OLYMPIA - Gov. Chris Gregoire pushed for more overhauls of state government last Wednesday, asking business leaders for a plan to reform Washington's main business tax and calling for consolidation of small public schools.

It was Gregoire's second public push last week for considerable government reform as the state grapples with a budget deficit that could top $8 billion through 2011.

Last Monday, the Democrat announced plans to close 25 driver-licensing offices, eliminate dozens of small regulatory boards and combine some state agency functions. At the time, she said those plans were just a "first step."

In a speech to the Association of Washington Business, Gregoire said she'd also like to consolidate small public schools - particularly an estimated 50 schools that have less than 150 students.

While acknowledging that such a step would likely draw backlash from the public, Gregoire said government must make major changes to push through the recession that has hammered the national economy.

"We simply cannot sit here and ride out these times and wait for the economy to turn around and go back to the status quo," she said. "It's time for us to see a new path forward. And that is the challenge before us, that is the opportunity before us."

In Pacific County, there is no district with fewer than 150 students. Willapa Valley and Naselle-Grays River each have approximately 360 students. However, consolidation has long been whispered about - and strongly opposed - in north county, where the Willapa, Raymond and South Bend districts all have a full range of schools and administrative staffs within a few miles of one another.

In Naselle, the long-term viability of the school district could be threatened if the governor succeeds in her effort to close Naselle Youth Camp, the town's largest employer. There still is no word about whether the Legislature will go along with the NYC closure plan, but the state's budget situation is worstening almost by the day.

Last week, some legislative leaders said they may confront an $8.5 billion budget hole for the next two-year spending cycle, a situation one termed "horrific."

Senate Ways and Means Committee Chairwoman Margarita Prentice, D-Renton, settled on "horrendous" to describe the impending budget cuts, according to the Seattle Post-Intelligencer. "My expectation is that we will be making some heartbreaking decisions," she said. "Taking votes we figured we would never, ever have to take."

"Everybody is still in denial about the depth and seriousness of what this is going to mean," she said. "It's, 'Don't cut us because we're special'; well, everybody's special."

Gregoire said she's included a request for the state to study the viability of school consolidations in her budget proposal. While working on that budget, she said, advisers told her "you cannot utter the word 'consolidation.'"

"Well, I am uttering the word 'consolidation,' " Gregoire said Wednesday. "I don't get it. I don't get why we have 50 (schools) that have less than 150 students."

Instead of several small schools with distinct staff, equipment and budgets, the public-school system should use "technology and transportation" to combine educational efforts and save money. Community and technical colleges already have shown that online learning can be effective, Gregoire said.

Young people, she said, are adept at using new technology, "but we're still a book and a teacher. There's a new and a better way to do things."

Asked to list the top impediments to business in the state, Gregoire said she would like to overhaul the business and occupation tax, the state's main tax on businesses. Calling the tax "ill-conceived" and harmful to small businesses, she invited business leaders to develop a plan for changing the system.

"If you want to come forward with an alternative to the B&O tax system in the state of Washington, the welcome mat is out from me," Gregoire said.

Gregoire also said different layers of government must work together more closely to make permitting and other functions easier for businesses to navigate. She pointed to an experiment in the Vancouver area where local, state and federal officials are testing such an approach.

Don Brunell, the business association's president, said he agreed with Gregoire's push to overhaul government. But he seemed leery about her mention of overhauling the B&O tax, saying it would be difficult amid the budget deficit and would raise questions about how any lost tax revenue would be replaced.

"I saw that more as, 'If I could do something with a magic wand,'" Brunell said.

Republican lawmakers, who have generally liked Gregoire's moves toward government streamlining, also were wary of her call to consolidate small schools.

House Minority Leader Richard DeBolt, R-Chehalis, pointed to the shutdown of the Vader School District as an example of communities losing a central part of civic life. Vader, in Lewis County, saw its schools absorbed by Castle Rock in 2007 after local financing couldn't be raised to fix a condemned building.

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