$1.2 billion shortfall looms for Washington

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 Thursday.

Raha called the forecast grim. State leaders suggested the looming gap between scheduled expenses and expected revenue is so large that the Legislature may need a special session next month to help balance the books through June, then start new rounds of cuts in January for the budget that covers the next two years.

“The Legislature will need to act quickly. Delay will only deepen the problem and limit the options,” Gov. Chris Gregoire said in a prepared statement after the forecast was released.

Gregoire ordered cuts of about 6.3 percent this fall for most state agencies and programs to help cover a $770 million projected drop in the September forecast. To cover the new drop in expected revenues, the state would need to chop an additional 4.6 percent out of the programs and agencies that can be cut, said Marty Brown, the director of the Office of Financial Management.

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. Lower revenue forecasts require cuts for the biennium that runs through next June, plus additional cuts for the budget the Legislature must write next year to cover July 2011 through June 2013.

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.

Across-the-board cuts of nearly 11 percent aren’t feasible, Gregoire said. But those are the primary options available to a governor when the Legislature is not in session. She asked legislative leaders to suggest other solutions by Nov. 29.

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 it’s up to the Legislature to decide 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.

“The Legislature will need to act quickly – delay will only deepen the problem and limit the options,” she said Thursday.

But state 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.

Sens. Brown and Ed Murray of Seattle, the newly named chairman of the Ways and Means Committee, said they were working on a list of proposals to close the gap in the budget through next June, as are Democrats in the House and Republicans in both chambers.

“When we reach an agreement on a way forward, we believe the Legislature should – and will – act immediately,” they said in a news release.

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, OFM Director 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.

Some of the drop in revenue is a result of this month’s passage of Initiative 1107, which repealed some taxes Democrats in the Legislature levied this spring on candy, soda, bottled water and some processed foods. That sliced about $55 million out of projected revenue built into the budget through June and about $218 million for the next two-year budget cycle.

But most of the drop in expected revenue compared to what economists had forecast in September is a result of economic factors tied to a slow, weak recovery. Employment is not improving as rapidly as expected, construction is down and 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.