State revenue down $1.2 billion

OLYMPIA — The state is still being buffeted by the “great recession” and will have about $1.2 billion less than previously expected through mid 2013, Arun Raha, the state’s chief economist said today. It’s a reduction so large the state may need a special legislative session before year’s end to balance the books through the end of next June, then return in January to more rounds of cuts. Voters repealed some taxes enacted this spring, which drops about $281 million out of the revenue the state had built into its budget through June 2013, Raha said. But most of the projected $1.2 billion drop in expected revenue compared to the September forecast is a result of economic factors that tied to a slow, weak recovery. Employment is not improving as rapidly as expected, construction and real estate excise taxes are slow, and the credit remains tight for small businesses looking to start or expand. The pattern of this recovery is different from any previous recession since the 1930s, which makes forecasting difficult. “We are essentially in uncharted territory,” Raha said in announcing the revenue projections lawmakers will use to begin setting a budget for the next two years. Washington state, which budgets on a two-year cycle, is required to have a budget that is balanced based on the most current economic forecast. So the lower revenue forecasts require cuts for the biennium that runs through next June, and more cuts for the budget the Legislature must write next year to cover July 2011 through June 2013. Coupled with the slow economy, the state’s budget through next June was down another $385 million from September, when the governor ordered 6.3 percent cuts from many state agencies as part of the solution to close the $770 million projected gap at that time. To cover the new dip in revenues, the state would need to chop an additional 4.6 percent out of the programs and agencies that can be cut, Marty Brown, the director of the Office of Financial Management, said. Some programs, particularly those involving basic education and federal mandates, can’t be cut. Gregoire said she’s pushed the across-the-board cut option to its limit and another round is not feasible. But state law limits her to across-the-board cuts, and only the Legislature can choose among the programs and services to keep, cut or eliminate. She’s asked legislative leaders to suggest other options by Nov. 29. “The Legislature will need to act quickly. Delay will only deepen the problem and limit the options,” she said in a prepared statement. The $385 million in cuts needed just to balance the books through June is huge, Brown said. By comparison, the entire year’s budget for the University of Washington is $271 million. Even before Raha completed his presentation, Republicans were calling for a special session to rearrange the budget. Sen. Joe Zarelli of Ridgefield, the ranking Republican on the Senate Ways and Means Committee and a member of the Economic Forecasting Council, said the governor should not wait for Nov. 29 and an agreement. “I think the governor just needs to call it,” Zarelli said. “It’s important to solve this problem now; the problem is getting deeper and deeper.” Bringing the full Legislature into session is the only way to put pressure on Democratic leaders like House Speaker Frank Chopp of Seattle and Senate Majority Leader Lisa Brown of Spokane to solve the problem, Zarelli said. Gregoire has said she would call a special session if she could get an agreement with the leaders of both parties in both chambers to draft and pass a budget fix in a day or two. But state law says if she calls a special session, it can last as long as 30 days and only the Legislature decides when it’s finished. The governor has repeatedly said she doesn’t want the Legislature sitting around for the full 30 days, “doing nothing” for most of them. Rep. Ross Hunter of Medina, another member of the forecasting council, agreed the Legislature needs to come up with the right solution “and do it.” But he was leery of calls to do it quickly, because budgets are complicated. “There’s a reason why it takes months to put the budget together,” Hunter said. However long it might take the Legislature to trim the current budget in a special session, the forecast means the state will also be looking at deep cuts again next year when it prepares its budget for 2011-13, Brown said. “The governor’s budget proposal will contain significant reforms, reductions and eliminations across all parts of the state budget in response to far less revenue,” he said.