Article by Erik Smith. Published on Tuesday, September 16, 2010 EST.

Somewhere Between Seven and 10 Percent, She Predicts – It’s Out of Her Hands

By Erik Smith

Staff writer/ Washington State Wire

OLYMPIA, Sept. 14.—The news Thursday is going to be bad, says the governor – so bad that she’s going to be on the other side of the world when it comes.

            Gov. Christine Gregoire said Monday that the next forecast of state tax revenue is likely to show the state more than a half-billion dollars short, and will force budget cuts in state agencies of between seven and ten percent. She’s been warning state agency directors to brace themselves for a devastating round of cutbacks.

            There’s really nothing she can do about it, either, she said. So she’s getting set to handle it all by remote control, while she flies to China and Vietnam for a long-planned trade mission. Gregoire left for the trip Monday night.

            But before she left, Gregoire issued an executive order Monday directing state agencies to cut their budgets on Oct. 1. The percentage will be announced by the state Office of Financial Management after the forecast is released Thursday.

“We’re as prepared anyone can be for the bad news I am sure we will be getting,” she told reporters.

            Worse Than Anyone Thought

            Exactly what those numbers Thursday will be is a closely guarded secret. State economist Arun Raha will release his latest forecast of upcoming tax receipts at a meeting of the Economic and Revenue Forecast Council. Raha is not a political appointee, and the state Legislature hangs on his words.

            But if there’s anyone with inside information, it’s the governor, who has a budget staff of her own and a Council of Economic Advisers, and who can ring Raha on the phone at any time and ask for a briefing. Gregoire said she met with Raha. He didn’t give her the number, but he told her that the news is going to be worse than anyone thought.

            “Earlier, when I said I was expecting cuts of between four and seven percent, I thought seven was the worst-case scenario,” she said. “I no longer believe that.”

            Bouncing Along the Bottom

            Raha uses eight economic indicators as he assembles his forecast – items like consumer spending, imports and housing starts. Five of them are down since his last forecast in June, two are flat and only one is up, the governor said. Monthly tax revenue since the last forecast continues to disappoint.

             For months state officials have been declaring that the recession, which began in late 2008, has bottomed out. There are no signs that it’s getting worse, the governor said, but things don’t seem to be getting any better. “We’re bouncing along the bottom,” Gregoire said. “We have a wave of it, some good news, some bad news. But the bottom line is, consumers are not buying.”

            One worrisome sign – consumer confidence has not returned. Figures indicate the public is keeping six percent of its income in the bank, rather than the usual four percent, the governor said. The less spending, the slower the economy is to recover.

            No Special Session

            State law doesn’t give the governor much flexibility. A 1981 law gives her the authority to order across-the-board cuts, but does not allow her to pick and choose the programs that are the most deserving. That’s a political decision the Legislature has traditionally reserved to itself.

            The governor has been sounding out legislative leaders for months on the possibilility of a special session. Republicans have endorsed the idea, but not the governor’s own Democrats – and they hold the majority in the House and Senate. If they aren’t willing to deal with the problem, there’s not much point in calling lawmakers back, the governor said.

            “I don’t expect we’d get anything done, other than spend money because of their being here,” she said. “It doesn’t do you any good to call unwilling people to the table and sit here for 30 days. I’ve heard that from people on the Republican side of the aisle, but guys, it doesn’t work that way.”

            Gregoire said the only way she’d call them back would be if lawmakers worked out a deal in advance and were prepared to pass it within a day or two. But the last time she called a special session, earlier this year, Democratic leaders in the House and Senate dithered for weeks before finally coming to agreement in the final days of the session. It would probably go the same way this time, she said.

            Gregoire said she spoke with House Speaker Frank Chopp and Senate Majority Leader Lisa Brown Monday, just to be sure. Their answer: It’s all up to you.

            Cuts on the Way

            The governor said cuts will be ordered in every department, according to the fixed percentage her budget staff will designate. The cuts will affect every state program, with the exception of debt service, pension benefits, basic K-12 education programs, and certain programs within higher education.

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