Gregoire disowns budget plan; favors raising taxes

OLYMPIA — Here's the question for the day, and probably the next few months: Which taxes will state Democratic lawmakers propose increasing, and by how much?

The governor released a budget Wednesday that closes a projected $2.6 billion budget shortfall without raising taxes, as required by state law. But she abandoned key elements of the proposal before it was even printed.

Instead, Gov. Chris Gregoire released a budget advocating a tax increase to avoid eviscerating programs such as state-subsidized health insurance for thousands of low-income workers, aid to people who can't work because of disabilities, and financial aid for low-income college students.

"Let me be very clear. I do not support this budget. As required by law, it is balanced. For me, it is unjust," Gregoire said.

She plans to introduce another budget in early January that would restore what she called several of the most critical programs.

"The only way to do that is to find new revenue," Gregoire said.

Gregoire would not talk about what taxes she might propose, although she said she didn't like the idea of a property-tax or business-and-occupation-tax increase. She also expressed concerns about raising the 6.5 percent state sales tax, but she said, "I'm not going to take it off the table."

She repeatedly mentioned suspending or eliminating tax breaks and loopholes, without being specific.

The state Department of Revenue issued a statement saying the governor "asked the Department of Revenue to look hard at areas of potential abuse where businesses are able to restructure transactions to avoid paying tax."

An example, according to the department, are companies that have been "exploiting several loopholes in the law" to avoid paying real-estate excise taxes.

The governor said she wants to raise enough money to buy back about $700 million in state services that would otherwise be cut. She hopes some of that might come in the form of federal aid. If not, it could come from higher taxes.

That amount of money would allow Gregoire to restore core state services, such as the Basic Health Plan that provides state-subsidized health care for low-income families. But even after shifting funds and dipping into reserves, about $1 billion in cuts still would be necessary in the two-year budget, which runs through June 2011.

It's not clear if Democratic lawmakers, who control the state House and Senate, will go along with that level of cuts.

Senate Majority Leader Lisa Brown, D-Spokane, said it's too early to decide the size of a tax increase or budget cut.

And Democrats will likely be under a lot of pressure from interest groups to raise more taxes to avoid cuts.

"We need to look at the magnitude of the cuts and all the options on the table for revenue. I suspect that after we look at it, we're going to find more than $700 million in cuts we want to prevent," said Adam Glickman, a spokesman with the Service Employees International Union, which represents health-care workers.

Republicans said they don't like the budget Gregoire proposed Wednesday — or her plans to increase taxes.

GOP leaders in the Senate said the governor missed an opportunity to tackle serious government reform that could deliver state services at a cheaper cost.

"She did a slash and burn so that they can come back and ask for some revenue. They have to make people seriously feel the pain," said Senate Republican Leader Mike Hewitt, R-Walla Walla.

He did not offer an alternative plan, saying Republicans don't have a staff of analysts to prepare their own budget.

Gregoire said Wednesday that she wasn't playing games with the numbers.

"You come show me a budget that cuts $2.6 billion," she said. "I'm trying to tell people the truth. This is not about scare tactics. I don't believe in it."

Most of the state budget is off-limits to cuts because it's protected either by the state constitution (such as funding for basic education) or by other requirements (such as the state's share of Medicaid, the federal-state insurance program for the poor.)

All told, the budget would reduce spending by about $1.7 billion. The rest of the $2.6 billion shortfall would be filled by shifting money from various funds and tapping reserves.

The cuts outlined in the Gregoire's budget on Wednesday are certain to make some lawmakers flinch.

It would eviscerate programs that have broad political support and are tough to cut, much less kill.

The budget would eliminate the Basic Health Plan, an insurance program for the working poor, saving about $161 million over the next fiscal year. About 65,000 people are enrolled.

Also zeroed out would be the General Assistance-Unemployable (GAU) program, which provides a temporary safety net for more than 20,000 people unable to work because of mental or physical disabilities. That would save $207 million.

It would suspend funding for school-levy equalization, which aids "property-poor" school districts, saving $143 million, and suspend state-subsidized all-day kindergarten, saving another $33.6 million. All-day kindergarten has been offered at a few school districts, with an intent of expanding the program.

The budget also would cut $146 million in financial aid for college students and lower the qualifying income threshold from 70 percent of median family income to 50 percent. That means the money would go only to low-income families, and the grants would be smaller.

Gregoire said she wants to restore all of those cuts in her second budget.

The governor said she's also taking administrative action to close all or part of several state institutions.

She wants to close the Frances Haddon Morgan Center in Bremerton and begin downsizing Rainier School in Buckley — both state facilities for the developmentally disabled.

She also called for closing the Ahtanum View, Larch and Pine Lodge corrections centers, and shutting down a wing at the Washington State Penitentiary in Walla Walla. The McNeil Island Corrections Center would be downsized from a maximum-security to a minimum-security facility.

Those moves and consolidation of inmate beds elsewhere are expected to save about $70 million over the next three years.

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