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Originally published March 12, 2011 at 10:02 PM | Page modified March 12, 2011 at 10:39 PM

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Washington state budget shortfall could be even deeper

State lawmakers will learn Thursday whether the state's multibillion dollar budget shortfall is actually worse than previously projected. House Ways and Means Chairman Ross Hunter, D-Medina, thinks there could be a drop of between $500 million and $1.5 billion — on top of the existing shortfall of nearly $5 billion for the next two-year budget.

Seattle Times Olympia bureau

OLYMPIA — Lawmakers are in a relative lull after spending weeks handling legislation to help close a budget shortfall for this fiscal year and retool workers' compensation and unemployment insurance.

But a monster in the shadows soon could run amok.

Lawmakers will learn Thursday whether the state's multibillion-dollar budget shortfall is worse than previously projected.

House Ways and Means Chairman Ross Hunter, D-Medina, thinks there could be a drop in anticipated tax revenues of between $500 million and $1.5 billion — on top of the existing shortfall approaching $5 billion for the next two-year budget.

Budget writers often play a guessing game shortly before the revenue forecast comes out. But the Middle East unrest and rising gas prices, which factor into state projections along with a host of other variables, have them even more nervous.

No one will know for sure if there's bad news until the state's chief economist, Arun Raha, releases his estimate. Raha doesn't talk about his forecasts until they're out.

In the meantime, rumors are circulating about unconventional ways to help close the budget gap if it gets worse, such as borrowing money to pay short-term expenses or, less likely, banking an extra month of tax collections from the future, kind of like payday lending.

Lawmakers have a huge problem on their hands, regardless of the forecast. They'll have a multibillion-dollar shortfall even after tapping reserves and suspending two initiatives that mandate annual raises for teachers and extra spending to reduce K-12 class sizes. Those measures were suspended during the last budget, and doing so again would save about $1 billion.

There's no expectation of a quick agreement on a two-year spending plan through fiscal year 2013. State fiscal years run from July 1 through the end of June.

Democrats, in addition to controlling the governor's office, hold a 27 to 22 majority in the Senate and a 56 to 42 lead in the House. The Senate is trying to forge a bipartisan budget. The House, so far, appears dug in behind party lines, though both sides say they're trying to work together.

There's no clear path to a budget that will get a majority of votes in both chambers.

"I see huge potential for a meltdown," Hunter said of the negotiations ahead. "We'll have a meltdown in the House. We'll have a meltdown in the Senate... . You can imagine all sorts of end games on this. I don't know how it will work."

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And although the Legislature is scheduled to wrap up by April 24, there's growing doubt in some quarters that will happen.

"I think it's unlikely," said Senate Ways and Means Chairman Ed Murray, D-Seattle.

Some cuts made

The Legislature has taken some steps to reduce spending already. A series of budget-saving moves since December largely closed a projected $1.1 billion shortfall in the current fiscal year, which runs through June.

Lawmakers cut millions in funding to K-12 schools, colleges and universities, and social services. For now, they've been able to save scaled-back versions of programs such as the Basic Health Plan, which offers subsidized insurance to thousands of the working poor, and Disability Lifeline, which provides aid to unemployable disabled people.

But that doesn't mean either Basic Health or Disability Lifeline will continue after June.

"I worry that the (cuts so far) have given some people a false sense that, 'Well, the worst is over,' " Murray said. "The problem grows bigger."

That's particularly true if Thursday's forecast proves as bad as some people fear. Some lawmakers worry cuts being looked at to balance the budget already go too far in many cases.

The governor's proposed budget, which is based on a shortfall approaching $5 billion, would get rid of the arts commission and the state food-assistance program, reduce a host of other health and social-service programs, chop education programs and increase college and university tuition at double-digit rates to partially offset cuts.

So what happens if the shortfall gets much worse?

That's where you hear talk of reopening contracts with state workers to force more concessions.

State Sen. Joe Zarelli, R-Ridgefield, Clark County, the ranking Republican on the Senate Ways and Means Committee, introduced a bill last week that would reject union contracts negotiated by Gov. Chris Gregoire. Her proposal calls for a 3 percent cut in pay through unpaid time off over the next two years.

She also wants state workers to pay 15 percent of their health-care premiums, with the state picking up 85 percent. The state currently pays 88 percent of the costs, including for family coverage.

Senate Democratic leaders oppose rejecting the contracts.

Zarelli, who contends Gregoire's cuts don't go deep enough, said his proposal could pick up momentum after the forecast.

Ideas floated

Other ideas floating around include borrowing money to pay for short-term expenses, or even booking an extra month of tax collections for the biennium, an accounting move known as the 25th month.

The Legislature borrowed money when the state faced a much smaller budget shortfall in 2002. It's using part of a national settlement Washington is getting from tobacco companies to cover $450 million in debt. The bonds are projected to be paid off by 2024.

Gregoire has trashed the idea of borrowing again, as have Republicans.

Senate Majority Leader Lisa Brown, D-Spokane, says her caucus isn't looking at that option, but added she's learned to never rule anything out.

House Democrats aren't dismissing it, either.

Hunter said he personally does not want to borrow money, but added, "I have to get 50 votes to get out of town ... I can't tell you what's going to happen."

The 25th-month option refers to using 25 months of tax collections to pay for 24 months of spending.

In essence, it takes a month from the next budget cycle, leaving future legislators 23 months of tax collections to pay for 24 months of spending in fiscal years 2014 and 2015.

The Legislature did this in 1971 during Republican Gov. Dan Evans' administration. It took lawmakers 16 years to unravel the accounting trick.

Nobody likes the idea of doing it again. Republicans refuse outright, and Murray doesn't think Senate Democrats would approve.

House Majority Leader Pat Sullivan, D-Covington, said, "I don't think you can take anything off the table," but he added, "I can't imagine us getting to that point."

Other options include sending voters a ballot measure asking for a tax increase. But even if the Legislature did that, it still would have to pass an all-cuts budget and hope voters bail out some of the cuts.

One thing no one is seriously discussing is the Legislature increasing taxes. That's because Tim Eyman's Initiative 1053 requires a two-thirds vote in the House and Senate to increase taxes — a near impossibility.

Just getting a majority of lawmakers in the House and Senate to agree on a budget will be hard enough.

Zarelli said he's concerned the Senate will draft a bipartisan plan to revamp the state budget, only to be countered with a House Democratic proposal that tries to avoid deeper cuts with short-term patches such as borrowing money.

"If they (the House) write a budget that has all this phony money in it and you try to negotiate, how do you? It's like trying to negotiate dollars against pesos," he said. "It doesn't work that way."

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

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