State shortfall likely to increase

Gov. Chris Gregoire and state budget writers are bracing for other bad blows this week when the latest state employment and revenue outlooks are issued.

The new jobs report is due today, and a new revenue forecast is due Wednesday. Both should clarify just how serious the state's economic problem is, and whether the expected $3.2 billion state budget shortfall will swell to $4 billion or more in the two-year budget period that begins July 1.

The figures could get worse yet by January — even as Gregoire moves ahead with economic stimulus efforts at the state and federal level.

"I don't know what the final number will be but we do expect that it will grow," Gregoire spokesman Pearse Edwards said of the shortfall Monday. "We are preparing for the budget, which we will release the week of Dec. 15, to reflect the forecast coming out in the middle of this week."

State Sen. Margarita Prentice, the top budget writer in the state Senate, said she "wouldn't be surprised" if the shortfall hits $4 billion after Wednesday's forecast. She said the situation is "extremely bad" and warned of "gruesome" budget choices ahead.

"The whole story seems to get worse every day," Prentice said, blaming the national economic fall. "I just think it's going to be more gruesome. I think all of us have to get realistic."

Gregoire has ruled out tax increases. She also has been looking for ways to get more money into circulation and to keep people employed — including extending jobless pay benefits.

Late last month, she ordered the early release of $300 million in federal dollars allocated to the state. The federal money includes $200 million for housing, including rental assistance, the refinancing of mortgages and projects, and $84 million for low-income heating assistance. She also wants the federal government to speed up $13 million for fishers hurt by coastal salmon declines.

Gregoire had planned to send an updated list of infrastructure projects — such as local road projects and water projects — to Congress this week in the hope that federal lawmakers could put ready-to-go projects on a fast track for funding. The idea was to get people into jobs doing needed work, which might stimulate other economic activity.

But Edwards said Monday it looks like Congress is more focused in the short-term on extending unemployment assistance to states rather than paying for road projects, which might have to wait until the new Congress is seated in January.

So state officials plan to refine their request list to make sure it includes quick-to-start jobs and send it in January. The preliminary list identified such local projects as a Mullen Road extension in Lacey, a Boulevard Road roundabout in Olympia, and water system upgrades.

U.S. Sen. Patty Murray has expressed strong support for funding infrastructure projects as one of the best ways to stimulate the economy. But her spokeswoman, Alex Glass, said Monday that Murray also wants to think about what is best for the country longer term.

"In addition to transportation investment, she feels strongly that to help stem the tide of rising unemployment, we must have a broad strategy that includes retraining and investment in emerging industries, such as clean energy, to augment job creation," Glass said in an e-mail. Glass added that although debate on a stimulus package could begin this week, passage might have to wait until January.

In the meantime, Gregoire is drawing up a state economic stimulus package for the Legislature to act on when it convenes a 105-day session Jan. 12. To that end, she is gearing up for a roundtable discussion with business leaders early in December to talk about ways the state can boost Washington's economy, Edwards said.

Meanwhile, Gregoire has asked the public for suggestions on cutting state spending and bridging the budget gap. Edwards said she'd received 350 responses from around the state as of Monday, but he had no details of specific suggestions.

In any case, Gregoire already has ruled out tax increases, part of a pledge she made in her re-election campaign. That means all taxes — including tariffs on tobacco and liquor, which her 2005 budget included.

By contrast, other Western states are looking at tax increases. Governors in Oregon, California and Nevada all have said tax increases are on the table to deal with their states' budget difficulties. In Oregon, a 2-cent gasoline tax is proposed to raise money for highway projects as an economic stimulus.

Gregoire also has been trying to whittle down Washington state's rate of spending. In June, she ordered a freeze on hiring, equipment purchases and travel, and she ordered additional cuts in September. Those moves were estimated to save more than $300 million in the short term and close to $900 million over the next 21/2 to 3 years.

Already, Gregoire's moves have shed some 1,185 jobs from the state payroll, many of them seasonal. And she is looking for more cuts, which are expected to require layoffs.

Gregoire also has suggested use of the state's new rainy-day fund to bridge the gap. Close to $700 million is expected to flow into the fund by June 2011.

Brad Shannon is political editor for The Olympian. He can be reached at 360-753-1688 or bshannon@theolympian.com.