OLYMPIA — Gov. Chris Gregoire on Monday raised the specter of a special legislative session when she ordered state agency chiefs to prepare to slash another $1.7 billion in spending.

In a letter to state employees, Gregoire cited continued instability in the economy as the reason for telling

department heads to draw up plans to cut up to 10 percent from their budgets.

“The uncertainty our state could experience as a result of downgraded credit ratings, federal debt concerns, European markets and the lingering effects of the tsunami in Japan, are causing us to be extra cautious,” she wrote. “In other words, should more bad news happen, we must be prepared.”

Though tax collections in May and June are only a bit below expectations, there’s worry they could tumble in the near future because of the recent occurrences.

More will be known Sept. 16 when chief economist Arun Raha takes measure of the events in his next forecast of anticipated revenue.

“We’re fairly confident that the economy is so uncertain that the (September) forecast is not going up,” said Marty Brown, the governor’s budget director. “We’ve got to get ready.”

Raha declined Monday to discuss the forecast. He said the combination of the federal lawmakers’ fight on the debt ceiling, downgrading of the U.S. credit rating and stock market tumble are not good signs for the immediate future.

“This will affect consumer confidence. This will affect consumer spending, and ultimately this will affect state revenues negatively,” he said.

Brown sent a memo to agency leaders Monday directing them to come up with ways for cutting their respective budgets by 5 percent and 10 percent. Those equate to a total of $838 million and $1.67 billion, according to figures released by Brown’s office.

Broken down by agencies, a 10 percent cut would mean, for example, slicing $163.5 million from the Department of Corrections, $573 million from the Department of Social and Health Services and $445 million from the Washington State Health Care Authority.

Brown’s memo also indicates there may be not enough money to pay for all projects approved in the current capital budget.

State Sen. Val Stevens, R-Arlington, said such concerns fueled her opposition to the construction budget.

“That’s exactly why I voted ‘no’ on the capital budget, which borrowed another $1.2 billion and added another $182 million to the cost of our overall debt service,” she said in a statement.

“The Legislature acted irresponsibly in borrowing money for capital projects when the economy — and state revenue — was still declining,” she said. “I hope my colleagues will heed the governor’s advice to trim the budget and forego capital projects until we see a solid recovery and a return to healthy revenues.”

Gregoire will use what she receives from departments to help her craft a supplemental budget proposal for lawmakers to consider in their 2012 regular session.

Her request comes just weeks after she signed a two-year $32.2 billion budget which erased a projected $5.1 billion shortfall with $4.6 billion in cuts and transfers from other accounts. It went into effect July 1.

Lawmakers needed an extra 30-day special session to pass that budget. They might need another extra session to act to keep it balanced.

Brown said with no cash-flow problem for the state right now, any discussion of a special session wouldn’t arise until the September forecast is known.

“Let’s hope we’re planning for the worst right now, meaning we’re hoping it doesn’t get any worse,” he said.

Jerry Cornfield: 360-352-8623; jcornfield@heraldnet.com.