The budget breakdown: How will state lawmakers slash the budget when much of it is untouchable?

The state budget is in more trouble than you may think for one simple reason.

Most of it can't be touched.

Roughly 60 percent of state spending — mainly money for K-12 education and Medicaid — is largely off-limits to cuts because of federal restrictions and other legal barriers.

That means a shortfall in tax collections approaching $5 billion over the next two years must be chopped from a relatively narrow slice of state spending that's unprotected.

The consequences are clear. Every tax dollar not safeguarded by law is vulnerable to cuts.

The governor's proposed budget, released before Christmas, would slash funding for programs the middle class would notice, such as state parks, museums, the arts and higher education. It also would hit the poor, dumping the Basic Health Plan, which offers subsidized insurance to thousands of the working poor, and Disability Lifeline, which provides cash and health care for unemployable disabled people.

Gov. Chris Gregoire said she's had a hard time getting lawmakers to fully comprehend the severity of the state's finances.

"When I say to them, 'Do you understand you are going to cut one-third of the budget?' ... they can't grasp that. Not yet," she said.

Her estimate that a third of the budget must go is a bit of an overstatement. The figure includes two initiatives that mandate annual raises for teachers, pegged to inflation, and extra spending to reduce class sizes. Both were suspended two years ago, and Gregoire has proposed doing so again. Those two items alone are worth more than $1 billion.

Still, billions of dollars must be cut by reducing or eliminating state programs, setting the stage for an ugly 105-day legislative session, with lawmakers at odds over what to cut and special-interest groups fighting to protect their turf.

"In a case like this, where it's literally about survival ... it's just going to be cutthroat to preserve their piece of the pie," said Paul Berendt, a Democratic consultant and former chairman of the state Democratic Party. Gregoire says the biggest challenge may be getting enough votes among lawmakers to make the necessary cuts. "There will be those who will never want to go on record as having voted to get rid of the Basic Health Plan or Disability Lifeline or cut something or another," she said.

Rep. Hans Dunshee, D-Snohomish, a longtime member of the House, agreed.

"You want to go to work and have some satisfaction that you made things better. There's going to be very little of that," he said. "You get to go to work and say 'I cut a whole bunch of people off of health care.' "

Growing demands

Washington isn't alone in facing an enormous budget shortfall.

A report by the National Conference of State Legislatures in November showed 35 states and Puerto Rico projected deficits in fiscal 2012 totaling $82 billion. In 21 of those states, the budget gap was at least 10 percent of their general fund budgets.

Barring an unexpected economic turnaround that brings in more tax dollars, Washington's shortfall would be roughly 13 percent of the overall budget.

This is the third year in a row the Legislature has faced a multibillion-dollar budget hole, brought on by a deep recession, lackluster economy, and a reluctance to bring state spending in line with slow-growing tax revenues. Many lawmakers were hoping for a more robust recovery.

The shortfall is the gap between projected tax collections and what the state needs to pay for everything required under state law, plus handle growing demand and cover employee pay raises and higher benefit costs.

Just treading water costs more money.

For example, more low-income people are tapping health-care programs such as Medicaid and using those services more than expected. Maintaining existing levels of care would cost an additional $378 million in the next two-year budget.

The same is true for education. K-12 enrollment is expected to jump by 21,000 students in the next budget cycle, including a bump of more than 3,000 special-education students, increasing costs by nearly $200 million.

Pay and benefits for state workers also drives up spending through cost-of-living pay increases and health-care inflation. However, in the current budget Gregoire has proposed a 3-percent pay cut for state workers through unpaid leave and wants them to pay a bigger share of their health-care premiums.

All told, Gregoire's budget office projects it would cost about $37 billion to pay for everything the state would normally do, including funding the two education-related initiatives. But tax collections are expected to total about $32.2 billion. That's the budget gap.

Protected programs

The biggest parts of the budget off-limits to cuts are debt service, K-12 "basic education" and federally mandated Medicaid programs. Combined, they account for roughly $21 billion of Gregoire's proposed $32.4 billion budget.

Debt service refers to the $1.9 billion the state is expected to spend over the next two years to make payments on bonds issued to construct buildings, highways, bridges and other public structures. The state is legally obligated to make those payments.

Basic education, projected to cost more than $13 billion in Gregoire's budget, is protected mainly because the state constitution says "it is the paramount duty of the state to make ample provisions for the education of all children residing within its borders."

Based on that language, the courts ordered lawmakers to define and fully fund basic education for Washington students, which led to a 1977 law that requires the state to pay for a minimum ratio of teachers to students and a minimum number of school days, among other things.

Medicaid isn't mandated by the state constitution, nor is it required by the federal government. But the state cannot change or reduce the program's core health-care benefits for the poor without jeopardizing matching federal money. Washington state spends almost $6 billion on Medicaid and gets an equal amount in federal dollars.

Some states have talked about opting out of Medicaid as a way to control their health-care costs, which have grown more rapidly than the rate of inflation.

State Sen. Joe Zarelli, the ranking Republican on the Senate Ways and Means Committee, said the Legislature should at least explore that idea. He said the state should consider not only "how much money do you lose, but how much money do you save because now you can implement a system that is affordable for those folks and affordable for the state."

Gregoire, however, won't go there. "You have a right to walk away. But if you do that, you will take all of that safety net to your developmentally disabled, to your senior citizens, your fragile adults, to your kids and cut it in half," she said. "I can't even remotely imagine that."

Vulnerable programs

The largest parts of the budget most vulnerable to cuts include the state's college and university system, K-12 programs not considered part of basic education, and health-care services for the poor that can be eliminated without opting out of Medicaid.

The governor has proposed deep cuts in those areas. She would reduce higher-education spending and implement double-digit increases in tuition, eliminate funding that reduces class sizes in kindergarten through fourth grade, dump certain health and social-service programs, and cut money for public-health services that respond to food-borne illnesses and epidemics. Every program slated for a cut has an advocate who will fight to protect it.

This session could prove far different from previous years when health-care, social-service and K-12 lobbyists worked together to save their programs and push state lawmakers to raise taxes.

Tax increases seem highly unlikely this year. A Tim Eyman initiative approved by voters in November requires a two-thirds vote in the Legislature or voter approval to increase taxes, a nearly unsurmountable obstacle.

In addition, Congress has made it clear it won't bail out state budgets this year. The federal government helped soften the blow of cuts in the last budget with more than $3 billion in aid to Washington state alone.

David Rolf, president of Service Employees International Union Healthcare 775NW, said his union hasn't given up on trying to send a tax increase to voters.

The Legislature doesn't need the governor's signature to put a tax measure on the ballot, but Gregoire has indicated she would not support such an effort.

"I heard the voters in November," she said. "They said: no new taxes."

A bipartisan budget?

It's not clear how Democrats and Republicans will work together this session.

Budget cuts were approved with bipartisan majorities during a one-day special legislative session before Christmas. Gregoire said she hoped that cooperation would continue when lawmakers tackle the next two-year budget.

Chris Vance, a former chairman of the state Republican Party, thinks that's unlikely. "The normal political thing to do would be tell the Democrats 'you are in the majority; go do it,' " he said. "I expect this session to be very much like previous sessions where Republicans just vote no."

Senate Minority Leader Mike Hewitt, R-Walla Walla, said GOP cooperation depends on what cuts Democrats are willing to make. "If they are going to rob Peter to pay Paul and play shell games with money, then I don't think you'll see a lot of collaboration," he said. "If they want to play games, we're going to fight."

Senate Ways and Means Chairman Ed Murray, D-Seattle, said it's an open question whether his caucus could pull together enough votes to pass a budget without Republican support. "The honest answer?" he said, "I don't know."

Andrew Garber: 360-236-8266 or agarber@seattletimes.com