Video: State's latest budget forecast released

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OLYMPIA, Wash. - The deeply troubled economy is sapping Washington's tax collections again, saddling newly re-elected Gov. Chris Gregoire -- who pledged not to raise taxes -- with a $5.1 billion budget hole.

Gregoire is preparing an austere, no-new-taxes plan to deal with the deficit, which includes about $500 million in needed savings this year and another $4.6 billion for the 2009-2011 state budget, which takes effect in July.

Some savings measures for the current budget already are in motion, including an across-the-board spending cut and hiring freeze. Gregoire's budget director, Victor Moore, said Wednesday the administration hopes to expand those savings for the current fiscal year without calling a special session of the Legislature.

But lawmakers from both parties agreed that once they convene the regularly scheduled session in January, work must begin immediately to bridge the daunting shortfall.

"This will be ugly," said Rep. Ross Hunter, D-Medina, chairman of the House Finance Committee. "It's much larger than I expected it to be."

Policy makers learned of the new budget gap at Wednesday's meeting of the state Economic and Revenue Forecast Council. The panel, which includes state lawmakers, said the state would collect about $1.9 billion less than expected through the 2011 fiscal year.

Arun Raha, the state's chief economic forecaster, said a national recession is now certain, even though it has not been officially declared. He noted that since the council's last meeting in September, "what had until then been a festering financial malaise exploded into a full-blown global credit crisis."

Washington has been helped by its strong aerospace and software sectors, Raha said, but the financial crisis has hammered consumer spending -- a major driver of tax revenue in a state with no separate income tax.

Associated Press

Gov. Chris Gregoire says she's preparing a lean, no-new-taxes budget proposal to deal with the upcoming shortfall.

"Right now, no one is buying cars or houses, and at best we can expect a holiday shopping season that shows no decline over last year," Raha said.

There will be another quarterly revenue update before state lawmakers build their 2009-2011 budgets. Majority Democrats on the forecast council did not rule out tax increases to help bridge the gap, but Republicans warned that consumers and businesses likely can't afford more taxes.

The Senate GOP's budget chief, Joe Zarelli, R-Ridgefield, said Democrats were trying to pin too much blame for the deficit on the national economy.

"The shortfall was projected at $2.5 billion even before the 2008 legislative session ended. No one can say they didn't know a huge deficit was coming," he said.

Gregoire's budget office recently asked state agencies to project what kind of cuts would be needed to save up to 20 percent from their budgets. Some expenses are relatively safe from major cuts, including K-12 education and prisons. But other large state expenses, such as higher education, could be in for a major squeeze.

Interest groups across the political spectrum immediately began jockeying for public support after Wednesday's deficit update. Real estate agents warned lawmakers not to reach for more taxes, while a liberal think tank said the state needs to raise more money from taxpayers to support the social safety net.

Gregoire said during her successful re-election campaign that she would not raise taxes or fees to balance the budget during the economic downturn. But that leaves room for the Legislature to propose tax hikes, particularly if they're sent to the voters for approval.