State budget blues worsen a little

Washington’s chief economist today delivered what amounts to good news with a new report showing the pace of state tax collections is holding steady.

Arun Raha, executive director of the Economic and Revenue Forecast Council, predicted collections in the current budget running through mid-2013 will be $122 million less than what he predicted in September. However, the overall hit on the budget will be a bit less because the state took in $25 million more in revenue in the last budget when he put out his last report.

With the report, Gov. Chris Gregoire and state lawmakers now know they face a projected budget shortfall of $1.4 billion as they prepare for a special session starting Nov. 28.

On Monday, Gregoire will release a detailed proposal for rebalancing the budget which runs through June 30, 2013. She is expected to identify up to $2 billion in spending reductions to plug the hole and restock the state’s reserves. She also may include a few measures for raising revenue.

You can read the executive summary of Raha’s report. And here’s a statement from the Office of Financial Management.

Here’s an excerpt from Raha’s report:

The economy is performing as expected in our September forecast. In the two months since that forecast there have been no unpleasant surprises, despite the high level of uncertainty in the baseline.

The biggest threat to the U.S.economy remains the sovereign debt crisis in southern Europe. If the contagion spreads from Greece to Italy or any of the other countries at risk, and from there to European banks, then U.S. banks are not immune to the peril from the unwinding of losses; nor is the U.S. economy. This is reflected in the increased recent volatility in equity markets. A secondary risk to the recovery is the political gridlock in Washington D.C. that has fiscal policy sitting it out on the sidelines. This has led to a steady erosion of both

Our current economic forecast is very similar to our September forecast, with the same muddle-through conditions expected for the rest of the biennium, along with a high degree of downside risk.