Gregoire: State deficit could engulf federal aid

OLYMPIA — The federal stimulus package could deliver $2 billion to help Washington state solve its massive budget shortfall, but the boost could be washed away quickly by falling tax collections, Gov. Chris Gregoire said Thursday.

The state also could receive about $675 million for transportation projects, spurring construction and related jobs, along with richer unemployment and training benefits to help jobless Washingtonians, Gregoire and Democratic Sen. Patty Murray said in a joint briefing.

Overall, the stimulus could "save or create" 75,000 jobs over two years in Washington, with more than 90 percent of the work in the private sector, according to the White House.

State lawmakers are grappling with a deficit likely to top $6 billion through the 2011 fiscal year. Gregoire has proposed a no-new-taxes budget that would fill the gap with program cuts, transfers and federal aid.

As of Thursday, the expected federal stimulus could bring about $2 billion in Medicaid money to the state — more than twice what Gregoire predicted in her December budget plan. That could free up a large amount for other programs scheduled for cutbacks.

Congressional negotiators also plan to send states additional money to help patch cuts in education spending.

The aid will be welcome, Gregoire said, but it won't make a huge difference in the state's budget picture. Tax collections are expected to keep falling, and the drop-off easily could wipe out the roughly $2 billion in Medicaid help, for example.

"We need to be understanding that, as wonderful as this package is, it is not going to be the relief to the legislative budget-setting process," Gregoire said. "There is a lot of very difficult work to be done."

Interest groups in the state immediately pounced on the stimulus announcements to start pushing for ways to spend the money during the budget crunch.

The Washington State Hospital Association, for example, asked lawmakers to keep any freed-up state spending in the health-care sector.

Murray, the state's senior senator, also warned that the stimulus plan will not be a cure-all for the nation's economic problems. But she said it could be a significant step toward healing the crippled economy.

"All of us know this is not 'Job well done, go home,' " she said.

On transportation, Murray said the package could have nearly $500 million for improvements to Washington roads, highways and bridges — work that's intended to spur jobs.

The stimulus also would include about $175 million for transit projects, with the final decisions on precisely what to pay for left most likely at the local level, she said.

The stimulus package also could boost Washington jobless benefits by about $100 a month, and send about $64 million to the state for worker-retraining efforts. Washington's jobless rate now exceeds 7 percent.

Previously announced pots of money for major projects also remained in the bill as of Thursday's briefing: About $3.25 billion in borrowing authority for the Bonneville Power Administration to expand the Pacific Northwest power grid, and some $2 billion for cleanup work at the Hanford nuclear reservation in southeast Washington.