More tough choices ahead

And so the slog continues.

Even the faint optimism expressed by the state’s economic forecasters just two months ago — they thought economic activity would pick up slightly in July and accelerate from there — has given way to somber realism.

“Consumer confidence is in the tank,” Arun Raha, the state’s chief economist, declared Thursday in an economic and revenue update. “The risk of the national economy slipping back into recession has increased significantly.”

So far this summer, state revenues are tracking within 1.3 percent of June’s forecast, hardly enough to set off alarms. The budget still has a $162 million surplus through mid-2013. But Raha expects revenue to fall increasingly short the rest of the year, likely more than eclipsing the surplus.

Hopes that a rebound would replenish government coffers and restore the collective billions in recent budget cuts have turned into wishful thinking, probably for the foreseeable future.

It’s a reality that local and state elected officials must accept, one that will require tough choices on top of those already made. Lean budgets will likely get even leaner at all levels of government.

Prudently, Gov. Chris Gregoire last week ordered state agencies to prepare for cuts of 5 percent and 10 percent. The latter would amount to $1.7 billion — in addition to the $5 billion or so the Legislature cut this spring. Next month’s revenue update will determine the depth of the latest budget hole.

To avoid across-the-board cuts that would inflict unacceptable harm to priorities like higher education (a 10 percent cut would cost the University of Washington more than $40 million), lawmakers will likely have to reconvene before year’s end. No one will envy their task. Priorities will have to be redefined, worthy programs that were barely kept alive last session may have to be eliminated.

Calls will come for higher taxes to stave off some cuts. But with a two-thirds legislative majority required to raise taxes, and recession-fatigued voters having solidly rejected new taxes last year, it’s no better an option than hoping for a sudden turnaround in the economy.

Voters will have a chance to increase future revenues in November, however. Initiative 1183, the Costco-backed measure to privatize the sales and distribution of liquor, would generate up to $253 million in new state revenue over six years, according to a new analysis by the state Office of Management and Budget. Local governments would reap up to $227 million over the same time period.

The economy will rebound eventually, if gradually. For now, budget writers at all levels of government will have to keep working inside the challenging lines of a “new normal.”

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