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Tuesday, June 6, 2023
June 6, 2023

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Forecast: Washington’s revenue projections are slowing thanks to inflation, uncertain economy


OLYMPIA — The state will have less money to spend in the next couple of years than expected amid inflation worries and an uncertain economy.

The news is part of the revenue forecast provided to the Legislature to help lawmakers build a two-year budget to pay for salaries, public schools and programs.

Compared to the last revenue forecast in November, the state’s projected revenue for the two years ending in June is up by $194 million, but the projected revenue for the two-year budge ending in 2025 has decreased by $483 million, according to the state’s Economic and Revenue Forecast Council.

Based on Monday’s forecast, the total lawmakers can spend in the next cycle is $65.7 billion, not including any federal funds or any revenue generated through the new cap-and-trade program. The new program, which had its first auction last month, likely will generate at least another $1 billion over the next two years.

The drop in forecasted revenues reflects slightly lower personal income for Washington residents, higher interest rates and lower than expected collections from the real estate excise tax on the sale of property, said Steve Lerch, executive director of the Economic and Revenue Forecast Council.

Local Angle

In a statement released Monday, state Sen. Lynda Wilson, R-Vancouver and Republican budget leader, says the decline in the state’s revenue forecast should serve as a reality check for legislative budget writers about to unveil spending proposals for 2023-25.

“No one who has been paying attention should be surprised by this downturn. Economic activity in our state showed signs of slowing last fall, and as our chief economist reported today, the same interest-rate increases that are causing trouble in the banking industry are depressing construction activity and homebuying and other major consumer purchases. That’s on top of the continuing crisis of affordability in our state, which has people paying high costs for gas, heat, food and housing.

“On the plus side, state government is still in a sound budget position. Between our robust rainy-day fund and other money in reserve, there is more than enough to cover all of state government’s required expenses. The surplus should still be around $4.5 billion even after factoring in the higher costs of maintaining state services and programs for the next two years. There is zero justification for new taxes of any kind, and I am heartened by that, especially since other tax increases approved in past years are still looming.

“All that said, it would be a very good idea to take a more cautious approach to spending in the upcoming operating budget. State agencies have grown used to big spending from the majority Democrats in the past half-dozen years. That rate of growth simply can’t continue if we are to remain in a sound budget position and be prepared for an extended economic downturn. Let’s keep expenditures under control now rather than set the stage for a future shortfall that would either threaten services or fall on taxpayers.

“Now that the latest revenue numbers are in hand we will see operating-budget proposals emerge from both chambers in the coming days. They need to put average Washington families first, not government.”

Despite the slight drop in revenues, Democratic budget leaders said Monday’s forecast keeps Washington in a strong position to fund new and existing programs . Republicans said lawmakers should remain cautious when crafting their budget.

“This news makes us cautious, but it doesn’t really change our game plan that much,” Senate Ways and Means Committee Chair Christine Rolfes, D-Bainbridge Island, said. “And I feel confident we’ll be able to provide the services people are counting on.”

Sen. Lynda Wilson, R-Vancouver, Republican leader on the Ways and Means Committee, said the state is in a good place financially, but that lawmakers should take a more cautious approach in the upcoming budget.

“Spending has more than doubled in the past ten years, and the rate of growth simply can’t continue if we want to remain in a sound budget position,” Wilson said.

She added the state should not increase or create any new taxes.

For the most part, revenue collections remain strong in Washington, Lerch said, but real estate and sales tax revenue remain low.

Lower personal income is the biggest driver of spending, which affects how much sales tax and business and operations tax collections the state gets, Lerch said. Similarly, higher interest rates change how people make big purchases, such as cars, furniture or appliances.

Another big driver of the lower forecast: inflation.

“Even though inflation is coming down, it remains high,” Lerch said. “It’s higher than many would like.”

Another possible change in this revenue forecast: the uncertainty of a banking crisis as Credit Suisse and Silicon Valley Bank have closed in recent days, though the fallout on Washington’s economy is still unknown and not accounted for in this forecast, Lerch said.

The budget that lawmakers write in the coming weeks is expected to be smaller than the $70 billion proposal Gov. Jay Inslee released in December, when forecasted revenue for the next two years was slightly higher.

House Appropriations Chair Rep. Timm Ormsby, D-Spokane, said there are fewer resources available now .

“We should be very deliberate and make careful steps to ensure the budget decisions we’re making still protect the most vulnerable,” he said.

Rolfes said her team has spent the past few days readjusting its budget to this economic news. The budget Senate Democrats release still will reflect the strong position of Washington’s economy, she said. It just will be smaller than the one Inslee proposed.