Governor's big spending plan: Can we afford it?

OLYMPIA — Shortly after the November election, when it was clear Democrats would hold overwhelming majorities in the Legislature, Gov. Christine Gregoire vowed to keep lawmakers on a "fiscally prudent" path and to impose discipline if needed.

Now, some people hope legislators can restrain the governor from embarking on a $4 billion spending spree.

Business leaders want lawmakers to scale back the governor's plans to spend billions on education, health care and pay raises for state workers over the next two years. They say her budget proposal is unsustainable and likely would lead to tax increases in a few years.

Republicans are eager to prey on those fears. They're already test-marketing anti-Gregoire campaign messages for the 2008 election: When it comes to spending, Gregoire makes former Democratic Govs. Mike Lowry and Gary Locke "look like pikers," said J. Vander Stoep, a close adviser to Republican Dino Rossi, who ran against Gregoire in the 2004 governor's race.

And Senate Republicans point out that under the governor's new budget, the state would spend nearly $6 million a day more than it did when she took office.

Yet, politically, this may be the ideal time for Gregoire and Democrats to push expensive new initiatives.

As the Legislature convenes Monday, the state is rolling in surplus tax revenue. There's so much extra cash — $1.9 billion, according to the latest projections — that Democrats can spend heavily on programs the public supports, and at the same time take good care of their political allies, including public-employee unions and human-services advocates.

And they probably can do it all without having to raise a single tax between now and the next election.

"The spending is always the popular part," said Blair Butterworth, a Democratic campaign consultant. "It's the taxes that get you in trouble."

Gregoire's $30 billion-plus budget proposal would drain about two-thirds of the state's projected surplus and increase spending in just about every corner of state government.

It would add nearly 3,800 state jobs and spend about $1 billion on pay raises for teachers and state workers. It also would increase spending by $343 million for public schools, by more than $200 million for higher education and by $110 million for health-care programs and put millions more into early learning, state parks and tourism.

While some House and Senate Democrats say they want to spend less and save more, others, including Senate Majority Leader Lisa Brown, D-Spokane, have already said they expect a budget about the size of Gregoire's.

History suggests they may spend more.

"The governor's budget is generally the lowest level of spending," said Sen. Craig Pridemore, D-Vancouver, vice chairman of the Senate Ways and Means Committee. "We've got a lot of legislators who will have spending priorities."

And then there are the interest groups that will clamor for even more money.

"They aren't going to say, 'OK, that's enough,' " said Rep. Hans Dunshee, D-Snohomish, vice chairman of the House Appropriations Committee. "The lobbyists would all be fired if they did that."

A budget roller coaster

On the campaign trail in 2004, when the state was still digging its way out of the post-9/11 recession, Gregoire painted herself as no-new-taxes fiscal conservative.

By the end of her first year in office, with the economy humming and state tax collections soaring, Gregoire still preached fiscal restraint.

"Our state budgeting has been a roller coaster," she told the Legislature a year ago. "We spend when we have a surplus, and we struggle to make painful cuts when the economy slumps. It is time to even out the ride. While the roller coaster is fun at the amusement park, it is no model for state budgeting."

But critics say they can already hear the click, click, click of the state budget climbing a hill for its next plunge.

If Gregoire's new budget is approved, state spending will have grown at least 30 percent during her four-year term. That's more than twice what it grew during the previous four years.

Under the governor's proposal, the state would spend about $525 million more than it would collect in taxes during the next two years.

And in the following biennium, the 2009-2011 budget cycle, state spending on existing programs would exceed tax collections by more than $1.2 billion, according to projections from Gregoire's budget office.

Even that gloomy scenario could prove optimistic, said Kriss Sjoblom, an economist with the business-backed Washington Research Council who also serves on Gregoire's council of economic advisers.

Sjoblom says Washington is likely at the peak of an economic cycle that's been helped along by a boom in construction. Revenue growth could slow considerably as construction cools off.

"This budget is unsustainable, and that's assuming average growth for the economy. At this point in the revenue cycle, assuming average growth is optimistic," Sjoblom said.

Gregoire brushed aside concerns about future deficits. The budget forecast, she said in a recent interview, is "a blunt instrument."

When she was sworn into office in January 2005, Gregoire noted, she inherited a $2.2 billion budget shortfall. And, at the time, her forecasters projected she'd have a $5 billion deficit this year.

"In fact we're at a $1.9 billion surplus," Gregoire said.

She also argues her budget would set aside several hundred million dollars in reserves. Her number crunchers, however, project the state would still be left with a hefty shortfall entering the 2009-2011 biennium — even after spending all the money she wants to set aside.

Gregoire said she's so confident about the future that she does not believe the state would have to increase taxes later to pay for the new programs she wants to start this session.

"Let me say I'm very lucky to be sitting on this surplus today," she said at a news conference last week. "I don't want to fritter it away. I want to invest in the future. I want to invest in our kids ...

"So for those who think we should spend less, I say great. Tell me where you want to cut. My door is open, let's talk about it. But don't take it out of education, that's the future of our state."

Big education increases

By far the biggest spending increases in Gregoire's budget are for education.

"The one thing about Chris Gregoire — she's a doer," said Ron Judd, the governor's chief political adviser. "She could have chosen to be much more cautious, but she didn't. Why? Because she believes education is the cornerstone of the prosperity of the state."

Others say the politics behind the spending are more complex.

Just two years ago, during the 2004 election, candidate Gregoire refused to support Initiative 884, a measure that would have increased the state sales tax to pay for many of the same things the governor is now proposing.

Butterworth, who helped run the I-884 campaign, said he knows Gregoire is a true believer in education spending. But he said those convictions were trumped by politics and her effort to keep up a fiscally conservative image.

Now that the state has so much extra cash, Butterworth figures Gregoire feels safe in pushing such enormous increases for education. And she probably feels emboldened by the Democratic Party's big gains nationwide in the November election.

"I don't see her paying any political price," Butterworth said. "Quite the opposite, I think people will be pleased."

Business leaders support some of the things Gregoire is pushing, especially her plans to hire hundreds of new math and science teachers, boost college enrollments and create a constitutionally protected "rainy day" savings account.

But "our top priority for this session is budget sustainability," said Steve Mullin, president of the Washington Roundtable, an association of corporate executives. "There are a lot of legislators who have served during economic downturns. We'll be counting on them to urge caution."

Republicans and other critics argue that, in order to continue all of the new programs and spending that Gregoire has proposed, the state would need to dramatically increase tax collections in the near future.

Even Gregoire and her supporters have said her education-spending proposal is just a "down payment."

The question, Sjoblom said, is whether the state can afford the continuing cost.

"If these represent down payments on Gregoire's priorities," he said, "the risk is that the economy is going to repossess them."

Ralph Thomas: 360-943-9882 or rthomas@seattletimes.com