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STATES DESPERATE FOR FEDERAL HELP

The Pacific Northwest is known for Microsoft, Intel, lattes, breathtaking natural beauty, alternative music, rain, stock-option millionaires and Ichiro Suzuki. We do not associate this forward-looking, entrepreneurial region with economic distress.

So it comes as a surprise to discover that Oregon now has the nation's highest unemployment rate and Washington is right behind. Last week, Oregon's unemployment rate hit 8 percent, and Washington state's hovers at over 7 percent.

Richard Chapman, vice president of the Economic Development Council of Seattle and King County, says his area has been hit by "the perfect storm." The collapse of small- and medium-sized information technology businesses, lured here in part by the success of Microsoft, was followed quickly by adversity in the aircraft industry and sharp cutbacks at Boeing. In Oregon, the high-tech downturn has also hurt, the production of microchips is off and so are the lumber and wood-products industries.

The maddening thing is that at precisely the moment when state governments might step in to stimulate the local economy through new spending and tax incentives, their catastrophic budget problems make such moves impossible. Both states are now holding legislative sessions in which the political menu is confined to unappetizing gruel: tax increases or program cuts.

"We've been cutting state budgets, local governments have been cutting their budgets," said Washington Gov. Gary Locke. "The states are going to have to lay off more employees and more teachers -- or not hire more teachers." Locke says he expects the state to lay off 2,000 to 2,500 employees.

Margaret Hallock, who advises Oregon Gov. Ted Kulongoski on labor, revenue and work-force issues, points a finger directly at the other Washington -- as in the federal government. "We just do not think that Washington is nearly serious enough about the fiscal crisis in the states around the country."

"Programs have been devolved to the states without sufficient resources to support them," she says. "States cannot have deficit financing -- we must balance our budgets -- and so when you have this kind of drop in resources, you must either cut your budgets or raise taxes, neither of which is helpful in this kind of economy."

Yet while the states burn, President Bush proposes to come to the rescue with -- a dividend tax cut?

This astonishes Locke. A Democrat like Kulongoski, Locke is highly focused on business development. But he cannot see how this particular tax cut, benefiting mostly the very wealthy, will solve the problems of the here and now, or do much good in the long run. His alternative is to use the money to help states out of their fiscal straits. He'd have Washington provide financing for local projects that would have an immediate payoff in jobs and long-term benefits in fostering economic development.

As for tax cuts, Locke suggests they focus on the middle class and on incentives to small business -- not on a narrow group of the best-off taxpayers.

Neither state is looking to the feds to solve all its problems. Locke is practicing at home what he's preaching to Congress. He wants his state to take advantage of low interest rates to support borrowing for the public works he's recommending to the other Washington. But he notes that there are limits on how much states can, and should, borrow.

Chapman, the economic development specialist, said the downturn will force area governments to be more efficient in luring business, a task that was almost painless in the 1990s because of the region's widely heralded amenities. Sadly, he said, "we're no longer the media darling."

He does point to one big economic asset still in place: the celebrity of Ichiro, the Mariners' right fielder. Because of his enduring popularity in Japan, Ichiro is a one-man tourism department. One study showed a 12 percent increase in hotel stays in Seattle by Japanese tourists between 2001 and 2002. Safeco Field, the Mariners' park, serves sake, Sapporo beer and a kind of sushi called an "Ichiroll."

Still, even Ichiro can't hold up an economy all by himself. If the Bush administration's goal is to force all state and local governments to cut beyond the bone, its program is brilliant. But it is hard to see how a dividend tax cut will give Ichiro's adopted region the help it needs.

Washington Post Writers Group

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