OLYMPIA — Washington’s chief economist and state budget writers on Thursday delivered a sobering forecast, predicting another plunge in tax collections.
Officials predicted the state will take in $575 million less in tax receipts than lawmakers and Gov. Chris Gregoire counted on when they pl
ugged holes in the current budget and the next one — which the governor just signed Wednesday.
The drop will leave the state with nothing in reserves for the last two weeks of this fiscal year and a cushion of only $163 million for the new budget, which covers two years beginning July 1.
While that’s not enough for the next 24 months, neither lawmakers nor Gregoire’s budget director sounded worried Thursday as they discussed the ramifications at a meeting of the Economic and Revenue Forecast Council.
“On paper, we can’t make it through the biennium, but we have two years to figure it out, so there’s no emergency here in my mind,” said state Sen. Joe Zarelli, R-Ridgefield, the ranking Republican on the Senate budget committee and a member of the council.
Marty Brown, the governor’s budget director, said “we will be watching expenditures religiously” and see what the next revenue forecasts bring, in September and November.
“We’ve got plenty of money in the treasury,” he said. “This would all be different if we were going out of business July 1, but we’re not going out of business July 1.”
Nonetheless, Brown sent a letter to agency directors Thursday, telling them the governor wanted them to “limit all expenditures that are not necessary to the conduct of essential state services for the remainder of this fiscal year.”
The latest sour news about revenue arrived less than a day after Gregoire signed the budget laying out $32.2 billion in spending while setting aside $738 million in reserve.
Chief economist Arun Raha produced a report which, coupled with decisions by lawmakers, shows the state will wind up with $185 million less in revenue in this budget and $387 million less in the next.
“The U.S. economy has entered another soft patch in a recovery that is proving to be far more bumpy and fragile than usual,” Raha said in releasing his report.
Raha cited a continuing lack of confidence among consumers as the biggest clog in the pace of the state’s economic recovery. Until they feel good about spending, the state’s tax coffers won’t be filling up as fast as hoped.
Factors outside Washington are affecting the state, too. For example, the devastating earthquake and tsunami in Japan is hampering the availability of vehicles and other products and put a crimp in Washington exports to that nation.
And while there’s been generally good news in the aerospace and software sectors, it’s not enough to pull the state out of its economic doldrums, he said.
Lawmakers expected bad news as they penned the budget, though they didn’t expect so much of the reserve to be wiped out so quickly.
“We left what we believed was a very healthy fund balance,” said Sen. Ed Murray, D-Seattle, who is chairman of the Senate Ways and Means Committee and a member of the Economic and Revenue Forecast Council. “We won’t know the full picture until November. We’ll be back in six months, and we can act then.
“The hope is that eventually, at some point, somewhere in the future, this economy will start to stabilize, but until it does this sort of scenario will continue to happen,” Murray said. “Revenue will fall and we will cut.”
There was a bit of confusion Thursday on exactly why revenues are falling by so much.
Raha forecast only a marginal dip in this budget and a $183 million drop in collections for the next. But lawmakers and Brown insisted it was $575 million.
Turns out not all the drop in tax collection is a direct result of the sluggish economy. Some is due to actions by the Legislature to move money in and out of the general fund and through programs like the tax amnesty.
For example, a big chunk of the loss — $164.5 million — is not directly spelled out in Raha’s report. But it is what he and lawmakers calculated won’t be arriving in the next two years from companies that are behind in paying taxes.
That’s because owners of businesses in that situation paid up this year in an amnesty program, thus reducing a stream of future revenues from late taxpayers.
Raha didn’t treat the figure in his report the way lawmakers did, prompting questions about the discrepancy.
“I can’t help you understand the difference. I think they’re right, and I think so am I. It’s just a different way of looking at things,” Raha said. “What you’re bringing up is really an accounting issue.”
Jerry Cornfield: 360-352-8623; jcornfield@heraldnet.com.
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