OLYMPIA — Lawmakers received a dose of good news Thursday that should make it easier for them to erase the state budget deficit without a general tax increase and finish this year’s Legislative session on time.

Tax collections, which have been in a freefall for nearly two years, are up $96 million in the revenue forecast issued Thursday by the state’s interim chief economist.

That information arrived on the heels of another report showing the number of people demanding state services is dropping and will result in $340 million in savings.

Added up, those two elements shrink the size of budget problem facing lawmakers from $1.5 billion to around $1 billion — of which about half is the deficit to be erased and half the sum they want set aside in reserves.

“We needed to look for some good news, and there was some good news today,” said House Speaker Frank Chopp, D-Seattle.

House and Senate Democrats are on track to release budget proposals next week. Their authors sounded confident they can wrap up work in the regular session and avoid an extra session.

“I think we’re in a solid place to finish March 8,” said Sen. Ed Murray, D-Seattle, chairman of the Senate Ways and Means Committee.

And with the revenue and caseload forecasts in hand, lawmakers may punt on asking voters to approve either a half-cent hike in the sales tax, as proposed by the governor, or a broader package of tax increases, sought by the liberal wing of the Democratic caucus.

When asked directly if revenue is off the table, Chopp demurred.

“I can see how we get through and get done on time and do a good job for the people of Washington. But we have to look long term, not just short term,” he said, noting funds are needed for public schools, the safety net and higher education.

Republicans have and continued Thursday to argue against both tax options.

“The uptick in state revenue should take major tax increases off the table for Democratic budget writers,” said Rep. Barbara Bailey, R-Oak Harbor, who serves on the House Ways and Means Committee.

The ranking Republican on the Senate budget committee said the importance of the revenue forecast is that it sets the final size of the box lawmakers fill with services and programs to be funded by the budget.

“When we put things in the box, the core priorities of government need to go first to keep them from being shackled to any tax plan that the majority might put out to voters,” said Sen. Joseph Zarelli, R-Ridgefield, in a prepared statement.

He insisted lawmakers need to make money-saving reforms rather than resort to raising taxes.

“It’s critical that we now zero in on reforms that will free up space inside the box and allow the supplemental budget to include things that would otherwise be left hanging,” he said.

Thursday’s revenue forecast is the first since June 2010 in which tax receipts were predicted to increase. It shows between now and June 2013, receipts will be up about $45 million. The forecast total of $96 million includes a onetime shift of $51 million worth of unclaimed bonds and securities into the general fund, a move approved in the December special session.

Interim chief economist Steve Lerch said his analysis reflects a modestly improving economic outlook. Unemployment has edged down, hiring is increasing and the aerospace and software publishing sectors are strong, he said.

But the fiscal crises in Greece and Europe and political gridlock in Congress are tamping down consumer confidence, he said. Their cautious spending is why tax collections are pretty flat, he explained.

Nonetheless, ending the streak of forecasts with declining tax collections didn’t go unnoticed by the governor’s budget director and lawmakers.

“The economy is doing better,” said Marty Brown, director of the Office of Financial Management. “We’re not out of the woods yet, that’s for sure.”

Murray echoed the sentiment.

“We have to acknowledge we’re finally seeing movement in the right direction,” he said. “Our problems are not solved.”

The budget’s been beat up pretty badly since its adoption last May.

At that time, lawmakers approved a $32.2 billion spending plan for the two-year budget running from July 1, 2011 through June 30, 2013. It had $738 million in reserves when Gov. Chris Gregoire signed it.

Tax revenues plunged, wiping out its reserves and carving a roughly $1.4 billion hole in it in November when Gregoire put out her proposal for rebalancing the budget. The governor pared $2 billion in spending in order to fill the hole and re-establish a reserve.

Using cuts and transfers between funds, lawmakers managed to make a $480 million down payment on the deficit in the December special session. They’ve been negotiating ways of eliminating the rest in the regular session.

Jerry Cornfield: 360-352-8623; jcornfield@heraldnet.com.