By David Ammons
OLYMPIA — Washington state’s tax revenue will plunge by more than $800 million over the next year and a half, as the state and national economies struggle with the impact of the Sept. 11 terrorist attacks, state officials said Tuesday.
It was the first update since the attacks, and confirmed that the state has dipped into its worst recession in two decades.
A long, slow recovery isn’t expected to begin until the latter half of next year. It’s expected to take three years to regain all the lost ground.
Before it’s over, 45,000 workers are expected to lose their jobs at Boeing and allied companies, beginning with the layoff of 9,000 at Boeing next month, said Chang Mook Sohn, the state’s chief economist.
The new revenue forecast was at least $150 million worse than Gov. Gary Locke, the Legislature and or Sohn had been expecting as recently as a month ago.
"The slowdown started before Sept. 11; the attacks clearly worsened it," Sohn said.
The state Revenue Forecast Council unanimously approved the gloomy projection that tax collections between now and July 2003 will drop $813 million below the levels forecast just three months ago. The drop was about 4 percent, one of the largest declines in decades.
The new forecast is for $21.2 billion in the current two-year budget cycle. The state budget approved earlier this year was for nearly $23 billion, so cuts will be required when lawmakers convene in January.
Coupled with unavoidable costs the state faces — including more students in schools and more convicts in prison — the new forecast means Locke and lawmakers now face a budget hole of more than $1.2 billion.
"Now we know how bad it is," said Marty Brown, the state budget director.
Sen. Dan McDonald of Bellevue, a senior legislative Republican, called the convergence of bad economic developments a "perfect storm," a reference to the book and movie about conditions that caused a killer storm in the Atlantic Ocean.
He said the budget situation is so grave that lawmakers should drain the state reserves — now about $450 million — to minimize service cuts or tax hikes.
"This is what we saved the money for," he told fellow Revenue Forecast Council members.
Brown and legislative Democrats welcomed the suggestion, but said using all of the rainy day fund probably won’t happen.
Senate Majority Leader Sid Snyder, D-Long Beach, chairman of the council, said lawmakers faces some "horrendous" choices.
"Tax increases are extremely remote," he said. "I never say never in this business, but I can’t conceive of any circumstances where this would happen."
However, Sen. Don Carlson, R-Vancouver, said moderates in both parties will have to at least consider tax increases. "What’s the alternative? C’mon, let’s get real."
Some tax exemptions granted in the past decade may be repealed, Snyder said.
Brown said deep service cuts, including possible elimination of entire government programs, will be required to bring the state budget back into balance.
"It will be painful, but we are prepared to do what is necessary to make sure Washington state lives within its means," Brown said.
State employee salaries and benefits may be affected, "but no one has made any decisions about that yet," he said.
The governor said he had braced for a revenue hit of this magnitude and remains committed to a no-new-taxes budget this winter. His draft goes to the Legislature in mid-December.
"Basic education and the most vulnerable people in state care will be protected. But we simply must reduce the size of this government, so everything else in on the table," Locke said in a statement released by his office.
Brown said the administration is also trying to figure out how to rescue some of the $400 million worth of construction projects that are on hold. Refinancing may be a partial answer, he said.
Those construction projects, many on college campuses, and highway projects are vital to Washington’s economic recovery, Snyder said.
Sohn said about $700 million of the new lower forecast is due to problems in the economy. Tax collections were off $67 million after the attacks, Sohn said. October figures won’t be available until next month.
Boeing layoffs and other employment problems made Washington state’s problems deeper. Sohn said Boeing and other aerospace firms are expected to trim 27,000 Washington jobs by 2003. When the usual multiplier is applied, that means a total loss of about 45,000 jobs, he said.
Boeing shed about 25,000 jobs between 1998 and 2000, but the state and national economy were so strong it didn’t cause problems, he said.
Declining interest earnings and slow federal reimbursement of state costs for nursing home care accounted for $81 million in reduced revenue.
Voter approval of Initiative 747, limiting property tax growth, and I-773, requiring more spending for health care coverage, will cost the state $34 million in this budget period.
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