The state revenue forecast released last week provides some perspective on the 2019-21 operating budget passed by this year’s Legislature. The gist: Revenues (meaning tax collections) are projected to reach a record level over the next two years, and yet they still would not cover the biennial budget approved by lawmakers and signed by Gov. Jay Inslee.
That, of course, is a simplistic view of the situation. The two-year state budget of $52.1 billion contains a lot of moving parts, and a revenue forecast is nothing more than that — a forecast. But with the state budget cycle starting today, July 1, it is a good time to take a look at the economic health of the state.
The Economic and Revenue Forecast Council has estimated that Washington will see a net revenue increase of $432 million over the next two years, bringing the total to nearly $51 billion. The national economy is strong, and the state’s 5.7 percent economic growth in 2018 led the nation. With unemployment near record lows and with Seattle experiencing an unprecedented boom, Washington’s economy is at the puff-out-our-chests-with-pride point.
And still that revenue forecast would not match up to the $52.1 billion in state spending approved for the next two years — a 16 percent increase over the previous biennium. That includes $2.7 billion in reserves, providing some wiggle room, but it also generates a need for continued economic growth, lest the state be forced to make cuts in much of the just-approved spending.
To be sure, there are noble reasons for such spending. The budget makes necessary investments in a mental health system that needs to be overhauled. It also provides needed tweaks to public education and financial aid for college students, while adding spending for child care, fighting homelessness, and increasing affordable housing. As Inslee said when approving the plan in May, “This is a budget that puts people first.”
The hope is that those people will continue to enjoy a robust economy. We would have firm confidence in that happening, but President Donald Trump’s policies are disconcerting, particularly for our state. Indeed, Trump has effectively continued the economic growth that began during the Obama administration, but his protectionist trade policies are troubling.
Washington is the nation’s most trade-dependent state, and the president has pursued tariff wars with China and Canada — Washington’s biggest trading partners. The impact is being felt at the Port of Seattle, one of the state’s most important economic engines, with Washington State Wire reporting: “Exports are going down, hurting American businesses. Imports are holding steady, in spite of tariffs, hurting American consumers. It’s a bad combination.”
Locally, Clark County added 900 jobs in May — a modest gain but a slight slowdown compared with previous growth. The unemployment rate of 4.8 percent was a slight increase over the 4.6 percent of the previous May. Regional economist Scott Bailey told The Columbian: “Things have certainly slowed down, but we had really strong job growth for four to five years.” In other words, there is reason for cautious optimism with the understanding that the economy goes in cycles.
All of which brings us back to the state budget and the revenue forecast and the beginning of the fiscal year. While the biennial budget reflects a veritable wish list of good ideas, it also includes a bit of wishful thinking represented by unsustainable spending increases. And from that perspective, there is reason for concern.