OLYMPIA — Another dose of bad economic news Thursday spurred Gov. Chris Gregoire to order her budget writers to find ways to immediately cut state spending by $200 million.
“The national economic slowdown is clearly affecting Washington’s economy,” Gregoire said in a prepared statement.
She directed the Office of Financial Management to trim spending “without affecting vital programs. These savings will put us in a position to weather the slowdown and protect critical investments.”
Gregoire acted in response to the latest economic forecast predicting the state will have $273 million less revenue in its current budget than analysts estimated three months ago.
Looking into the future, the forecast anticipates tax collections will continue to tumble raising concerns that a projected $2.7 billion shortfall in the next state budget could end up being larger.
A Republican lawmaker called Gregoire’s action overdue yet not enough.
“We’re going to have to go a lot deeper,” state Sen. Joseph Zarelli, R-Ridgefield, at the meeting of the state Economic and Revenue Forecast Council where the forecast was presented. “We’re dealing with a potential $3 billion problem.”
He along with Dino Rossi, who is challenging Gregoire in this November’s election, blamed the budget woes more on overspending by the Democratic Party-controlled state government than fallout from an ailing national economy.
“The cause is year after year of outspending the available revenue and failing to recognize that the positive revenue forecasts of the past year or two wouldn’t last indefinitely,” Zarelli said.
Washington’s budget income depends heavily on consumer spending and business receipts, both of which are in decline. Sales of homes and autos — two of the largest sources of tax dollars — are way down.
Consumers appear to be thoroughly spooked, spurred by declining home values, tighter credit, higher prices and general economic malaise across the nation, analysts said.
Steve Lerch, the state’s interim chief economist, said taxable sales receipts were down in the second quarter of this year compared with a year ago.
“We haven’t seen that since the last recession. That’s a big deal,” he told the state Economic and Revenue Forecast Council that received the report Thursday.
Rep. Hans Dunshee, D-Snohomish, who is one the lead House budget writers, said the crisis is real and spending cuts are coming.
“There will be serious whacks. There will be some pain. What those are will be decided through the process. None of them will be easy,” he said.
“We’re at the point of talking about how many people have to lose health care and whether to take money out of K-12,” he said. Pay hikes for state workers negotiated by the governor’s office may get a close look, he said.
Sen. Craig Pridemore, D-Vancouver, who serves on the Senate Ways and Means Committee, said everything will be up for discussion including his proposed tax credit for lower income families that has cost $165 million.
“It’s not the first program I would let go,” he said.
Victor Moore, director of the Office of Financial Management, sought to focus on the silver lining of the expanding dark cloud.
Moore, who serves on the Economic and Revenue Forecast Council, said the state’s economy is growing, albeit slowly, and is predicted to continue generating more revenue in the next two years than it will this year.
Though the latest forecast shows only $87 million in reserves for the general fund that pays for government’s day-to-day operations, there is $442 million in the voter-approved “rainy day” emergency fund.
“We are still in the positive,” Moore said. “Thirty states have gone in the negative.”
If necessary, Dunshee said he’d support tapping the emergency reserve.
“Voters clearly set up that mechanism for situations like this,” he said.
The ailing economy and mounting budget challenges are a focal point of discussion in this year’s governor’s race.
Gregoire maintains Washington’s economy is fundamentally sound and national crises in the mortgage and credit industries are causing financial pain for residents.
“We are now seeing the full effects of George Bush’s economic policies,” she said in a statement issued through her campaign Wednesday.
“Deregulation, lack of oversight and putting corporations before people have resulted in devastating losses to the retirement and savings of people across the country,” she said.
While Gregoire is responding to the drop in state revenue, she’s not publicly acknowledged the deficit projected by the nonpartisan staff of the Senate Ways and Means Committee.
Republican challenger Dino Rossi chided her again Thursday for the non-mention.
“This deficit is a bear that has been sitting on the front porch of state government for more than a year,” he said in a statement. “Every three months, the governor looks out the window and the bear is bigger but then she tells us not to worry, everything is fine.”
Like Zarelli, he contended the looming shortfall is the result of overspending by the governor and Democrats in the Legislature.
“It’s wrong to blame this deficit on the national economy,” he said.
Dunshee scoffed at Rossi’s interpretation.
“He’s wrong. We’re not separate from the nation,” Dunshee said. “He’s delusional.”
Herald wire services contributed to this report.
Reporter Jerry Cornfield: 360-352-8623 or jcornfield@heraldnet.com.
What the gubernatorial candidates say:
“The national economic slowdown is clearly affecting Washington’s economy. We anticipated this decrease and we are better prepared to weather this storm because of fiscally responsible initiatives such as the Rainy Day Fund and adjustments to spending over the past few months.”
— Gov. Chris Gregoire
“This deficit is a bear that has been sitting on the front porch of state government for more than a year. Every three months, the governor looks out the window and the bear is bigger but then she tells us not to worry, everything is fine. Meanwhile she keeps feeding it and making it bigger.”
— Dino Rossi
Talk to us
> Give us your news tips.
> Send us a letter to the editor.
> More Herald contact information.
