State budget likely to go from bad to much worse

OLYMPIA — When lawmakers wrote the last state budget, in early 2009, they were hoping the economy would be well on its way to recovery by now.

No such luck.

Tax collections have repeatedly come in below projections, prompting the governor to warn of at least $500 million in across-the-board cuts this year. And a $3.3 billion budget shortfall projected for the next two fiscal years is expected to swell — perhaps dramatically — for the same reasons.

Now, initiatives on the November ballot could shave several hundred million more from state coffers, and complicate the budget in other ways.

What does all this mean?

Two years into the worst economic downturn in generations, the state's budget problems are getting worse. A key indicator of just how bad things may get will come this Thursday, when the state issues a new forecast for tax collections. Budget writers are bracing for a big drop.

"I'm asking, should agencies be gone?" Gov. Chris Gregoire said last week. "For me, we can't do everything anymore. I'm going to have to say to the business community, to nonprofits, to communities, 'If this thing is as important as you are telling me it is, then you have to provide it. We can't any longer.' "

We've heard this kind of talk before. For the past two years, lawmakers have debated getting rid of programs and sharply reducing state spending.

Many cuts were made, resulting in reduced funding for public schools, big jumps in college tuition and fewer services for the poor.

But the blow has been softened by using billions of dollars in federal aid, tapping hefty state reserves and raiding accounts — such as money used to maintain and construct public buildings — to pay the bills. Plus the Legislature approved tax increases worth more than $1 billion over the next two years.

That's all changed.

No more bailouts are expected from Congress. The state's reserves are nearly exhausted, and most accounts have been raided.

One initiative, I-1098, would create a state income tax targeting high-wage earners that could bring in $1.5 billion for the next two-year budget and billions more after that. But budget writers aren't counting on the money even if the measure passes in November because it's expected to land in court.

Lawmakers say they see little appetite in the Legislature for another round of tax increases. And even if they did, Tim Eyman's Initiative 1053 — which is leading in the polls — would require a two-thirds vote of the Legislature, or voter approval, to boost taxes.

Other measures on the ballot would reduce state tax collections and increase the budget shortfall.

Initiative 1107 would repeal new state taxes on candy, soft drinks, bottled water and certain processed foods; those taxes are worth $217 million over the next two fiscal years.

The state projects Initiative 1105, which would privatize liquor sales, could cut state revenue by as much as $181 million over the next two fiscal years. Another liquor-privatization measure, I-1100, could reduce collections by as much as $31 million. It's not clear what would happen if both measures were to pass.

Initiatives aside, it's clear the state has few options when it comes to balancing the budget.

"All the low-hanging fruit has been eaten," said Sen. Joe Zarelli, R-Ridgefield, the ranking Republican on the Senate Ways and Means Committee. "We're on our own."

The governor held public hearings across the state to get ideas, and a better feel for what people want. According to her office, there's been no strong consensus on which programs to fund, but most people stressed the need for social services, natural resources and education.

Gregoire said she's taking note of the things people aren't asking for.

"Should we get out of the business of those things that we never heard a word in four public meetings or on a website with thousands of hits?" she asked. "Should we be funding it?"

When asked for an example, Gregoire said, "As hard-hitting as this may sound to people I very much respect, we heard nothing about the arts. If you put that into print I bet I'll hear something."

State Sen. Ed Murray, D-Seattle, chairman of the Senate Democratic Caucus, isn't sold on the idea of cuts to the arts. "One of the things we know is the arts is a major jobs generator," he said. "There are 8,000 related art jobs in my legislative district alone. We have to be careful, if we're going to cut programs, that we don't create the anti-stimulus budget."

The state spends about $6 million every two years on the arts. While that might not sound like much money compared with the overall state budget, "We can't afford anything right now," Gregoire said. "Every time I get a call, I get 'Well, it will only cost X.' It's every call. I get this from legislators. I tell every single one of them ... I don't have X."

The governor's budget office also is telling union negotiators that state workers will have to pick up increased costs for health care in the next two-year budget — the equivalent of workers paying 26 percent of their health-care premiums. Currently they pay 12 percent and the state pays 88 percent.

Such a move would save the state $268 million over the next two years, and more than double the average premium for state workers, from $112 per month to $243.

Other possible cuts include eliminating the state's basic health program, an insurance program for the working poor, and the Disability Lifeline program, formerly known as General Assistance-Unemployable (GAU), which provides a temporary safety net for people unable to work because of mental or physical disabilities. The programs are expected to cost more than $490 million combined over the next two years. They've been targeted before and survived.

This time: "Both are on the table. Highly questionable," Gregoire said.

The governor also said she's eyeing different ways of paying for higher education, noting that private colleges in the state have a "high tuition and high aid" model.

"They find ways to give scholarships. Do we let them (state universities) have a high tuition as long as they have a high aid model so some of that tuition would just churn back into high aid to make sure everybody had access?" she said.

And Gregoire, who has previously cast doubt on the benefits of doing things such as privatizing liquor stores, says the state needs to seriously look at privatizing state programs. "I'm saying let's look at it," she said. "One of the questions I ask our folks is can someone else do it. And I didn't necessarily say better. I want all the ideas on the table."

Rep. Kelli Linville, D-Bellingham, chairwoman of the House Ways and Means Committee, agreed with much of what the governor talked about, including privatization.

Linville, for example, said she wants to look at privatizing the issuing of licenses, such as drivers' licenses. "We should look at which ones we would actually have to deliver and which ones we could contract out," she said. "We don't have to have state employees doing every license."

Republicans also say they like a lot of what they hear Gregoire saying lately, given that they've been saying the same things for years.

"She's a Republican a little too late," quipped Senate Republican Leader Mike Hewitt.

Andrew Garber: 360-236-8266