Gov. Christine Gregoire speaks with reporters Thursday — and delivers a message to the Legislature.

By Erik Smith

Staff writer/ Washington State Wire

OLYMPIA, Dec. 16.—Gov. Christine Gregoire, responding to calls from the Legislature for big reforms to get the state budget back on track, proposed a couple of modest ones Thursday that might wipe out a few million dollars of the state’s whopping $2 billion problem.

            And she made a point as she spoke to reporters at a Thursday-morning news conference. Gregoire doesn’t think there are any big reform ideas on the horizon that will get the state anywhere close to solving the enormous budget troubles the state will face over the next few years. So nothing lawmakers can do will erase the need for a tax increase next year.

            Gregoire is proposing that the state Liquor Control Board become an all-volunteer body, saving the state $780,000 a year in salaries and staff time. She said that makes sense given the fact that the state liquor stores will be closed next year, the result of Initiative 1183. At the same time, her staff will ask the private sector for bids to take over management of the Washington State Lottery — savings there are still to be determined.

            But the more important point? The governor says lawmakers are fooling themselves if they think reform by itself will do the trick.

            “I would like them to come forward with reform ideas that would plug a $2 billion hole,” she said. “I have yet to see an idea. I have heard a lot about reform, but I haven’t heard about anything that is really there that will result in plugging a $2 billion hole in the budget.”

            The governor is pushing a temporary half-cent increase in the sales tax along with a series of smaller and iffier taxes targeted at banks, oil companies and car dealers. “If people see what I have seen, I think they will come to the same conclusion,” she said. “We cannot shred the education system in our state. We cannot turn our backs on the less fortunate. We cannot leave our communities at risk. So if we want to protect all those things, we have to accept that despite these tough times, that a half-penny for three years is worth it.”

            Governor Says She is a Reformer

            It is a key message for the Legislature because many of its members are demanding big reforms before they even begin talking about a tax increase. Republicans and moderate Democrats say it would be foolish to ask voters for a tax hike if the state simply winds up in the same trouble next year. During internal meetings in House and Senate caucus rooms, members have started to ask big questions about the state’s long-term budget picture.

            A six-year budget projection released by the governor’s Office of Financial Management Thursday indicates that the state isn’t out of the woods. Even if lawmakers pass everything the governor has proposed, the state will be short a cumulative $2.8 billion by June 30, 2017. Some members, particularly state Sen. Jim Kastama, D-Puyallup, argue that OFM is significantly understating the scope of the problem. A formal reform proposal has yet to emerge from the Legislature, though Senate Republican budget chief Joe Zarelli, R-Ridgefield, has laid out a few broad ideas in a recent broadside. Lawmakers are expected to begin the debate when they return for their regular session in January.

            But while lawmakers are looking at the half-empty glass, the governor sees one that is half-full. What those budget projections show is that the state has made huge strides in reducing the long-term costs of state government, she said. Chalk it up to the big budget nightmare the state has been experiencing since the economy fell to pieces in late 2008.

            “Four years ago, I said to the people of our state that we cannot waste this crisis,” she said. “I can come before the people of our state today and say we did not and we will not.”

            Turning the Ship Around

            Many of the state’s problems have their roots in the big ramp-up in spending that took place during Gregoire’s first term, when the economy was booming and the flood of tax revenue was used to incur new obligations that grew every year. Depending on which yardstick one uses, state spending increased between 27 percent and 33 percent. A large portion of that spending went to beef up salaries for unionized public employees, who had won new power under collective bargaining legislation passed in 2002.

            OFM’s charts show that if the state had continued on the same trajectory, the state budget today would be about $19 billion a year, not the $15 billion or so that the state actually plans to spend. By 2017, it would be in the range of $23 billion a year.

            Gregoire said that when lawmakers start talking about reform, they ought to give the state credit for the big adjustments it has had to make over the last couple of years. Among other things, the state eliminated automatic cost-of-living adjustments for the state’s oldest pensioners, saving $7.6 billion over 25 years. It has closed five state institutions – three prisons, a juvenile detention center and a residential habilitation center for the developmentally disabled.

            “The last time we shut down one major institution, just one major institution, was when Dan Evans was governor – that was Northern State Hospital, and that was nearly 40 years ago,” she said.

            She said that the creation of the new state Department of Enterprise Services, consolidating back-office agencies within state government, will save $18 million in the first year alone. The Department of Social and Health Services, the state’s largest agency, has cut administrative expenses by 29 percent, she said. And she said performance-based contracts and “lean management practices” in state governments are cutting costs throughout the Washington-state bureaucracy.

            Meanwhile, big reforms this year in unemployment insurance and workers’ comp – which have no impact on the state budget, because those programs are managed through trust funds – will save businesses about $1.5 billion over the next four years, she said.

            Reforming Things Every Day

            “We need to understand reform is hard,” the governor said. “It may not fit on a bumper sticker. It has to be real. That’s what this is. My point to the people of the state of Washington is that we have reformed more than ever in the history of the state of Washington. No one seems to remember that.”

            She continued, “Today we continue to reform. My message to the people of the state of Washington is that we will never stop. We will continue to reform ever day, every month, every year.”