Tax revenue down; state could see broad budget cuts later this year

OLYMPIA — Across-the-board cuts in state spending are all but certain this year despite $540 million in federal aid approved by Congress earlier this week.

Gov. Chris Gregoire said Thursday that tax collections in June and July were about $125 million below projections.

And she expects the state revenue forecast next month will predict more declines ahead.

The governor is telling state agencies to prepare for cuts of between 4 and 7 percent, which at the high end could mean whacking up to $500 million from the state budget between October and the end of the fiscal year next June.

"This recession is unlike anything any of us have experienced. The worst in 80 years. It's pouring down rain, so we have exhausted our rainy-day fund," Gregoire said at a news conference.

She said steps to reduce spending could mean "we're going to see the end of programs. Not the cutting of a program, but the end of programs ... . No more podiatry. No more dental services. No more vision services. Those are the kinds of cuts."

Other potential cuts she mentioned include eliminating state-supported hospice services for the terminally ill, reducing school-levy equalization money that helps "property poor" school districts keep up with wealthier districts, and closing the Larch Corrections Center near Vancouver, a minimum-security facility with about 240 inmates.

In addition to the prospect of across-the-board cuts, Gregoire said the state must cut $51 million from WorkFirst, its welfare-to-work program, because funding has remained flat but demand has increased due to the recession. Caseloads have jumped more than 30 percent in the past two years.

Those cuts will include lowering the income eligibility for child-care assistance and granting fewer hardship extensions to families who reach the five-year time limit for receiving benefits.

Starting in February, about 5,500 families will be kicked off the program and will lose a monthly stipend ranging from $453 for a family of two to $762 for a family of five, in addition to a host of other benefits.

Under state law, the governor can make only across-the-board cuts to state agencies without legislative approval. She has the authority to make more specific cuts in welfare programs like WorkFirst.

Gregoire has largely ruled out calling lawmakers back for a special session to make more surgical cuts because Democratic leaders in the House and Senate have said their members are unlikely to reach a quick decision.

The Legislature could make changes to any across-the-board cuts the governor makes when it meets in January.

Republicans, however, say Gregoire should call a special session this year.

"I think she should let everybody know, 'That's what I'm going to do and you guys can decide if you're going to languish here and look ridiculous to the public as you argue things out or you can agree to get it worked out,' " said Sen. Joe Zarelli, R-Ridgefield, the ranking Republican on the Senate Ways and Means Committee.

"That's a hard choice even within your own party, but I believe that's the ultimatum that needs to be put on the table," he said.

Zarelli also questioned if the governor could make the cuts on her own because of strings attached to federal aid the state has used to help balance its budget.

Some of the aid requires the state to maintain spending at certain levels for K-12 and higher education.

The governor's budget office said the state could potentially run into problems with the federal government if it made cuts of more than 4 percent to the higher-education budget. But cuts up to that level should be safe.

A 4 percent cut would represent more than a $40 million hit for the state's four-year and two-year colleges.

Gregoire's announcement came after a protracted fight in Congress about whether to send additional aid to states. Washington and many other states were counting on the money to help balance their budgets.

President Obama on Tuesday signed a $26 billion measure that funnels money to the states to help pay for health care and education.

Washington is getting $338 million in extra matching money for Medicaid, the federal-state health-insurance plan for the poor. The state also is supposed to receive around $205 million for education.

Gregoire said the money was a big help; it just wasn't enough to solve the state's budget problems.

Without the federal aid, she said she could be directing state agencies to prepare for cuts of 7 to 11 percent.

Even after dealing with the expected shortfalls in the current budget, the governor's office projects the state faces at least a $3 billion shortfall when lawmakers meet in January to start writing the next two-year budget.

"State government, out of necessity, will need to be smaller," Gregoire said.

She said lawmakers will have to decide if the state can continue certain programs, or see if other organizations, such as churches and nonprofits, can help.

"That's the tough reality we face today," she said.

The Associated Press contributed to this story.

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