OLYMPIA – Washington’s strong economy is eventually expected to cool off, but the good times are still rolling and will produce another tax windfall of nearly $484 million, state revenue officials said Thursday.
The surge drives the state’s projected reserves back over the $1 billion mark, even after the heavy spending of the Democratic Legislature and Gov. Chris Gregoire this year. Minority Republicans, heavily outgunned in the last session, had warned that Democrats were spending too much and saving too little.
The new projection, unanimously approved by the state Economic and Revenue Forecast Council, was unexpectedly strong and eases concerns of a deficit in two to four years.
“For the foreseeable future, the red ink is gone,” said Rep. Jim McIntire, D-Seattle, an economist who heads the bipartisan council of administration officials and lawmakers.
“This forecast is a good sign that our economy is still strong,” Gregoire said in a statement released by her budget office.
Still, chief economist ChangMook Sohn continued to warn that a slowdown remains on the horizon and that the torrid economy is expected to slow somewhat in the next two years. No recession is forecast and the state continues to outpace the national economy with job growth of at least 2 percent a year, he said.
Sohn said the new forecast marks the 15th quarterly expansion since the state pulled out of recession. The good news reflects stronger construction activity and growth in personal income than the council projected in March, he said.
Aerospace, software and construction all remain quite vibrant and the Puget Sound metro area’s broad strength boosts the state numbers significantly, Sohn said. The economy is generating about 60,000 new jobs each year, he said.
“Consumer and business spending in Washington remains strong,” he said.
Sohn said he expects $195.1 million in new revenue to roll in by June 30, the end of this two-year budget cycle, and a $288.5 million increase for the new biennium that begins July 1.
He said the $484 million increase is a huge number, but is only “minor fine-tuning” in the context of a $30 billion budget.
The new projected surplus now tops $1.2 billion, even after lawmakers adopted a state operating budget that spent heavily into the previous reserves.
Sen. Craig Pridemore, D-Vancouver, who wrote the Senate’s version of the operating budget, said lawmakers shouldn’t lust after the new money. He and McIntire said a big share of the windfall will go into reserves and be kept for a future downturn.
“It’s steady as she goes,” Pridemore said.
Gregoire said the new forecast “strengthens my conviction that we made the right investments in education, health care and jobs” in recent budgets.
“But we are very much aware that high fuel prices and weaknesses in the U.S. real estate market can affect Washington in the future,” she said. “We must continue to be fiscally responsible.”
State budget chief Victor Moore added: “This forecast provides fresh evidence that our economy is continuing to move forward. This allows us to increase our reserves, which includes the proposed rainy day fund, so we can protect our important investments in education, health care and economic development against potential economic downturns.”
The forecast will give the state more than $360 million for a rainy day account. The Legislature is asking voters to approve a mandatory savings account that will require the state to automatically contribute 1 percent of the state general revenue into a hard-to-tap fund.Sen. Joe
State revenue update
Bottom line: State tax revenue is projected to rise an additional $484 million between now and June 30, 2009, compared with the March forecast.
Income: $27.7 billion is projected for the two-year cycle that ends June 30 and $29.8 billion in the 2007-09 biennium that begins July 1. That compares with $23.39 billion last biennium and $22.14 billion collected the biennium before that. The state has a $27.3 billion two-year state budget, which rises to $30 billion in the upcoming biennium.
Updates: Revenue is expected to climb $195.1 million during the current two-year budget cycle and $288.5 million in the upcoming biennium.
Reserves: $1.24 billion.
More information: The Forecast Council’s Web site is at www.erfc.wa.gov.
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