State revenue forecast greeted warily

Lawmakers say good news fails to alter need for reform

By Stevie Mathieu, Columbian assistant metro editor

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Some Southwest Washington lawmakers on the state’s Economic and Revenue Forecast Council said moderately good news about projected state revenues does not change the state’s need to reform its spending practices.

The $1.5 billion budget crunch the state faced heading into the 2012 Legislature is down to roughly $1.1 billion as the economy shows signs of stabilizing and people rely less on state services, according to new numbers released Thursday.

The Economic and Revenue Forecast Council released its revised outlook as lawmakers prepared to roll out budget proposals. For the remainder of the 2011-2013 biennium, the numbers predict $96 million in extra revenue, which comes in addition to about $340 million in newly expected savings from less reliance on state services as Washingtonians rely more on federal services.

Steve Lerch, the state’s interim chief economist, said the U.S. economy has had higher job growth than anticipated. He said the state is in

a decent position with Boeing manufacturing, growth in the software sector and strong exports.

But Lerch warned that there are a variety of risks remaining, including debt problems in Europe, a slowdown in Asia and political gridlock in the nation’s capital.

“There’s still lots of uncertainty out there,” Lerch said. “Growth is slow. Unemployment is, unfortunately, very high.”

Following the forecast, Democrats still left open the possibility of a tax package to offset even more of the cuts. Republicans have signaled that they are willing to repeal some tax exemptions but are not interested in a sales tax proposal.

‘Treading water’

Although the state’s general fund is expected to increase by about $96 million, only $32 million of that is new revenue created by a healthier economy, state Rep. Ed Orcutt, R-Kalama, said in a news release. Orcutt sits on the Economic and Revenue Forecast Council with Senate Republican budget leader Joseph Zarelli of Ridgefield.

Orcutt described the state’s economy as “treading water,” adding that more needs to be done to improve it.

“There are several bills still on the table that would bring more stability and certainty to employers in our state -- something they say they need in order to begin hiring again,” Orcutt said.

The unemployment rate is at 8.3 percent, Lerch said.

Orcutt summed up the $32 million in projected new revenue this way: “If you had a $10 dollar bill in your pocket and somebody gave you a penny, would you feel richer?”

Budget writers still plan to cover more than just the shortfall, hoping to leave a buffer of about $600 million dollars in case the economy stumbles again. But lawmakers say the extra revenue and savings will help the state avoid the most draconian cuts.

House Republicans plan to release their budget proposal Friday while their Democratic colleagues are looking to disclose their ideas next week.

Zarelli said that while working toward a budget agreement, he wants to see the state spend less than it’s predicted to make, create a robust reserve, and figure out a long-term plan to sustain the budget.

“There are plenty of reforms on the Legislature’s table, including some that would reduce major drivers of spending,” Zarelli said, touting his bill to change retirement plans for some incoming state employees. “It’s time to act on those.”

Zarelli’s proposal, Senate Bill 6378, would exclude future teachers, classified school staff, some law enforcement staff, and local and state government employees from the state’s “Plan 2” retirement plan, which guarantees a certain amount of money upon retirement. Instead, these types of state employees hired after July 1 would automatically be enrolled in the state’s “Plan 3,” a hybrid retirement option that in part resembles a 401(k) plan.

Leading Senate Democrats released a statement about the forecast, noting that the state has cut $10 billion in state programs during the past three years of the recession.

“As legislators, we have a responsibility to balance the budget, and we will,” according to the statement from Senate Majority Leader Lisa Brown, D-Spokane, and budget leader Sen. Ed Murray, D-Seattle. “But we also have a responsibility to our neighbors to help our communities recover and thrive.”

When Gov. Chris Gregoire released her first budget last spring, the state faced a $2 billion budget problem. State lawmakers decreased the shortfall by about $478 million when they met during a special session in December to tackle the budget, and state officials predicted spending $340 million less on state services. Given the special session cuts, lower state services spending and Thursday’s forecast, lawmakers will need to come up with roughly $1.1 billion to address the now $515 million shortfall, as well as save a recommended $600 million in reserves.

The Associated Press contributed to this report.

Stevie Mathieu:360-735-4523 or stevie.mathieu@columbian.com or www.facebook.com/reportermathieu or www.twitter.com/col_politics