Gov. Gregoire is preparing the citizenry for an ugly likelihood: an August special session of the legislature to close the gap when $480 million in federal Medicaid money fails to materialize, as now seems almost certain. That somewhat phantom-like money was used to balance the budget, even though it was a long shot. By August 9, the governor's hand will be forced and she says a quickie special session will be necessary.

Or maybe not. If legislative leaders balk at putting their heads in this noose, they may be able to force the governor to make her own across the board cuts, taking all the political heat. (After all, Gregoire isn't running this year and she may even be heading to a D.C. job sometime soon.)

If there is a special session, Republicans will stand back, chuckle, and refuse to help. For Democrats, it would be a nightmare session, damned if they raise taxes, damned if they cut services to key constituencies such as teachers, government workers, or social services. It might have been avoided if the legislative leaders had anticipated the shortfall, rather than crossing fingers while kicking the can down the road for a few months.

Speaking of Medicaid, I'm reminded of oneof Ronald Reagan's more creative suggestions, back in the 1980s. He proposed a mammoth deal where the federal government would take over all Medicaid costs. In exchange, states would assume full costs of education and transportation. The payoff would be that the federal government, with full control over Medicaid rules, would be able to drive down costs over time. States, lacking tempting federal infusions, would get more serious about efficiencies in schools and building (fewer) highways.

At the time, this stillborn idea was part of a New Federalism, an attempt to sort out more rationally all the overlapping authority and funding of many public programs. Instead, Obama's stimulus spending has put the federal government's nose further into the tent, pushing for stronger federal roles at a time when the voters have little appetite for it. Americans historically feel this way, except in times of war and severe depressions.

One other way to deal with this growing and expensive muddle of multiple governments is through "incentivism," along the lines of Education Secretary Arne Duncan's Race to the Top program for education. Instead of the usual federal pattern of spreading programs to every last Congressional District, in order to get support, incentivism sets up a system where only the states doing the best job in reform earn the federal bucks. Locally, King County Executive Dow Constantine is looking at such a model for future Metro bus service: Only cities that stimulate transit by land use planning and density-building get the future service.

To be sure, a quickie legislative session is no time for such creative thinking. Democrats will be thinking only of surviving the November election, so the priority will be saving the skins of the most endangered members, giving them a little something to tell the voters back home about. Before that, they would negotiate hard with Gregoire about what goodies could go into the session to sugar-coat the cuts.