Jan. 13 (Bloomberg) -- Christine Gregoire began her career in 1969 as a prison-system typist. Last month, as Washington’s governor, she proposed closing one of the state’s 13 penitentiaries to save $17.6 million.
The 136-year-old McNeil Island Corrections Center has six people in its clerical pool. They will be offered new state jobs if any can be found, said Chad Lewis, Department of Corrections spokesman.
“I’m a long-term public servant,” Gregoire, 63, said in a Dec. 15 interview in her Seattle office. “The budget I put out today is nothing like anything I would have expected ever to be put out in the state of Washington. And I am the last person I would ever have expected to put it out.”
Voters in November rejected an income tax and restrained the state’s ability to increase other levies. Gregoire, a lifelong state employee who was attorney general before becoming a two-term governor, says she now must slash health care, education and other programs to confront a projected $4.6 billion deficit. The shortfall represents about 14 percent of a $32.1 billion budget proposal for the 2011-2013 fiscal cycle, even after cuts. The Legislature convened Jan. 10 and will use her plan as a starting point for deliberations.
Gregoire and her fellow Democratic governors Jerry Brown of California and John Kitzhaber of Oregon face a collective $33.5 billion in deficits in the wake of the worst recession since World War II. The fiscal crisis nationwide may remake the region -- the Golden West -- that embodied the nation’s promise for generations.
For years, Washington’s technology and retail industries, lack of income tax and its scenic beauty attracted workers, raising its population by 14.1 percent to 6.7 million people during the past 10 years alone, according to 2010 Census data.
On Dec. 15, Gregoire, who chairs the National Governors Association, released a budget proposal that would remake the state. It calls for $4.1 billion in cuts and program suspensions, including one that calls for smaller classes to save $860 million.
Her plan would increase class sizes to 25 pupils from 23 in kindergarten through third grade and to about 27 from 23 students in the fourth grade, said Rich Wood, a spokesman for the Washington Education Association in Olympia.
Investing for All
“I created the Department of Early Learning,” Gregoire said. “I put more money in K-12 than I think has been put in there in years, if not decades. I was really investing in higher education because I think education is the future for us. And I’m dismantling all of it.”
Washington became the 42nd state in 1889 when lumber, fishing and mining were the main industries and a railroad link to the East Coast made it a shipping hub.
In 1916, Boeing Co., the world’s largest aerospace company, was founded in the state and supplied the U.S. military during the World Wars. Since then, technology giants Microsoft Corp. and Amazon.com Inc., coffee-shop operator Starbucks Corp., and retailers Nordstrom Inc. and Costco Wholesale Corp., the largest U.S. warehouse-club chain, have set up shop there.
Gregoire was elected in November 2004 when housing starts were at their highest in 14 years. Revenue projections were $70 million more than expected for that biennium, according to the state’s Economic and Revenue Forecast Council in Olympia, the capital.
Unemployment, 5.9 percent at the time, grew to 9.2 percent in November. Revenue will decline by $1.19 billion through June 2013, and housing activity remains weak, according to a November council report. The number of properties receiving a foreclosure filing grew 23.7 percent to 4,067 in November 2010 from the same month the year before, according to RealtyTrac Inc., an Irvine, California-based data seller.
Gregoire thrived as the state did. Born in Adrian, Michigan, Gregoire moved to Auburn, south of Seattle, as an infant with her mother, Sybil, a short-order cook who didn’t finish high school. Gregoire graduated in 1969 from the University of Washington in Seattle with a degree in speech and sociology and got a law degree from Gonzaga University in Spokane in 1977.
She met her husband Mike, 65, now a retired health-care investigator, in 1971 when they worked for the Department of Social and Health Services. They have two daughters, Michelle, 26, a first-year law student at the University of Washington, and Courtney, 31, who leads the National Export Initiative at the U.S. Department of Commerce in Washington.
After three terms as attorney general, Gregoire became governor in 2005, after defeating Dino Rossi by 133 votes and surviving two recounts and a court ruling.
Now, the woman who in 1971 joined the Department of Social and Health Services as a caseworker for abused children and the elderly has proposed eliminating health-care programs for the poor and the disabled to conserve $557 million. Among them is Basic Health, which offers subsidized insurance to 66,000 low-income residents. She also proposed eliminating the Disability Lifeline Medical Program for people unemployable because of a temporary disability.
Pat Sullivan, 57, a self-employed natural healer from Seattle, said she enrolled in the Basic Health plan about two years ago.
“I don’t know that I will get any insurance” if the plan is eliminated, Sullivan, who pays a $45 monthly premium, said in a Jan. 5 telephone interview. “I can’t afford it.”
‘Into the Marrow’
Gregoire’s plan calls for a 3 percent reduction in state employee pay, consolidating 21 agencies into nine and eliminating park funding and paying for them through user fees.
“We’ve cut into the bone already and now we’re digging into the marrow,” Remy Trupin, executive director at the Washington State Budget & Policy Center, a Seattle-based think tank that focuses on fiscal issues, said in a telephone interview. “We’re in a place where unimaginable things are being offered.”
Gregoire on Dec. 13 said she wants to reduce the $7 billion unfunded pension liability by 60 percent by ending automatic pay increases for those covered under older plans for teachers and public employees that were closed in 1977. Current plans are fully funded, according to the governor’s office.
“How do we come out of this a smaller, a more effective, more efficient, customer-oriented state government?” Gregoire said. “It’s an opportunity for us to, frankly, not waste the crisis.”
Gregoire says Washington residents have left her little choice.
Without an income tax, the state must rely on sales, business and occupation and property taxes to keep it afloat. In November, voters rejected a proposal spearheaded by Bill Gates Sr., father of Microsoft’s co-founder, to impose an income tax on people making more than $200,000. They repealed a levy on soft drinks and candy and required a two-thirds vote for the Legislature to increase taxes.
Gregoire said she is calling on the religious community and non-profit groups to help those harmed by cuts.
“Friends, neighbors, people who don’t even know someone are going to have to step up and be part of the safety net now,” she said.
The income tax would have generated about $11.2 billion over five years for education and health spending, according to the Washington Office of Financial Management. To put that in perspective, Gregoire’s proposed 2011-2013 budget calls for spending a total of $22.2 billion for public schools, higher education and social and health services.
“It was fairly significant,” Gates, 85, said in a Jan. 6 telephone interview.
The state remains “a fine place to do business,” Gates said. “It doesn’t seem to me that it’s much of a factor in terms of recruiting people to come here to work.”
Investors agree. The Bloomberg Puget Sound Index of the economy, a measure of the performance of 22 companies in the region, gained 31.2 percent last year. The Standard & Poor’s 500-stock index rose 12.8 percent in the same period.
Gregoire’s challenge will be to sway Democratic lawmakers, said state Senator Joseph Zarelli, the top Republican on the Ways and Means Committee, which deals with budgets.
“We might be more friends with her than her own party,” Zarelli said in a telephone interview. She must “bring Democrats to understand it’s very real the idea that we have to actually reduce and choose not to fund certain programs.”
Democrats’ control of the Legislature narrowed in the last election to 56 from 61 in the 98-member House and to 27 from 31 in the 49-member Senate.
Gregoire says she expects the changes she’s proposing to strengthen the state’s bond rating. Moody’s Investors Service rates Washington Aa1, second-highest. Standard & Poor’s also has assigned Washington its second-highest rating, AA+.
“The actions that we are taking will get us potentially a better bond rating and stabilize it,” Gregoire said.
The extra yield investors demanded to hold 10-year Washington debt was 0.21 percentage point more than top-rated municipal securities on Jan. 11, down from 0.36 percentage point on Sept. 14, the highest in about two years, according to Bloomberg Fair Value indexes.
Gregoire said her state will surmount its difficulties.
“Those are the times,” she said. “That’s our challenge. We’ve got to step up to it. We’ve got to use the same courage and determination, compassion and community spirit that saw us through the Depression, and I’m ready to lead the state and do that.”
Christine O’Grady Gregoire at a glance:
Born: Adrian, Michigan, March 24, 1947 (age 63); raised in Auburn, Washington.
Spouse: Mike Gregoire, 65, retired state health-care investigator.
Children: Michelle, 26; Courtney, 31
Education: Bachelor of Arts, speech and sociology, University of Washington, Seattle, Washington, 1969; Juris Doctor, Gonzaga University School of Law, Spokane, Washington, 1977
Career: State assistant attorney general, 1977-1981; senior assistant attorney general, 1981-1982; deputy attorney general, 1982-1988; director, state Department of Ecology, 1988-1992; state attorney general, 1992-2004; elected governor in 2004, re-elected in 2008.
Noteworthy: Gregoire was elected chair of the bipartisan National Governors Association in November. She is a breast-cancer survivor. Her illness was diagnosed in 2003.
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