KENNEWICK -- Gov. Chris Gregoire had high praise for the Tri-Cities as she spoke to Three Rivers Community Roundtable members Thursday in Kennewick.
She is so impressed with the Tri-City economy -- including the burgeoning clean energy industry, world-class vineyards and the accomplishments of students at Delta High School in Richland -- that she touts them across the globe, she said.
"As I travel the world, I tell them ... you've got it right here in the Tri-Cities," Gregoire said. "Your reputation is spreading."
But the rest of the governor's message about the state budget and looming cuts to services was far from upbeat.
She told the Herald after the roundtable meeting that she expects the next state revenue forecast coming Thursday won't bring good news for a proposed 2011-13 biennial budget that's already bowing under the weight of a projected $4.6 billion deficit.
"I think we will see an additional deficit, not just to get through this year but through the biennium," she said. "I'm expecting it to be $5 billion-plus."
Part of the problem is Washington's housing market hasn't rebounded, she said, even though the state is seeing activity in other sectors, such as new car sales.
But revenues from the housing market represent about 8 percent of the budget, so a stagnant housing market can hurt, and the worst may be yet to come, she said.
"I'm not sure we've hit bottom in terms of foreclosures," Gregoire said. "We're late."
Thursday's forecast will be the last one given before the Legislature finishes its session in late April. That means it's the last estimate before lawmakers must present and adopt a budget.
And the state budget doesn't promise to be even a little bit pretty.
Gregoire said 60 percent of the budget is off-limits for cuts, so that $5 billion will have to be carved out of $14 billion in programs mostly for higher education, public safety and health and human services.
She told the Herald that she was done cutting K-12 education, and told the Three Rivers Community Roundtable members that she would put every dollar she could find into education to ensure the state is competitive in the future.
Gregoire has offered the Legislature alternatives, such as consolidating 21 state agencies into nine, which she said would reduce duplication of "back office functions," for a savings of $30 million in the first year.
She also touted negotiations with the state's unions that resulted in the unions agreeing to a 3 percent pay cut for unionized employees.
The talks also resulted in a cap on the dollar amount the state will pay for health benefits at current expenditures, and made the employees responsible for paying the cost of health premium inflation.
For the current contract, that means state employees will pay 15 percent of their benefit costs instead of 12 percent.
"Wisconsin is trying to get to 12," Gregoire said. "Everything they are talking about in Wisconsin, we did and more."
A chunk of the current deficit exists because the state used federal stimulus money to bridge part of a $9 billion gap between revenues and expenditures in the biennial budget adopted in 2009, and that money is going away, she said.
And she worries that states will lose even more as Congress moves to slash the federal budget -- a move she said will add to states' deficits and set back the country's economic recovery.
"For every dollar they cut, one-third of that is on the backs of the states," Gregoire said. "We can ill afford it right now."