State lawmakers to face surplus, urge to splurge

OLYMPIA -- The current $1.4 billion budget surplus appears to be a dream come true for state lawmakers who have gotten used to grappling with billion-dollar shortfalls in recent years.

But the battle to control this windfall from an improving economy could make passing a spending plan next session a mighty struggle just the same. Legislators facing re-election next fall have started pushing for pork-barrel subsidies and programs to please their constituents.

"I'm already getting this," said Senate Ways and Means Chairwoman Margarita Prentice, D-Renton. "I just tell everybody 'We'll take a really good look at it.' "

At the same time, Gov. Christine Gregoire wants to keep a tight grip on the purse strings.

Gregoire already has presided over a $400 million tax increase. With the looming possibility that the 2007 budget could bring with it a $1 billion shortfall, she said she would like to save as much of the current surplus as possible.

"We ought to be thinking about the future and not just spending and finding ourselves having to cut or confronted with raising taxes when I know I can avoid it," Gregoire said.

It also could be the first significant test of Gregoire's mettle, as she'll be forced to push back against the Democratic-controlled Legislature, which up to now has been allied with her.

"My bottom line to legislators is, I really do not want to add something only to find we have to cut it in a year. That's irresponsible," she said. "Our top priority has to be to the commitments that we already made."

If Gregoire succeeds, she'll secure a stronger position as she heads into a 2008 re-election campaign.

The budget Gregoire will unveil next week will call for spending down the surplus considerably just to pay for current obligations. Increased prison caseloads and school enrollments will sap $198 million, payments into the state pension plan will drain an additional $176 million, and $85 million more is needed to maintain a health-service account that provides health insurance for children.

She also plans to use $46 million to maintain welfare services and invest in alternative fuel development and summer school programs to help students prepare for the WASL exams.

But the interest groups that helped Democrats win control of the House, Senate and governor's mansion typically expect government services and programs. With their party in power and more than $1 billion of spending money on hand, it will be difficult to avoid the question: "If not now, when?"

"No question that there have been cuts for a long time and people now see this as a way to make up for the cuts," Gregoire said. "But as I've explained to (legislators), there's no scenario after we fund the mandates that doesn't result in us having a deficit going into the next biennial budget."

She said 73,000 more children will be covered by state health care by the end of this two-year budget cycle.

"Would I like to add more? Sure. I just don't believe now is the time," Gregoire said.

"Now's the time to nest away, in case the economy should go down, in case we should have some sort of disaster," she said. "Do what we need to do, being fiscally prudent and see where we are in a year."

House Appropriations Chairwoman Helen Sommers, D-Seattle, shares Gregoire's desire to remain cautious. She said one way to shield the surplus from the various interests vying to nibble away at it would be to earmark the money for state pension contributions.

She's already bracing for the deficit in 2007, in part because contributions to the state pension program will increase significantly in that budget cycle.

"What we could do is set up what I might call a Pension Stabilization Act," Sommers said. "You could put a lot of money into that. You take it out of the balance because you want to tie it up only for those increased pension costs -- maybe $300 million."

And although Democrats may see the surplus as a chance to spend, Republicans are thinking tax cuts.

House Minority Leader Richard DeBolt, R-Chehalis, said he supports Sommers' plan to support pension fund payments with the surplus.

But DeBolt said today's surplus is a strong indication that new taxes enacted last spring were unnecessary. He proposed repealing the state estate tax as well as day-use fees at state parks.

"We added these new taxes because we were told that we didn't have enough money to fund vital programs," DeBolt said. "Here's an opportunity to say, guess what, we have enough money to fund the vital programs, and you can go ahead and repeal the death tax."

Gregoire said the surplus is an easy target for anti-tax advocates but said that argument is superficial.

"If you look at it going into the next biennium just to carry forward where we are today and looking out at the kind of caseloads we would expect to have and so on, there's no money left," she said.

"You spend it now, and you find yourself in a greater problem one year from now," Gregoire said. "I'm not interested in us just assuming that the economy is going to continue to grow. We have got to be fiscally prudent."

Prentice, the Ways and Means Committee chairwoman, said there's already pressure from members to finance new programs with the surplus.

"My standard answer is: 'Yeah, we are so far behind, our safety net is in shreds, and there are some things we need to do.' "

She said she's made it clear to the various interest groups and legislators that she is averse to spending on new programs that would carry forward and grow.

But Prentice said legislators have been and likely will continue angling for appropriations for social services and economic-development projects.

"It's all valid," she said. "I won't say anybody's request isn't valid, but you have to weigh everything and ask, 'What are we going to get for it?' "

One request not likely to make the cut is the $150 million subsidy for a NASCAR track in the state.

"On a scale of one to 10, their chances of getting that are about a two," Prentice said.

She said even with the surplus, "we won't be nearly as generous as people expect. We've learned some lessons."

Prentice said that the Legislature will face a lot of pressure to spend down the surplus because it's an election year and because the budget deficits in recent years have forced them to say no.

Prentice said she will consider some spending in addition to what Gregoire proposes to restore the social safety net Prentice described as shredded.

"I want to be sure the people that can't defend themselves are taken care of," she said.

P-I reporter Chris McGann can be reached at 360-943-3990 or chrismcgann@seattlepi.com.

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