State budget shortfall expected to be $1.2 billion

OLYMPIA – Washington’s economy is going to generate $2 billion more in taxes and fees for the next state budget than it is for the current one, state lawmakers learned Wednesday.

But whether it’s enough to erase a projected billion-dollar-plus budget shortfall, satisfy a Supreme Court order to beef up public school funding, and create a reserve are questions House and Senate leaders and Gov. Jay Inslee will answer soon when they roll out their respective spending proposals.

On Wednesday, they received the last piece of data they need to complete their task: a new forecast of tax collections for the two-year budget.

And the news was better than anticipated.

Chief Economist Steve Lerch predicted the state’s general fund, which pays for much of government’s day-to-day operations, will take in $32.5 billion between July 1 and June 30, 2015. That is a bit higher than Lerch’s last forecast in November.

His report found the state is on pace to collect $30.5 billion in the budget, which runs through June 30.

“We continue to assume slow economic growth,” Lerch said. “We still see lots of uncertainty out there.”

Wednesday’s forecast brought a measure of relief to lawmakers who feared a big hit in future revenues as a result of federal spending cuts due to sequestration.

“Flat is the new up,” said Rep. Ross Hunter, D-Medina, who as chairman of the House Appropriations Committee is the chief House budget writer. “We have a hard problem to resolve. This doesn’t make it worse.”

Sen. Andy Hill, R-Redmond, who is chairman of the Senate Ways and Means Committee, said with the forecast in hand he hopes to complete his caucus’ budget proposal in “five to 10 days.”

“We can start making the hard decisions,” he said.

Inslee intends to release his blueprint next week, according to his budget director, David Schumacher.

It will lay out a path for erasing the shortfall pegged by Schumacher at between $1.2 billion and $1.3 billion. That gap represents the difference between the sum of money the state expects to collect in taxes and fees and what it will cost to continue paying for existing programs and services.

Schumacher also said the governor will propose a sizable investment in public schools — maybe in the neighborhood of $1 billion — in accordance with the Supreme Court decision in the McCleary case.

Democrats and Republicans in the Legislature are gearing up for a fight on whether the $2 billion will be enough to avert new or higher taxes, or extending taxes on beer and some professional services set to expire at the end of June.

Hunter said much of the additional revenue will be gobbled up by the shortfall and reserve. He said Wednesday, as he has often since January, that new revenue appears necessary in order to make a legitimate down payment on public school funding.

Republican senators are confident the $2 billion is enough. They oppose new taxes and want to be sure the temporary taxes expire as planned.

“We expect to keep that promise,” said Sen. Mark Schoesler, R-Ritzville, the Republican Caucus leader. “Some programs are not going to grow as much as they would like when they see the budget.”

That’s what Hill hinted at when questioned about the budget he is designing.

“In general, the goal is not to extend expiring taxes and also not to introduce new ones,” Hill said. “The goal is to live within our means.”

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

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