Dueling legislative leaders located a narrow strip of common ground Wednesday as they contemplated a 60-day session that will require far more than budget tinkering.
Lawmakers need to plug an immediate $2.6 billion budget deficit, but Republicans and Democrats alike agreed that without major structural changes in the way the state does business, they’ll confront another multibillion-dollar deficit in the 2011-13 biennium.
As if to underscore the gravity of the situation, a Dec. 10 letter from state Treasurer James McIntire to caucus leaders surfaced, warning that “without added revenue and/or severe programs cuts such as those the Governor has proposed, Washington may soon be at material risk of running short of the cash needed to pay its bills.”
With no improvement in the state’s overall cash position, McIntire said, the state treasury could be completely depleted as soon as September 2010.
Gov. Chris Gregoire acknowledged the problem at the annual legislative preview sponsored by The Associated Press in Olympia.
“If we don’t take the steps to reduce the shortfall, we could temporarily face a short-term cash flow problem,” she said. “My budget avoids that.”
However, the governor has not yet released her own budget proposal, and said she won’t have a revenue package in place to help close the $2.6 billion gap before the Legislature convenes Monday.
Democratic leaders made it clear that new taxes will be part of their strategy. They said they’ll suspend a 2007 voter-approved initiative that requires a two-thirds vote in both chambers to raise taxes. They can do that with a simple majority vote for the first time in 2010.
But Senate Majority Leader Lisa Brown, D-Spokane, said she doesn’t foresee an across-the-board sales tax hike emerging from the Senate.
“Our state tax system is very unequal,” with its heavy dependence on a state sales tax that disproportionately affects lower-income residents, Brown said. Senate Democrats won’t vote for a sales tax increase, she said, unless it’s accompanied by a “working families” sales tax rebate, essentially a tax break for low-income families.
House Majority Leader Lynn Kessler, D-Hoquiam, said Democrats will consider closing some tax loopholes and will take quick action to cut some spending so the state can realize early savings.
“Everything is on the table,” she said. “We cannot do an all-cuts budget … after $4 billion in cuts last year. But we aren’t leading with taxes. We need to make cuts first.”
She noted that state government, unlike businesses, can’t always cut overhead to deal with declining revenue. “When times are tough, more people come to us,” she said. About $750 million of the state’s $2.6 billion shortfall is due to increases in unemployment and public assistance caseloads, she said.
Republican leaders said they can’t support tax increases and instead will push for a basic restructuring of state government services. But they conceded it won’t be easy to find enough savings.
“I’ve asked all my members not to introduce any bill with a fiscal impact,” said Senate Republican Leader Mike Hewitt, R-Walla Walla. “I think we all know we are in a pickle. It’s a gut-wrenching time for all of us.”
Rep. Kelli Linville, D-Bellingham, chairman of the House Ways and Means Committee, won plaudits from Republicans when she said she’d be open to considering contracting out state liquor sales, printing and technology services.
Private companies can perform those functions, “but they can’t teach our children,” she said.
“I applaud Rep. Linville,” said Sen. Joe Zarelli of Ridgefield, the lead Republican on the budget-writing Senate Ways and Means Committee. “This isn’t a temporary problem. Our economy is rebasing. We have to get our spending in line with where revenue is going to be.”
Gregoire released an all-cuts budget last month to comply with state law, but she said at the time she could not support the deep cuts it would require. That budget would eliminate the Basic Health Plan, which covers 65,000 of the working poor; defund early learning programs, one of her top priorities; and slash state need grants for 12,000 college students.
She said Wednesday she expects some federal money, possibly as much as $1 billion, to help the state cover its Medicaid costs. She’s also hoping health reform legislation working its way through Congress will rescue the Basic Health Plan.
“If there are no federal dollars, then revenue is on the table,” she said. “We are the safety net of last resort.”
Republicans objected that relying on federal money, as the Legislature did last year when it used $3 billion in one-time federal stimulus funds to help plug a $9 billion deficit, merely delays the day of reckoning.
The 2009 legislature balanced the biennial budget “with Band-Aids, with gimmicks, with actions we knew were not sustainable,” said Rep. Gary Alexander, R-Olympia.
Gregoire will deliver her State of the State speech Tuesday. Immediately after, she plans to unveil her own supplemental budget proposal, which will include a jobs package to help small businesses and the state’s hardest-hit communities.
Her budget will contain a plan to restore about $700 million in cuts to early learning, college financial aid and other programs, she said, but it won’t include a revenue package to buy back those programs, because she’s not ready to propose new taxes until she learns how much federal money Washington can expect to receive.
Republicans reminded majority Democrats of their warnings that the state was on an unsustainable spending path.
“It’s been years we’ve had one-party control, and the problem is owned by that party,” said House Republican leader Richard DeBolt, R-Chehalis.
His own district is suffering, DeBolt said, and Republicans want to be part of the solution. “People in Washington want to work. We have to do what we can to bring manufacturing back. We have to change the way we do business. This session it’s going to take some of our ideas.”
Zarelli said past suggestions from his party for dealing with the budget crisis have been ignored.
“I feel like we have been captive on the USS Titanic,” he said. “We were on a course going toward an iceberg. That doesn’t mean we don’t feel a responsibility to present options. The governor would like to buy back $700 million in cuts. I think it’s our responsibility to help her do that.”