November 19, 2009 in City

Wash. budget gap zooms to $2.6B through mid-2011

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OLYMPIA — Tax increases probably can’t be avoided as the state tries to patch a budget deficit that’s ballooned to about $2.6 billion, top Democratic lawmakers said Thursday.

Leading options include closing tax loopholes and raising “sin” taxes, typically levied on indulgences like tobacco and alcohol. Broad-based tax hikes, such as the levies on sales and business revenue, are probably a last resort because of the fragile economic recovery, Democrats said.

Further spending cuts also are on the table, even though the Legislature already whacked billions from state programs earlier this year to help match recession-hammered revenue collections.

“There’s no way you get to $2.6 billion without looking at absolutely everything that’s left,” said Senate Ways and Means Committee Vice Chairman Rodney Tom, D-Medina.

Thursday’s comments by majority Democrats — the clearest signal yet that tax hikes are in Washington’s future — came after the state’s economic forecasters predicted further drop-offs in state tax collections.

Through mid-2011, when the current state budget expires, the treasury will collect about $760 million less than previously expected. One major factor is a lack of consumer confidence, which depresses spending in Washington’s sales-driven revenue structure, chief economist Arun Raha said.

“To me, it seems like the consumer’s mindset is stuck within a band of pessimism at recessionary levels,” he said.

Consumers are likely to come off the sidelines and resume spending only when they feel more secure about the employment picture, which continues to look dark as the nation climbs back from the long recession, Raha said.

Hiring typically lags behind an economic recovery, and Washington’s 9.3 percent unemployment rate is expected to peak at about 9.8 percent next spring.

Republican lawmakers said the fragile recovery and sour job market are precisely the reasons Democrats should avoid tax hikes when the Legislature reconvenes in January.

Instead, lawmakers should start work immediately on a package of reforms that fundamentally alter the way government services are delivered, seeking out every cent of savings before considering new revenue, said Rep. Ed Orcutt, R-Kalama.

“We cannot afford to raise taxes on working families or on businesses that are already struggling,” Orcutt said. “We have to be careful that we don’t worry so much about our budget problem that we forget about the problems of everyday people out there.”

Gov. Chris Gregoire, a Democrat, will get the first crack at balancing the state’s budget when she releases a supplemental spending plan next month.

By law, the governor must propose a budget that balances the books within existing revenues. But that probably won’t be the last word from Gregoire, who has said repeatedly that she’s considering tax increases to help bridge the gap.

“I think I said last time everything was on the table. I think I just need a bigger table,” said Victor Moore, Gregoire’s budget director.

Raising taxes would require suspension of Initiative 960, which voters approved in 2007. That measure requires any tax increases to get either a public vote, or a nearly impossible two-thirds approval from the Legislature.

The Legislature, however, may amend initiatives after two years, and majority Democrats have enough votes to do so.

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Two comments on this story so far. Add yours!

• 

  philipgregory on November 19 at 1:37 p.m.

  It's up, it's down.. it's all around…

  Is EVERYONE in Olympia just INCOMPETENT?

  Flag as inappropriate

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  Ron on November 19 at 5:26 p.m.

  Having to deal with tax collection shortfalls this great is a huge tragedy. A terrible sidelight to the worst economic meltdown since the great depression. The problem is compounded by Washington state's sales tax revenue model for sure. This problem wouldn't be nearly as bad in an income tax model or a mixed tax model. The residents here seem very against switching or changing our tax collection method. The state doesn't print or borrow money so state services get, and have been cut, cut, and cut some more. Without the stimulus package there would be plenty more suffering. Something has to change a little. These drastically cut state services are some of the most important aspects of society. Sad, but true, we have to pay for this stuff. Public safety (law enforcement, prisons, parts of mental hospitals, child protection, courts, etc), education (universities, public schools, etc), transportation (state highway construction and maintenance, ferries), social services (child protection, mental health hospitals and treatment, addiction, etc), public health (state public health laboratory, services, etc) and a whole lot more. Everything has been cut. A few cents more here and there isn't the best thing to have to deal with right now, but further cuts in most of this stuff is worse.

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