Signs of life in state economy

OLYMPIA — Washington’s languid economic recovery is accelerating a bit and will add an unexpected $65.2 million to state coffers, state officials said Friday.

State budget director Marty Brown said the extra money means the Legislature and Gov. Gary Locke may be able to avoid raising taxes or cutting services as they convene to rewrite the state’s budget in January.

The new tax projection, unanimously adopted by the state Revenue Forecast Council, is just three-tenths of a percentage point higher than the September forecast, but it shows recovery is starting to take hold, the panel said.

"It’s better than a sharp stick in the eye," Brown joked.

The extra money means the state now has projected reserves of nearly $544 million for the current two-year budget cycle.

The surplus should be adequate to cover about $200 million in costs in education, prisons, health care and firefighting, Brown said.

Lawmakers also face about $25 million in potential costs for a salary and benefits package for home health care workers, and about $75 million to extend tax exemptions for high-tech companies and for research and development.

"Not all the requests, but all the needs, fit" within the available budget, Brown said.

"Our economy is stabilizing, and we must continue to prioritize our funding decisions to best serve our citizens," Locke said.

The governor will unveil his budget plans in mid-December. He is not expected to ask for new taxes, but will endorse a ballot proposition to ask voters to approve a permanent revenue source for "P-16" — preschool and early childhood education through college.

Chang Mook Sohn, the state’s chief economist, told the council the new projections are for "essentially a no-change forecast" from earlier predictions. The federal and state economies are slowly recovering, but that improvement already was assumed, he said.

The trend is positive and employment should show more improvement beginning next spring and summer, he said. Aerospace employment will continue to decline this year and next but should show a rebound in 2005, he said.

"We’re not getting any worse, but clearly we have a long way to go," Sohn said. He predicted "extremely slow" employment growth as the state climbs back to pre-recession levels.

The state’s manufacturing base, including the aerospace industry, has shrunk for five years in a row and now accounts for less than 10 percent of the state’s total employment, Sohn said. Before the recession, the Sept. 11, 2001, attacks and the aerospace collapse, manufacturing accounted for 15 percent of the state’s jobs.

Sohn said some sectors are going strong, including construction, real estate sales, education and health care.

Since November 2001, the state has shed 52,300 jobs in manufacturing and other sectors, and added 40,100 in expanding sectors — for a net job loss of 12,200.

The Seattle area lost 41,400 jobs over that period, and the rest of the state added 29,200.

At Sohn’s recommendation, the council added $65.2 million to the September forecast. The two-year budget cycle ending June 30, 2005, now is expected to bring in $22.82 billion in revenue.

Senate Minority Leader Lisa Brown, D-Spokane, chairwoman of the forecast panel, bristled at talk of another no-new-tax budget and the assumption that lawmakers would approve the high-tech tax breaks.

Brown said she can’t support the sales and business breaks until the companies demonstrate they are actually creating jobs for state workers. Lawmakers also need to consider financing a major expansion of higher education and workforce training, she said.