@seattletimes.com