State's budget woes worsen

OLYMPIA -- Lawmakers already grappling over looming slashes to state programs and threatened tax increases to fill a huge state budget shortfall learned yesterday that the state's fiscal prognosis may be even worse than expected.

Today's official forecast predicts that state tax revenues for the current two-year budget cycle will be nearly a quarter-billion dollars less than expected last fall, several key lawmakers said.

That's five times the revenue drop that Gov. Gary Locke predicted last week.

``It's very, very grave,'' said Rep. Jack Cairnes, R-Covington, a leader of the House Finance Committee.

The tax-collection drop would exacerbate the $1.25 billion budget shortfall that greeted lawmakers when they convened in January. Further, many lawmakers say they've been advised to brace for a prediction tomorrow of as much as a $100 million jump in the cost of state services such as health care for the poor, prisons and K-12 education when officials release that forecast.

It all adds up to a possible budget shortfall of $1.6 billion -- most of which must be absorbed in the $11 billion one-year operating budget that begins in July.

NOTE: This article has been updated since it was originally published in the newspaper.

Proposals range from tuition increases to dramatic cuts in programs for the vulnerable to allowing slot machines in mini-casinos, bars and restaurants.

And the news is likely to intensify legislative discussions about tax increases. Although some lawmakers have said incremental tax increases are needed to fill the budget hole, few have publicly supported the idea of raising general taxes, such as sales or business taxes.

But if revenues drop by another $247 million as expected, it's likely to spur talks about repealing tax exemptions and increasing so-called "sin" taxes on liquor and gambling, said Rep. Helen Sommers, D-Seattle, chief budget writer for the lower chamber.

"We're certainly going to have to talk (about those ideas,)" Sommers said. "I didn't think it was going to be that high."

If the revenue forecast council projects the drop that lawmakers expect, it will only be the latest in a series of blows to state revenues.

Overall, it would mean that revenue projections have dropped by nearly $1.2 billion since September, largely because of the recession and the terrorist attacks Sept. 11.

The state's chief economist, Chang Mook Sohn, declined to confirm the figures yesterday.

Last year, lawmakers and the governor approved a $23 billion, 2001-2003 state budget. A drop of nearly $250 million in revenue today would leave them with less than $21 billion in tax revenue to cover that, lawmakers said.

To protect social programs, some Democrats have already pushed for eliminating tax exemptions. Few, if any, Republican lawmakers would vote for that, leaving Democrats in a precarious position in an election year. They hold a 25-24 majority in the Senate and a 50-48 majority in the House.

Republicans yesterday continued their calls that the Democratic governor trim spending in his state agencies, including cuts in state employment and reductions in state worker travel.

And the GOP is poised to pounce on Democrats if they go along with Locke's proposal help balance the budget with $350 million in iffy federal funds.

In last year's budget, the Legislature and Locke assumed the Feds would back-pay Washington $150 million for previous health care services that state officials said they had underestimated. In his proposal this year, Locke added about $200 million.

But the Feds are fighting that request. In a meeting with lawmakers and budget officials Friday, a lawyer for the state said Washington may want to consider offering a compromise.

"It's around $300 (million)-plus that is at very great risk," said Rep. Barry Sehlin, R-Oak Harbor. "It comes as no great surprise at all. This money was risky from the start."

P-I reporter Angela Galloway can be reached at 360-943-3990 or angelagalloway@seattlepi.com

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