New Slideshow on State Economic and Fiscal Outlook

Watch the 12-minute slideshow (audio included) below to get a better understanding of the state economic and fiscal outlook, including ideas for a balanced solution to the budget shortfall.

Click on the green “play” button on the bottom to begin the narrated slide show. The large black arrow on the right-hand side just skips forward to the second slide.

Note: if you cannot see the presentation try using the Firefox browser instead of Internet Explorer.

The economy wreaks more havoc on the state budget

Today’s updated revenue forecast only made it more essential for the governor and lawmakers to take a balanced approach between spending cuts and revenue increases this upcoming legislative session.

The new forecast lowered the state’s expected revenue by another $760 million, bringing the total shortfall to $2.6 billion.

The continually worsening outlook comes at a time when Washingtonians need public structures more than ever. With the unemployment rate at its highest level since 1984, the need for the health care system, education and job training, and income supports become more important than ever.

We need a balanced approach to dealing with impacts of the recession on the budget, one that combines careful cuts with smart revenue increases, such as a combination of a retail sales tax increase with the Working Families Rebate.

We’ll have a lengthier analysis of the economic and budget situation tomorrow.

Revenue Forecast Tomorrow Will Show Growing Deficit

The Economic and Revenue Forecast Council will release tomorrow their latest projection of how much revenue the state will raise in the 2009-11 biennium. It will likely be the ninth straight revenue forecast that has brought bad news to Washington State, revealing a deficit that could be as high as $2.5 billion.

Over the last six months, the ongoing economic recession has pummeled away at our state’s budget outlook. Last May when the Governor signed the current budget, lawmakers expected an ending fund balance of nearly half a billion dollars plus $250 million in the rainy day fund for the 2009-11 biennium. Since then, the recession and other factors have instead combined to create a $2 billion shortfall.

This forecast is particularly important because it will set the parameters for the Governor’s budget proposal, which is expected to be released in about three weeks. Because of the worsening outlook, the Governor’s budget will likely propose deep cuts in core public structures, on top of those already passed last session. These cuts come at a time when Washingtonians can least afford them.

It's time to talk about a more balanced solution that includes revenue in order to protect our essential investments in public priorities.

Stay tuned for new analysis of the state budget and possible solutions in the coming days.

More Bad News for State Revenue

Today’s new revenue forecast from the Economic and Revenue Forecast Council widens the current state fiscal gap by $238 million.

The balance sheet included in the forecast shows the general fund deficit for the current biennium to be $430 million with a balance of $245 million in the rainy day fund. Those numbers do not include an adjustment for the most recent caseload forecast. Including the caseload forecast would increase the deficit by about $250 million.

While the sizable current deficit is a matter of concern, of greater concern are:

• The 2011-13 biennium, which could face a deficit reaching into the billions of dollars when federal recovery funds being used to support education, health care, and public safety are no longer available.
• The potential passage of I-1033, which could cost the state nearly $6 billion by 2015.

Details:

The $238 million in decreased revenue expectations breaks down as follows:

• $109.6 million is due to a weaker forecast for consumer spending.
• $46.1 million is due to a State Supreme Court case which will lower B&O collections.
• $82 million is due to lower-than expected revenue collections since the last forecast.

New Revenue Forecast Emphasizes Need for Real Solutions

Today, the Economic and Revenue Forecast Council announced that the state general fund will have a $195 million deficit at the end of the 2009-11 biennium. This means that state revenue projections have fallen even further since the Governor signed the budget in May, thanks to the continuing sluggish economy.

The Governor’s budget office has suggested that the executive branch may take quick action to cut the budget in order to cover the gap. This would be consistent with the path the state has taken so far—relying almost completely on cuts to balance the budget.

The state needs a more balanced approach to the problem of inadequate revenue.

In the short term, there is enough money in the rainy day fund to cover the gap. There is no reason not to seek access to this money. This is exactly what the rainy day fund is for.

In addition, we must get serious about expanding revenue. There will be two more revenue projection updates between now and when the next legislative session meets in January. The state of the economy could very well get worse than it is now. It is worth noting that we are also likely looking at a 2011-13 biennium with insufficient revenue and no federal recovery funds to save the day.

In the meantime, the effects of the unprecedented budget cuts already enacted are starting to be felt. These cuts to state investments will do lasting damage to the progress we have made in previous years in creating a just and prosperous state for all.

Near the end of this year’s legislative session, a public conversation began about revenue reform. There was a proposal for a temporary sales tax that would have protected essential health care programs. It would have been paired with a Working Families Tax Rebate to provide a tax cut for lower income families. There was also a proposal for an income tax that would have ensured long-term improvements to our revenue system.

When the session ended, so did the conversation. It’s time to pick it back up because we are not out of the woods yet.

TNT Asks: What To Do About the State Budget?

News last week of the dramatic increase in our state budget deficit - from roughly six to eight billion dollars - has prompted many to wonder how exactly we are going to get out of this mess. In a timely editorial, the Tacoma News Tribune has compiled the views of nine diverse movers and shakers on what should be done to fix the budget.

From the TNT: Earlier this month, we invited 24 current and former state officials, policy analysts and interest group representatives to suggest what lawmakers would do if they’re really serious about leveraging the economic crisis to make hard choices.

Remy Trupin, Executive Director of the Budget & Policy Center, is one of the nine. His written comments call for a balanced approach:

Economists recognize the vital role that spending must play in reviving our state’s staggered economy. If Olympia ignores this reality, it would do more than violate our shared values. It would have an anti-stimulative effect that will deepen and prolong the economic crisis we face.

A reasonable approach would combine surgical cuts with carefully calibrated revenue increases, Remy says. The goal is to protect critical public services without exacerbating the unfairness of our current state tax structure. For example, a temporary increase in the state sales tax or in sin taxes could be combined with a sales tax rebate to lower income working families. The Legislature passed the Working Families Rebate in 2008. If fully funded, it could fully offset the increase in taxes for lower income families

Remy is not alone in his thinking. A group of 30 state economists and public policy experts have joined the Budget & Policy Center in signing a letter calling for consideration of revenue increases by the Governor and state Legislature to address the growing budget crisis.

UPDATE: Economists Speak Out on the Budget Deficit

UPDATES BELOW

Today, we'll be in Olympia hand-delivering a letter signed by over twenty economists and public policy experts from across the state that urges the Governor, the Speaker and the Senate Majority Leader to “consider the full range of options, including revenue increases, when deciding how to close the state budget gap.”

We will be meeting with Senate Majority Leader Brown to discuss the serious concerns outlined in the letter regarding the state's growing budget deficit.

This afternoon's preliminary revenue forecast is a wake-up call. It signals the need for a new approach to the economic crisis here in Washington. While the Budget & Policy Center has been calling on policymakers to consider all reasonable options for a long time, this forecast crystallizes the inadequacy of trying to address a budget deficit of this magnitude through cuts alone.

In terms of the state economy, the economists and policy experts note that "reducing government spending will have a more deleterious effect on Washington State's economy than would increasing revenue." In fact, as our Research Director Jeff Chapman notes, severe cuts to public investments in economic security and health would undermine the strong federal response that was just enacted into law on Tuesday.

What is needed now is a thoughtful discussion among policymakers that considers all options.

UPDATES:

1. Since the letter was released, six new economists signed on to the letter! The updated letter can be found here

2. The meeting with Senator Brown went very well.


(From left to right: Jeff Chapman, our Research Director, Peter Dorman from Evergreen, Senator Brown, Ralph Murphy from Evergreen, David Batker from Earth Economics, and me. Two more economists - Dr. Marjolein van der Veen from Bellevue & Shoreline Community Colleges and Alexander Rist from King County - were on the phone.)

$2.3 billion of bad news

I'm in Olympia at a session of the Economic and Revenue Forecast Council. The Executive Director, Arun Raha, is releasing a "early guidance" revenue forecast. As expected, the news is bad.

For the current biennium, the Council is now expecting $721 million less in general fund revenue than projected in November. For the 2009-11 biennium, they're expecting almost $1.6 billion less. That's a total decrease of $2.3 billion.

What does it mean? It means that our ability to continue our investments in education, communities, health, and economic security is threatened. It means the federal stimulus money may be swamped by declining state revenue. It means the conversation about what kind of revenue increase we should consider is even more urgent.

What's the total deficict? The number that has been used since December is $6 billion. Revenue is down by $2.3 billion. But adding those together doesn't give the complete picture. The need for public structures from health insurance to community colleges has increased since the $6 billion was published.

I'll post more details and maybe a graph or two tomorrow.

Note: Dr. Raha emphasized that this forecast is preliminary and unofficial. Economic conditions could change significantly before the official forecast on March 19. He also emphasized that the bad news is offset by the return of Ken Griffey. Jr.

Big Budget News: Preliminary Revenue Forecast Set For February 19th

Given the continued slide in revenue collections and the announcements of major layoffs, the upcoming revenue forecast is expected to further widen the deficit. The official forecast isn't scheduled until March 19, but policymakers, advocates, and journalists are understandably anxious to see the numbers earlier.

The Economic and Revenue Forecast Council announced today that they will be providing a preliminary forecast at 4:30pm on February 19th. So mark your calendars and bookmark the TV-W website.

The ERFC is careful to emphasize the word "preliminary." The official March forecast may be quite different.