The last time I wrote specifically about the legislature for Crosscut was in September. Back then the projected shortfall in the current two-year budget, which runs through June 2011, was $1 billion. Today as lawmakers convene for a 60-day 2010 session, the shortfall (between projected normal expenditures and revenues) has widened to $2.6 billion, and some fear it could grow to $3 billion after the February revenue forecast.

Back in September, I doubted that Democrats would be inclined to go for new taxes in an election year. Now that the size of the problem has nearly tripled, I’ve been proven wrong. Right out of the gates, Democratic leaders are signaling that they intend to rebalance the current, biennial budget with a combination of cuts and taxes. Senate Majority Leader Lisa Brown, D-Spokane, calls raising taxes a “moral necessity.”

First, Democrats will look to close proverbial tax loopholes. In the House, Finance Committee Chair Ross Hunter, D-Medina, is the keeper of the list of tax exemptions that could be ended or suspended. He’s closely guarding that list for now, but clues can be found in the work of the “Citizen Commission for Performance Measurement of Tax Preferences,” which you can find here. The problem for Democrats is most of the exemptions the Commission recommends phasing out don’t net the state much money.

The one loophole Hunter will mention is Dot Foods. This refers to a September 2009 state supreme court ruling against the Department of Revenue that will cost the state hundreds of millions of dollars in lost B&O tax revenue from out-of-state wholesalers. Democrats plan a legislative “fix.” (Sticking it to non-local companies is always easier than taking away accustomed benefits from local firms.) There’s also talk of ending the sales tax exemption for certain “food” items like gum, candy, and bakery goods. And there’s the perennial proposal to raise the tax on a pack of cigarettes by another dollar.

For now a general sales tax increase, even a temporary one, seems unlikely. But it is the fastest way to raise some serious money so it can’t be totally off the table.

In December, Governor Chris Gregoire — who ran for re-election on a no-new-taxes platform — ball-parked the size of a tax package at about $700 million. So far that number is sticking, although social service advocates would like the legislature to raise as much as $2 billion in revenues. Of course that won’t happen.

In order to raise taxes or close tax loopholes, Democrats have admitted they intend to modify or suspend Tim Eyman’s Initiative 960, which Washington voters narrowly passed in 2007. I-960 requires a two-thirds vote of the legislature or a vote of the people to raise taxes. Democrats can suspend 960 because the two-year waiting period to amend an initiative has expired.

Eyman is familiar with this routine. He gets an initiative passed, the legislature undoes it, and he comes back with a redux. (Think $30 car tabs.) Eyman will celebrate the first day of session by filing an initiative to “reinstate” the two-thirds requirement for tax hikes.

All this means 2010 could be the year that Democrats in Washington take a hit. It will be hard for the majority party to navigate the “Great Recession,” raise taxes, survive the Eyman attacks, fend off angry union challenges in some primaries, and come through the November elections unscathed.

That said, Speaker of the House Frank Chopp, D-Seatle, will be able to protect his most vulnerable freshman and swing district Democrats from taking a hard tax vote. He has a big enough margin in his caucus that he can let several members off the hook and still pass legislation off the floor.