Washington’s projected budget shortfall climbed even closer to the $9 billion mark with an announcement Thursday that tax collections are expected to be $552 million lower over the next 28 months.
Arun Raha, the state’s chief economist, delivered the bad news to the governor’s budget director and key legislators during a morning meeting of the state Economic and Revenue Forecast Council.
His latest outlook for tax collections through mid-2011 puts the current projected budget shortfall at about $8.7 billion. That figure assumes the Legislature will write a budget that leaves $850 million in reserves to deal with further economic uncertainty.
A reserve of $850 million is the target of Senate budget writers, who now hope to unveil their budget proposals by the end of next week, said Sen. Rodney Tom, D-Medina, vice chairman of the Senate Ways and Means Committee.
The Senate had planned to unveil its budgets Tuesday, but the half-billion dollars of bad news might have delayed that timetable, he said.
“We’re trying to get some early agreement on the budget with the House,” Tom told reporters after the forecast council meeting. “But it may take a little longer to reach agreement on an additional $500 million.”
“It is a lot of money to cut,” said Rep. Ross Hunter, D-Mercer Island, a forecast council member and, as chairman of the House Finance Committee, a member of the House Democrats’ budget-writing group. However, Hunter said, the overall projected budget shortfall falls within the estimates the House has been using for its budget-writing exercises.
‘UNPRECEDENTED’
Raha said the state and national economies have further deteriorated since last month, when he was asked to give lawmakers a quick-and-dirty update on state finances.
“We are witnessing an unprecedented economic crisis,” he said, one that rivals the Great Depression of the 1930s. “That is not to say we are headed there, not by a long shot.”
Raha said he’s seen a few positive signs. It appears the drop in home construction has bottomed out. Major banks on the national level say they are barely profitable.
“In an economy that can be in freefall, it can be easy to miss the early signs of recovery,” he said. “We have taken note of these positive signs, but it’s too early to see if they can be sustained.”
Raha said he no longer sees Washington recovering first and leading the rest of the nation out of the recession. We’ll be part of the pack, he said.
Washington’s economy will hit a bottom between July and September this year, but unemployment won’t hit its worst point until April-June of 2010, he said. That’s when the state jobless rate is likely to be 10 percent. It’s 8.4 percent today.
RAINY DAY WILL ARRIVE
Victor Moore, budget director for Gov. Chris Gregoire, said the revenue forecast means the state will have to dip into its $430 million “Rainy Day” savings account and use more federal stimulus money to balance the current budget, which comes to a close June 30.
Moore also said he hopes the Legislature writes a 2009-11 budget that gives Gregoire some latitude to make spending cuts and other adjustments on her own if the economy worsens and tax collections fall further. That way, she won’t have to call the Legislature back into special session as then-Gov. John Spellman did several times in 1981-82.
That’s another reason for leaving a hefty budget reserve of $850 million, Tom said.
Although the worsening budget picture is likely to spark more intense debate of putting tax increases to a public vote, most of the legislators avoided such talk at the council meeting.
Rep. Ed Orcutt of Kalama, top Republican on the House Finance Committee and a council member, wants to quash the notion of raising taxes.
“We are in the midst of a consumer-led recession,” Orcutt said. “Consumers will be the ones to lead us out, not more government spending. We need to put all talk of tax increases to rest. We can, and we must, balance the budget without raising taxes on hard-working families.”
Sen. Joe Zarelli of Ridgefield, top Republican on the Senate Ways & Means Committee, said, “We’ve only hurt ourselves by not making those decisions earlier.” He was referring to budget cuts the Legislature has yet to make in current spending levels.
$4.5 BILLION IN CUTS LOOM
Raha said the dramatic decline in home and car sales has spread to other parts of the economy, and that has worsened the number of layoffs.
Tax collection deposits for the current two-year budget cycle – July 1, 2007, though June 30, 2009 – are now expected to be $30 billion for the state’s main checking accounts. For the next two years, the amount is pegged at $30.13 billion – virtually no change.
Raha said that if not for the federal stimulus money from Congress – Washington is getting roughly $5 billion – the state’s tax collections would be $855 million lower.
“Otherwise, it would have been that much worse,” he said.
Raha said his revenue projection is the most likely scenario. In a worst-case scenario, he sees the state collecting $1.9 billion less. In a best-case scenario, the state would collect $1.5 billion more.
Tom said it now appears that the Legislature is facing spending cuts of about $4.5 billion. That’s after using an estimated $3 billion in federal stimulus funds, savings and money from other parts of the state budget.
Joseph Turner: 253-597-8436
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