Bush to states: drop dead: the economic crisis trickles down. (Of Several Minds).

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

So it comes as a surprise to discover that among the fifty states, Oregon now has the nation's highest unemployment rate, and the state of Washington is right behind. Last month, Oregon's unemployment rate hit 8 percent, and Washington's hovers above 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. The high-tech downturn has also hurt Oregon, where the production of microchips is off, and where the lumber and wood-products industries have faltered.

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 were forced to hold legislative sessions in which the political menu was confined to unappetizing gruel: tax increases or program cuts. "We've been cutting state budgets; local governments have been cutting their budgets," says Governor Gary Locke of Washington. "The states are going to have to lay off more employees and more teachers--or not hire more teachers." Locke says he expects state layoffs of more than two thousand employees.

Margaret Hallock, who advises Governor Ted Kulongoski of Oregon 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." She says that programs have devolved to the states without sufficient resources to support them. "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 George W. Bush comes to the rescue--with a dividend tax cut.

This astonishes Locke. A Democrat like Kulongoski, Locke is highly focused on business development. 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 favors a larger package than the $20 billion in state and local aid Congress approved last month. States with income taxes, he notes, will see part of that aid offset through the effect of the federal dividends tax cut on state tax returns. He'd have the federal government provide financing for local projects that would have an immediate payoff in jobs and long-term benefits in fostering economic development. He highlights the need for school construction and remodeling, expanding and renovating colleges and universities, and investing in basic public works projects to repair or replace roads and bridges. Such investments will have to be made at some point anyway, he says, so why not make them now, when the economy could use a boost? As for tax cuts, Locke suggests that they should focus broadly 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 been preaching. 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."

Yet 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. Still, it is hard to see how a dividend tax cut will give Ichiro's adopted region the help it needs.