State facing $8.8 billion less in state revenue through mid-2023, forecast predicts

The COVID-19 pandemic has blown an $8.8 billion hole in Washington state’s budget through mid-2023, potentially triggering new taxes and spending cuts if the economy remains in a deep recession.

The state on Wednesday said revenue could decline by $4.5 billion through the end of June 2021 in the $53 billion operating budget and by $4.3 billion in the two-year budget that lawmakers will adopt next year.

As in other states, Gov. Jay Inslee managed the new coronavirus pandemic by ordering people to stay at home and for businesses deemed “non-essential” to close. That move, which took effect in late March, triggered a sharp decline in state revenue. The state now gradually is reopening the economy.

It’s unclear whether Congress will approve legislation to help states with the sharp declines in revenue, said Steve Lerch, the state’s chief economist and executive director of the state Economic and Revenue Forecast Council.

The Office of Financial Management directed state agencies to outline what a 15 per cent spending cut would mean for services in an “all-cut budget,” in part to help Washington’s congressional delegation make the case for federal assistance.

“I do not see us without substantial help being able to resolve this shortfall in revenue,” said Rep. Timm Ormsby, a Spokane Democrat who is chair of the House budget-writing committee.

House Majority Leader Pat Sullivan, D-Covington, said the projected revenue decline is not surprising. He said the Legislature cannot count on assistance from the federal government.

“Our experience through the Great Recession showed us that addressing a shortfall of this magnitude requires a balanced approach that doesn’t put recovery in jeopardy,” Sullivan said. “Cuts alone cannot solve it, and in fact would inflict even further pain on working- and middle-class Washingtonians by gutting essential programs and services. But revenue alone will not close the gap either.”

State Rep. Frank Chopp, D-Seattle, released a proposal last week to generate an additional $2 billion annually “to avoid the austerity budget cuts of the Great Recession.”

Chopp’s plan includes a capital gains tax and a new tax on big businesses for each employee who earns more than $500,000 per year. The capital gains tax would apply to the sales of high-valued assets such as stocks and bonds when they generate large profits.

The increased revenue would add funding for the public health response to the COVID-19 pandemic, behavioral health treatment, and community health clinics, rural hospitals, regional trauma centers, and local emergency services.

Inslee proposed a capital gains tax most recently in 2019, but there weren’t enough votes for passage in the Democratic-controlled Legislature.

COVID-19 could change that vote-count in favor of progressive taxation, said Katie Baird, an economics professor at the University of Washington Tacoma. She is among several economic and policy officials who signed a letter sent to Inslee this week urging him to avoid “deep and damaging budget cuts.”

The letter stated that “Washington has the opportunity to enact new taxes on the wealthiest Washingtonians and profitable corporations...”

Republican legislators repeated their call for a June special session of the Legislature to address the current fiscal year budget, saying tax increases are not needed.

“We have just put our economy and the businesses that support the state budget through enormous turmoil as a result of this public health crisis,” said state Sen. John Braun, a Centralia Republican. “Many of them will not survive. The ones that do survive are going to be right on the edge, so I don’t think it’s wise, prudent to tax them more to solve this problem.”

Braun, the highest-ranking Republican on the budget-writing Ways & Means Committee, said the Legislature needs to meet in special session immediately. He noted that lawmakers can tap $3 billion in reserves, leaving a projected revenue shortfall of $1.4 billion in the current budget.

“The Legislature still has time to pull back on all the new spending commitments that are scheduled to take effect July 1, and free up about a billion dollars that would be put toward maintaining critical services instead,” he said.

Braun said the $1 billion in new spending that kicks in July 1 includes a 3 per cent cost of living pay raise for unionized state workers and non-represented classified employees, which he said should be cancelled to save about $113 million.

“Hundreds of thousands of folks in Washington are without a job entirely. It seems entirely appropriate that we not do an increase for state public employees,” he said.

Earlier Wednesday, Inslee announced that more than 40,000 state employees will be required to take one furlough day per week through July 25. After July, employees will be required to take one furlough day per month at least through the fall, the governor’s office said.

The governor directed state agencies under his authority to cancel a scheduled 3 percent pay raise for many of the state’s highest-paid non-union employees, primarily in management posts. The cancellation of the pay raise applies to about 5,600 employees who earn more than $53,000 annually.

Those two steps are expected to save $55 million. The governor urged other agencies not under his authority — including higher education institutions, the Legislature, courts and separately elected officials — to adopt similar measures. If they do, the state would save another estimated $91 million.

Inslee said the spending reductions means the state won’t have to reopen negotiations with unions representing state employees who are set, along with non-represented classified employees, to get a 3 per cent cost of living pay raise on July 1.

Democratic Legislative leaders have been discussing the timing of a special session with the governor’s office and a date probably will be known next week, said state Sen. Christine Rolfes, the Bainbridge Island Democrat who is chair of the Senate budget-writing committee.

At a press conference, Inslee said he could call a special session later this year if the House and Senate agree on “meaningful measures,” but he would not say whether those would include tax increases.

The governor expressed concern that deep budget cuts would harm the “least among us, the people who are most in need, people with mental health problems, people with health problems, people who are trying to get a state patrolmen help them out.”

This story was originally published June 17, 2020 at 11:13 AM.