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Originally published Sunday, March 15, 2009 at 12:00 AM

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State budget comes down to unpleasant choices

When it comes to closing the $8.5 billion shortfall in the state budget, the first $5 billion is pretty easy to solve. But that still leaves the state with some gut-wrenching choices to close the rest of the huge budget gap.

Seattle Times Olympia bureau

OLYMPIA — When it comes to closing the $8.5 billion shortfall in the state budget, the first $5 billion is pretty easy to solve.

All the Legislature has to do is drain the state rainy-day fund, spend a few billion dollars in one-time federal money and cut spending in the current fiscal year with some relatively painless moves, at least compared to what's coming, such as a hiring freeze. Those steps alone would shrink the gap to about $3.5 billion.

The problem: It's still the biggest shortfall in state history. The gap continues to grow. And there are no easy fixes left.

Democrats, who control the House, Senate and governor's office, have little choice but to make deep cuts in some of the very programs they've poured money into during the past four years.

"We're getting to stuff that nobody wants to look at," said Sen. Rodney Tom, D-Medina, co-chair of the Senate Ways and Means Committee.

Democratic leaders won't discuss their thinking in detail, but Tom gave a few examples the Senate is considering: eliminating 10,000 slots for students at the state's colleges and universities; cutting $700 million from the class-size initiative, I-728; and reducing sentences across the board for state inmates by 50 to 60 days.

All three areas, higher education, public schools and public safety, were touted as priorities for Democrats in the past. Now they're targets for spending cuts.

Republicans and some business groups have accused Democrats of fear-mongering — overstating the size of the budget shortfall as a way to drum up support for putting a tax increase on the ballot to pay for programs the state can no longer afford.

Sen. Joe Zarelli, the ranking Republican on the Senate Ways and Means Committee, insists the state can balance the budget without asking voters for a tax increase and even without tapping all of the federal aid.

It just means cutting deeper than the Democrats may want to go, he said, such as making state workers pick up a larger share of their health-insurance costs, eliminating state funding of all-day kindergarten and dropping health-care coverage for the children who aren't U.S. citizens.

Zarelli's argument raises a point worth keeping in mind in the weeks ahead.

The budget is made up of policy choices put in place over the years by Democrats and Republicans, and cutting any of them means a political fight.

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Health-care advocates will fight to protect medical coverage for the poor. Educators will fight efforts to cut money to schools. Unions will fight to protect pay and benefits.

And it will be up to Democrats to tell their political supporters, who've grown accustomed to annual increases in state funding, that their budgets will get cut.

The truth is, that fight is just starting to heat up.

Who made the mess?

How did the state end up in this mess?

Democrats blame it on the fact we're in the worst economic downturn since the Great Depression.

Republicans note the Democratic-controlled Legislature increased state spending by 31 percent during the past four years, including billions for education, health care and pay increases for state workers and teachers.

Both sides have a point.

The budget shortfall represents the amount of money it would take to pay for current state services — including all the things the state has increased spending on in recent years — compared with the amount of tax revenue the state is projected to collect.

Senate budget writers project it would cost $39.3 billion to maintain existing state services through June 2011 and leave several hundred million dollars in reserve. However, they project the state will only collect $30.8 billion in taxes during the same time period because of the deepening recession.

That's the $8.5 billion gap making the headlines.

However, the state got about $3 billion from the federal government stimulus package to help balance its budget, and it also has $700 million in a rainy-day account set up for situations like this.

In addition, taking care of the deficit in the current fiscal year would solve another large chunk of the overall shortfall. The Legislature is expected to close the gap in this year's budget, which ends June 30, through steps such as hiring freezes, shifting money around and using some of the federal cash. Some of those cuts would carry over into the next biennium, adding to the overall savings.

All those moves would reduce the budget gap to around $3.5 billion, including several hundred million dollars left in reserve in case the economy continues to tank.

The state can tap money left in reserves to pay unexpected bills much easier than it can money in the rainy-day account, which, under the state Constitution, is difficult to tap except during severe economic downturns.

Pressure will increase

That remaining $3.5 billion shortfall is still larger than anything the state Legislature has had to deal with, at least in the past 30 years.

Gregoire took the first whack at making cuts when she released her proposed budget in December, before the recession worsened dramatically. She quickly got a taste of what's ahead.

She proposed cutting pay increases for government workers and was immediately sued by several unions who wanted their wage bumps put back in the budget.

Lawmakers say that's probably nothing compared with the pressure they expect to get in the coming weeks.

"We're just barely entering the second half of the game here," said Rep. Hans Dunshee, D-Snohomish, who's been in the Legislature for 15 years.

Interest groups have had little to react to because lawmakers in the House and Senate aren't saying yet what they plan to cut.

The Senate isn't expected to release its proposed budget until later this month. And the House proposal will be rolled out after the Senate's. Both budgets are expected to propose much deeper cuts than Gregoire's because the economy has continued to deteriorate.

"It's when the interest groups kick in," Dunshee said, "and start working on the members and the members start working on the (budget writers) that you get the real frustration and screaming."

A coalition of groups, including the Washington Education Association and the Service Employees International Union, say they'll push to limit cuts in programs they support. But they're also laying plans to appeal to a higher power — Washington voters.

The coalition wants lawmakers to put a measure — possibly including new taxes on liquor and cigarettes — on the ballot that could raise hundreds of millions or more to restore some of the services lawmakers expect to cut from the budget.

Republicans will fight efforts to send any tax increase to voters and push Democrats to reduce state spending as far as possible before considering using the federal money or tapping the rainy-day fund.

Pouring federal dollars and rainy-day money into the budget is a one-time fix, Sen. Zarelli said, that fails to address the underlying problem: The state is spending more money than it's taking in.

It might make for some good theatrics on the House and Senate floors, but Republicans can do little but complain. Democrats, who hold near supermajorities, don't have to listen.

It's hard to imagine a scenario this session that doesn't involve spending the rainy-day fund, all of the federal money, and putting a tax package on the ballot. As well as making unprecedented cuts in the state budget.

Interest groups "are going to roll in bleeding children and outraged parents," Dunshee predicted. "Legislators are going to have a real tough time saying they're going to vote for those cuts."

Andrew Garber: agarber@seattletimes.com or 360-236-8268

Copyright © 2009 The Seattle Times Company

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