Nowhere left to hide, and Gregoire knows it

Gov. Chris Gregoire recently announced her latest effort to “transform” the state budget. A pragmatist, Gregoire recognizes that she has run out of options. Too long an optimist, she allowed the budget crisis to worsen, believing in a revenue rebound that never came.

But now, she comes across as more resolute than resigned, willing to lead the necessary restructuring of state government. Eventually, the inevitable must be confronted. The governor’s choice, then, becomes simple. Take control now or limp into 2011 without a sustainable plan, ceding control to a fractious Legislature.

Skeptics can be forgiven the obvious cavils. Leadership has emerged too late. The state has relied too much on fiscal gimmicks: underfunding pensions, raiding dedicated accounts, depleting reserves, gambling on federal aid. The governor touted an Evergreen exceptionalism that caused her to fail to anticipate the recession’s effect on state revenues.

Set that all aside for now. Let’s look at her plan.

It includes the now-familiar Priorities of Government (POG) approach to building a budget from the ground up, starting at zero and justifying all spending. POG got much of the credit when then-Gov. Gary Locke used it to develop his no-new-taxes budget in 2002. Locke and Gregoire continued the POG process, though as the economy came out of recession, fiscal discipline receded.

Gregoire is giving it a serious workout this year, asking eight specific questions to focus on fiscal responsibility, efficiency and performance. Critically, she begins by asking if the state needs to be funding the activity at all. What’s essential? Can it be done better for less money? By someone else?

These are the right questions for this moment — for any moment — questions routinely asked by competitive businesses.

Gregoire will be holding several public hearings over the summer to get citizen input. To assist her, she has named a Committee on Transforming Washington’s Budget that includes a group of some 30 people, including business, environmental and labor leaders, legislators, policy analysts and academics. (Disclosure: I’m among them.)

This group will not reach consensus on how to handle the budget shortfall. But there will be no shortage of opinions for the governor to draw on as she does her job. It’s called the governor’s budget for a reason. She owns it.

From Locke’s initial success with the priorities of government, insiders have given the process too much credit. It’s not the tool, but the operator using it that makes a difference. And it all begins with a commitment to budget within limits.

In 2010, the limits will bind. Here’s why.

Conditions for the budget adopted last spring continue to worsen.

The largest state employee union is suing to block mandatory 10-day furloughs of state workers, legislators’ modest attempt to control payroll costs. The $38 million savings may not look like much given the magnitude of the shortfall, but lawmakers gave themselves no cushion.

Congress’s likely failure to extend extraordinary Medicaid funding to state governments presents a bigger problem. That tears a $480 million hole in the current state budget, possibly triggering a special session.

Even if that hoped-for money appears, the state budget office projects a $3 billion shortfall for the 2011-2013 session, ballooning to more than $8 billion in 2013-15. The trend lines underscore the magnitude of the crisis. There’s no place left to hide.

But it’s the November election that is most likely to force the governor and Legislature to confront limits. Several belt-tightening measures are likely to qualify (the deadline is Friday).

Initiative 1107 would repeal the new taxes lawmakers imposed this year on pop, bottled water and candy. The taxes were expected to raise $300 million over three years. The tax hikes were designed to minimize voter resentment. If I-1107 passes, there’ll be no mistaking the message.

Any attempt to put together even an inoffensive tax increase next year would face a nearly insurmountable hurdle with passage of Initiative 1053, which would reimpose the two-thirds supermajority vote requirement for tax increases. Lawmakers swept away the restriction last year. I-1053 would keep it in place for the next two years, long enough to force restructuring.

Believe Gregoire when she says she’s ready to transform the budget. She has no alternative.

Richard S. Davis, president of the Washington Research Council, writes on public policy, economics and politics. His e-mail address is richardsdavis@gmail.com.