King County's budget chief, saying the financial outlook has deteriorated significantly in the past month, now projects a $20 million shortfall...

King County’s budget chief, saying the financial outlook has deteriorated significantly in the past month, now projects a $20 million shortfall this year and a $60 million problem next year.

Office of Management and Budget Director Bob Cowan, who last month estimated a 2009 budget problem of $45 million, has told the Metropolitan King County Council it now looks like the gap will be about one-third larger than he predicted.

Most of a $25 million reserve created to narrow the 2009 budget gap will instead be spent this year to avoid a deficit, Cowan said Tuesday.

The problem is in the general fund, the $662 million portion of the $4.9 billion county budget that comes from local taxes that aren’t earmarked for specific uses.

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Cowan has told department heads that all travel expenses this year must be approved by County Executive Ron Sims’ office, a limited hiring freeze will be imposed, and budget-busting supplemental appropriations won’t be approved unless they are needed to fund a labor settlement or meet a legal requirement.

Dealing with next year’s shortfall — expected to be the biggest ever in dollars — will be more difficult.

As a “starting point” for the 2009 budget, Cowan has suggested that general-fund spending on public health and human services be cut by one-third. “Agencies in this category should not only plan for how they would take this reduction in 2009, but also how they would entirely phase out of these lines of business by the end of 2011,” Cowan told department heads in a March 31 memo.

For services required by the state, such as police, jail, courts and elections, across-the-board cuts of 8.65 percent are tentatively proposed. Cowan said the overall spending targets — and the across-the-board approach itself — may be changed as the budget is developed in coming months.

Reasons for the growing budget gap include lower interest rates, year-end revenue and spending figures from 2007, lower property-tax collections and reduced sales-tax revenues.

Cowan said the cost of fuel, employee benefits and cost-of-living adjustments are rising faster than revenues. The biggest revenue source in the general fund is the property tax, which, under state law, can’t increase more than 1 percent a year on existing buildings without a public vote.

The county’s collections of real-estate excise tax, which funds park purchases, dropped from nearly $4.5 million in the first quarter of 2007 to $2.5 million in the same period this year.

Keith Ervin: 206-464-2105 or kervin@seattletimes.com