$8 billion shortfall forecast for Washington state budget

OLYMPIA — It used to be lawmakers could reassure themselves a little about the state's budget woes by noting California was in much worse shape.

No longer. A preliminary state revenue forecast Thursday pushed Washington's state budget shortfall to $8 billion. As a proportion of the state's general fund, that's nearly as bad as the mess in California.

"What has happened in the Pacific Northwest is the economy just fell off a cliff in literally the last few months," said Donald Boyd, with the Rockefeller Institute of Government at the State University of New York.

Washington ranks among the top 10 states in the country in terms of the size of its budget shortfall, said Boyd, a senior fellow at the institute who closely monitors state budgets.

Washington state forecasters had previously projected a nearly $6 billion shortfall. Thursday's preliminary forecast shows an additional $721 million gap in the current two-year budget and $1.6 billion more in the next biennium that starts in July. That pushed the overall shortfall to $8 billion.

"Everything we feared could go wrong, did," Arun Raha, the state's chief revenue forecaster, said Thursday. "We are witnessing an unprecedented economic crisis, the likes of which arguably we have not seen since the Great Depression."

The Legislature recently took the first step at filling the crater by approving a series of early cuts expected to save about $580 million in the current two-year budget.

The state expects to get billions of dollars in aid from the federal stimulus package passed by Congress, but the governor's budget office said the additional money will at best offset the latest round of bad news in the revenue forecast. Additional cuts may be needed beyond what's already been proposed by Gov. Chris Gregoire.

California lawmakers approved a large package of tax increases, budget cuts and borrowing Thursday to close a $42 billion gap in their budget. As a proportion of that state's overall budget, California's shortfall is not much larger than Washington's.

This state's shortfall is the difference between how much tax revenue the state expects to collect compared with the amount of money needed to maintain state services at current levels and cover rising expenses such as pay increases for state workers and higher caseloads.

The hole in the budget keeps growing because people are spending less, which means there's less tax revenue coming in.

More than 70 percent of the money the state collects comes from sales and business-and-occupation taxes.

Gregoire proposed a $33.5 billion two-year budget in December. At the time, the governor outlined more than $3 billion in cuts, including reducing health-care coverage for the poor and suspending pay increases for teachers and state workers.

Washington is particularly vulnerable in this recession because of its dependence on sales taxes, Boyd said, adding that consumer confidence has been devastated.

"It's all bad news for consumption, which is bad news for a state that relies heavily on the sales tax."

Democratic leaders in the state House said earlier this week they'll likely propose sending a tax package to the ballot this year to help deal with the budget shortfall. And Senate Majority Leader Lisa Brown, D-Spokane, said she expects to bring ballot proposals to her caucus to consider.

No details are available yet, but House Majority Leader Lynn Kessler, D-Hoquiam, said one idea would be to ask voters to increase taxes to pay for subsidized medical coverage to lower-income families.

Sen. Joe Zarelli, R-Ridgefield, the ranking Republican on the Senate Ways and Means Committee, said he wasn't surprised by the bad news and expects things will get worse.

Zarelli said he's concerned Democrats will use the growing budget shortfall as an excuse to propose tax increases.

"The real question is do we use that growing number to not go through the budget and make appropriate cuts?" he said.

Andrew Garber 360-236-8268 or agarber@seattletimes.com. Seattle Times reporter Jennifer Sullivan contributed to this story.