Gov. Chris Gregoire has proposed that the state get out of the ferry business.

In an effort to get the cash-strapped ferry system back on its feet, Gregoire introduced a plan on Thursday that would transfer control of the largest ferry system in the nation to a regional ferry district with local taxing authority.

Under the plan, which Gregoire outlined at a press conference in Olympia Thursday morning, ferry-dependent communities would elect representatives to a regional board, which would govern the system. The district would be funded by fares and state subsidies that would provide an undetermined core level of service, but local taxes would provide what Gregoire called the “critical third leg to the stool.”

“It’s up to them to say whether they want to contribute more to their taxing authority to get that level of service they want,” she said.

Gregoire said she believed ferry-dependent communities would welcome the idea of a regional ferry district because it would give them more control over their service.

“I think they deserve to have that voice and that decision-making authority,” she said at the press conference.

The Puget Sound Regional Ferry District, as she dubbed it, would include all of San Juan, Island, Jefferson, Clallam and Kitsap counties and parts of King, Skagit, Snohomish and Pierce counties.

The news was not well-received on Vashon, however, where some said they see this as an effort on Gregoire’s part to foist an underfunded system onto the counties.

Kari Ulatoski, who chairs the Island’s Transportation Committee, said she was shocked by the governor’s proposal and believes others are as well.

“I’m a little stunned. … I don’t think anybody had an inkling the governor was going to propose something like this,” she said.

Though Ulatoski said she is left with many questions about how the new ferry district would operate, she said her initial reaction is that the governor is passing the state’s responsibility to fund the ferry system to local communities. If the governor considers the ferry system to be part of the state highway system, Ulatoski said, it should be funded by the entire state instead of double-taxing those in ferry-dependent communities.

“Why are those communities singled out?” she asked. “Doesn’t the whole state benefit?”

For months, Gregoire’s top ferry official David Moseley has been visiting ferry-dependent communities, noting that the state system is in dire financial shape — a situation that started in 1999, when voters repealed the Motor Vehicle Excise Tax. Despite slashing the system’s budget and seeking larger subsidies from the state’s operating budget, the system faces a projected $900 million shortfall over the next 10 years.

Gregoire, at her news conference, said she crafted the proposal after a study by the Passenger Vessel Association showed that a patchwork system of recommended cuts and changes would still not bail out the ferry system.

The report also determined that privatizing the ferry system was not a viable option.

“If we privatize, … those who purchase it to make a profit would raise fares so dramatically that it would shut it down,” she said.

She said the Legislature will still consider service reductions and fare increases to close the ferry funding gap in the 2011-2013 budget. Meanwhile, she plans to introduce legislation at the start of the next legislative biennium in January to create the new ferry district, hoping to have it in place as early as 2013.

“There are no more Band-Aids. … Once we get through the 11-13 budget, we will be in the red forever if we don’t take action this legislative session,” she said.