Washington’s budget problems grew larger Thursday when economists predicted tax collections over the next three years will be $530 million less than what was expected just three months ago.
That decline could produce a $3.2 billion gap between state spending and tax collections for the state’s next operating budget, unless steps are taken to reduce spending.
Gov. Chris Gregoire directed her budget office to find $200 million in savings right away, a move that has the potential to shrink the size of the problem by as much $600 million if the spending cuts are continued through the 2009-11 budget cycle.
“We are definitely slowing down – not as fast as the U.S. economy has – but definitely slowing down,” said Steve Lerch, interim director of the state Economic and Revenue Forecast Council. “There’s a big, big decline in auto sales. People are just not buying cars.”
Housing sales also have dropped and selling prices have fallen for those homes that have been sold, resulting in lower real estate tax collections for the state. Higher gas prices and turmoil in the nation’s financial markets are making consumers much more cautious. They’re less likely to spend money even though Washingtonians overall are earning more, Lerch said.
“We’re growing very slowly,” he said.
Washington’s tax collections are still on the rise. They just won’t be as high as Lerch and his staff predicted in June.
In fact, the state is expected to collect $2.5 billion more in the 2009-11 budget period from sales, property, business and other taxes than the $31.2 billion it now expects to receive in the current 2007-09 biennium. But that’s $530 million less over the next three years, compared to the June forecast.
Victor Moore, the governor’s budget director, wouldn’t identify where he will look to cut state spending, but noted that “it’s going to be tough.”
Those cuts would be in addition to the $90 million the governor expects to save this year by freezing hiring, equipment purchases, out-of-state travel and some personal contracts.
Sen. Joe Zarelli of Ridgefield, top Republican on the Senate budget committee and a member of the forecast council, said $290 million in cuts won’t be nearly enough. “We’re going to have to go a lot deeper than that,” he said. He said lawmakers can start by “not compounding the problem.”
Zarelli said logical places to cut state spending would be to forgo some planned spending increases that Democrat majorities in the Legislature set in motion earlier this year. That includes not expanding all-day kindergarten to more schools, not subsidizing medical coverage for children whose parents earn as much as $62,000 a year, not starting a family leave program for new parents and not giving a tax refund to low-income families.
“That would not be the first tax incentive to get rid of,” said Sen. Craig Pridemore, D-Vancouver, who was prime sponsor of the not-yet-funded $85-per-year tax refund for low-income families.
Moore said not all is doom and gloom. He noted that the state is still on track to finish the current two-year budget cycle with $87 million in its checking account and $442 million in the “rainy day” savings account. Thirty other states have negative balance sheets, he said.
“We are still positive,” he said. “I’m looking at a slowly recovering economy, and we will balance the budget in November. To say we’re in a deficit doesn’t take into account the work we will do.”
November will be the next time the forecast council meets to examine the economy and tax collections. The estimates then are those that will be used by Moore’s office to rewrite the current budget, as well as to write the next budget. Both will be submitted to the Legislature in mid-December.
There won’t be a deficit then because state law requires the state to have a balanced budget, he said.
Rep. Jim McIntire, D-Seattle, forecast council chairman and a candidate for state treasurer, said that despite the bad news, he doesn’t expect a recession in Washington.
“We don’t expect to go into a recession,” said McIntire, an economist. “The nation might, but not us.”
The state’s rainy-day emergency savings account is expected to continue to rise because the Legislature is required to put 1 percent of its general tax collections into the account each year. By mid-2011, there would be $728 million in that account, which means the projected $3.2 billion deficit could be reduced to $2.5 billion if lawmakers decided to use all of it.
Democrats, who are expected to control the House and the Senate again next year, said earlier this week that they’re prepared to use part – but not all – of that savings account.
Joseph Turner: 253-597-8436