New revenue shortfall prompts talk of state tax hikes

OLYMPIA — The state is facing a new budget shortfall — estimated at around $1.2 billion — and that's prompting more talk of tax increases to avoid deeper cuts in spending.

Both Democratic Gov. Chris Gregoire and Senate Majority Leader Lisa Brown, D-Spokane, this week said they're willing to talk about raising taxes during the next Legislative session, which starts in January.

Gregoire said she still has her doubts but told lawmakers to make their case.

"I've told them, 'Come on in and convince me that's the right thing to do and that people will support it,' " she said recently. "At some point the people, I assume, don't want us to take any more cuts."

Brown on Friday said she agreed with Gregoire.

However, House Majority Leader Lynn Kessler, D-Hoquiam, said she doesn't see a tax increase happening. "I know in the House, we're not talking about any of that," she said.

Tax increases are a tough sell in the Legislature anytime and even more so during an election year. Half the state Senate and the entire House will be up for election in 2010.

The shortfall in question is in the current two-year budget, approved by the Legislature earlier this year.

Budget writers say the problem is largely the result of increased numbers of people seeking state services, such as Medicaid, smaller than expected tax collections and other factors.

The $1.2 billion gap is on top of the roughly $9 billion budget hole the state Legislature filled earlier this year through a combination of one-time fixes, cuts in spending and federal stimulus money.

Brown and Gregoire won't discuss specifics on taxes. However Brown said she doesn't plan to push for an income tax next session. She sees that as more of a long-term fix.

Earlier this year Brown supported an income tax that targets people making more than $250,000. At the time she said the tax could be between 1 and 3 percent of income over $250,000 for individuals, which could raise between $500 million and $1.5 billion per biennium.

Senate Democrats last session contemplated sending an income-tax proposal to voters but ultimately decided not to push the idea.

There also was talk in the Legislature of asking voters to increase the state sales tax, but that proposal also died.

Brown, in her blog, wrote: "Gov. Gregoire made news this week when she did not rule out taxes as a partial budget fix in 2010. And the Governor is right: we already cut too much from critical health services, education and public health to balance the budget last session.

"Making more cuts risks real and lasting damage to our families and communities. The Governor also pointed out that, this year, there will be no federal stimulus help. While that puts a revenue increase squarely on the table for the Legislature and Governor to consider, any revenue package needs public understanding of the problem — and public support of the solution — in order to succeed."

Brown reiterated the need for public support in an interview in her office on Friday. "I don't see that anybody is going to look at any alternatives to cuts if we're not looking at how does the public feel about it. That either means through ... referendum or some kind of assessment of public opinion," she said.

Republicans say the new budget hole can be handled without a tax increase. "The bottom line is, we still haven't done what we need to do," said state Sen. Joe Zarelli, R-Ridgefield, Clark County.

"We still have not gone within state government and looked at reforms and efficiencies and different ways to continue to deliver services, but do them in a more cost-efficient manner," said Zarelli, the ranking Republican on the Senate Ways and Means committee.

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