State elected officials are in shock over the nosedive in tax collections, rising unemployment and ballooning budget deficits. We are all awakening to the reality that this recession is not traditional, where business activity glides down the rollercoaster track and picks up steam for the upward climb. The slope is steeper, the pace is accelerating and we haven’t found bottom yet.

Legislators preparing to head to Olympia in January are staring at a tsunami of red ink. They face writing a 2009-11 state operating budget with at least 20 percent less money. Imagine dealing with that large of a hole in your family checkbook.

Gov. Chris Gregoire (D) summed up the situation as “ugly!” She is right, but it is what it is, and we must collectively deal with it so our recovery is quicker, stronger and provides jobs.

Elected officials, like all of us, must face the grim reality and address the situation directly. First, they need to find ways to empower the private sector, because the small businesses on Washington’s “Main Streets” create the majority of jobs in our state, and they, along with Boeing, Microsoft and larger employers, will be the ones to lead us back to prosperity.

At the same time, the governor and legislators need to make fundamental changes in the way government works.

Congress has already shown how this can be done.

Before deciding whether to authorize billions in taxpayer loans to the Big Three auto companies, Congress demanded that their CEOs produce detailed business plans spelling out how they will do things differently from this point forward, how they will restrain management compensation, how they will become more efficient, and how they will produce a better product. That was the right thing to do.

Government should apply the same principle to its own operations. In our state, there are thousands of talented, experienced government employees who are frustrated at the inefficiencies they see, who can identify poorly performing programs, and who have innovative ideas on how government programs and services can be improved. Too often, those workers feel they must remain silent.

Our fiscal crisis is an opportunity for Gov. Gregoire and her agency managers to actively encourage their employees to submit innovative ideas, implement them, and then reward the employees with a percentage of the efficiencies gained. The savings from increasing efficiencies and eliminating ineffective programs could be used to forestall tax increases or shifted to critical programs jeopardized by our troubled economy.

The process will not be an easy one.

First, lawmakers need to dig into every part of the state budget, sit down with agency directors and go through their entire operations — piece by piece, line by line — and set priorities. Each program should be challenged on its value to the taxpayers, the people who pay the bills. Agency directors must make the case for the program as if they were selling it to the Legislature for the first time.

The prioritized programs should be ranked in order of importance. Next, each administrator should produce detailed plans on how his or her program can be made more efficient, including contracting out.

Then the recommendations should be forwarded to the Ways and Means Committee which would prioritize the programs based on the needs of the entire state, the available revenues and the degree to which that program helps stimulate economic recovery.

Second, eliminate bureaucratic duplication. Currently, multiple agencies have overlapping jurisdiction, which leads to turf wars and endless delays. If multiple agencies have responsibility for the same thing, consolidate the authority in one agency and make that agency responsible for making a speedy decision.

Third, look at state employment and compensation. Elected officials have a choice to make. If they retain the current pay scale and benefits in union contracts, they will have to cut jobs and slash programs – or they can renegotiate those contracts and lay off fewer workers.

Fourth, while K-12 has a constitutionally protected funding requirement, it takes up nearly half the state budget. Like other state agencies, public schools need to evaluate their programs and find ways to save money.

The budget shortfall is an opportunity for our elected officials to fundamentally change the way government operates. They have the opportunity to improve customer service, make it run more efficiently, and restore the taxpayer confidence in government. There is nothing like people coming together during hard times. As with 9/11, a crisis can be a magnet to pull us together and make us stronger in the long run.