Wash. governor wants about $780M in programs saved from budget ax, but tax streams not certain

Wash. gov wants about $780 million in ‘buy backs’

OLYMPIA, Wash. — Handing the state’s fiscal woes to the Legislature, Washington Gov. Chris Gregoire proposed a new budget-balancing plan that would cut nearly $1 billion in spending and rescue some $780 million in government programs.

The Democratic governor did not suggest enough tax increases to pay for the entire list of rescued programs, saying a possible federal bailout worth as much as $1 billion could take the place of some tax hikes.

In an interview with The Associated Press, Gregoire on Tuesday said she prefers federal aid over major tax increases to prop up state programs. Even though a federal windfall would be one-time money, Gregoire said she is worried about the effect of higher taxes on the emerging economic recovery.

“If I hadn’t heard about the potential for federal dollars, I was ready with a tax package,” Gregoire said. “And during the course of the session, if it comes to that, I’ll be happy to share it with the Legislature.”

Gregoire did propose about $105 million in new revenue from proposed changes to the tax code. The largest chunk, about $73 million, would come from altering the way businesses are taxed for service or royalty income — a move meant to capture more money from out-of-state firms.

The state Department of Revenue said financial institutions would pay about 89 percent of the additional business-and-occupation tax if that change were enacted, with roughly half of that coming from bank credit cards.

Finding the balance will be left up to legislators, who convened Monday for a scheduled 60-day session. The Democrat-dominated Legislature must find a way to bridge a $2.6 billion gap between the state’s expected tax revenue and its current spending obligations between now and July 2011.

Gregoire’s list of “buy backs” opens the negotiations over which state programs will be saved and which will be cut. Included in her $780 million package were:

— K-12 levy equalization, a subsidy system for schools with a lower-than-average base of property taxes to finance their operations. Gregoire would restore about $165 million.

— The Basic Health Plan, a health insurance program intended for the working poor. Spending about $160 million would continue coverage for more than 60,000 people.

— State Need Grants, a form of additional financial aid for college students. Spending about $146 million delivers aid to an additional 12,300 students, Gregoire said.

— General Assistance-Unemployable, a state welfare program intended for people who are disabled or otherwise unable to work. Gregoire’s proposed $84 million lifeline would include some major reforms, such as time limits and lower cash grants.

Democratic lawmakers requested that Gregoire not unveil a specific tax package with her updated budget plan, preferring to have all the options before them as work on the budget begins in earnest.

Gregoire said she doesn’t want to see a property tax increase — something top lawmakers also have downplayed.

“I’m very leery, but I’ll listen to them, on anything to do with B&O or sales, in general,” Gregoire said. “Somebody I read in the paper said, ‘Put on a penny sales tax.’ That’s tough.”

Among the nearly $1 billion of spending cuts contemplated in Gregoire’s latest budget plan are programs meant to reduce public-school class sizes, state money for colleges and universities, and a long list of human service programs.

Gregoire’s preferred reliance on possible federal money earned her criticism from both sides of the political divide.

Minority Republican lawmakers think it’s foolish to pay for ongoing state expenses, such as the Basic Health Plan or General Assistance programs, with one-time federal money.

“If you manage this deficit today with about $900 million in federal dollars, all you’ve done is push that $900 million and some more on top of that out into the next biennium,” said Senate Republican budget leader Joe Zarelli, R-Ridgefield.

Activists arguing for more state spending were gentler in their treatment of the Democratic governor, but still quickly called on the Legislature to go further than Gregoire in saving state programs from budget cuts.

The Rebuilding Our Economic Future Coalition — a large collection of labor, environmental, and social services groups — said “the Legislature should pursue further options for generating new revenue in the current session.”