OLYMPIA, June 21.—The latest word from the state’s economic forecast office means that any slight jiggle in the economy, any hiccup or disruption, and lawmakers will find themselves in the red. The fudge factor is gone.
Only $22.7 million in projected income separates the state from a tumble over the abyss into another shortfall. That’s out of a spending plan for 2011-13 that runs $31.1 billion. Not really any margin of error to speak of.
That’s the bottom line from the latest projection from the state’s Economic and Revenue Forecast council, which was released Wednesday. The picture looks slightly bleaker than it did a few weeks ago, when the governor signed the latest budget and it appeared the state had $46 million to spare. Turns out those numbers were presented in a way that made the situation look slightly better than it was, to the tune of $7 million or so — those numbers included a couple of “near general fund” education accounts. At the same time, the latest economic forecast has trimmed economic expectations just a tad, by about $16 million. But given the magnitude of the budget and the teeny amount left in reserve, it is really no change at all. The situation is the same. One gust of wind, and lawmakers may be back in Olympia, trying to figure out how to balance their budget again.
But you might look on the bright side, said House Ways and Means Chairman Ross Hunter, D-Medina. At least things really didn’t get any worse. “Stable is good,” he declared “This forecast is essentially no change to where we left this session. We haven’t learned anything new. The risks are still the same. If the world continues along the path it continues, we will not need to come back into special session or to do anything.
“If the world chooses to turn into a towering inferno, we will do something different. But right now it is flat. Flat is the new up.”
Forecast Adds $156 Million
For all you budget and accounting fans out there, the quarterly forecast for June adds $156 million in new revenue to the last one, which was issued in February. That’s because the Legislature passed bills this last session that increased state revenue by $172 million. Meanwhile, the state’s economic forecasting model trims about $16 million in expected tax revenue.
But it doesn’t affect the budget numbers greatly because lawmakers were already counting on that new revenue when they passed their latest budget and went home April 11.
Actually, some of those new-revenue assumptions may already have problems. The state was counting on $12 million in new tax revenue from smokeshops that operate “roll-your-own” cigarette machines. Whether the state will actually collect a dime is questionable. The smokeshops are going to court to seek an injunction preventing the tax from taking effect on July 1. And even if the new tax does take effect, there is plenty of doubt about whether any money can be realized, as it would boost the price of cigarettes to the same level as that in grocery and convenience stores. In ordinary times, a $12 million glitch would barely be worth notice. But that one issue, all by itself cuts the state’s margin of safety by more than half.
Forty Percent Chance of Nastiness
The same storm clouds that were on the horizon a few months ago still loom overhead, says Dr. Stephen Lerch, who has been filling in as the state’s chief economic forecaster since the resignation of Arun Raha earlier this year. The European economy might collapse. Economic policies adopted by Congress may send the nation into another recession. For that reason, he says there is a 40 percent chance that things might be worse than he projects, and only a 10 percent chance things might be better.
The current downturn is now in its 53rd month, and there are only modest signs of improvement. A blip in car sales, for instance, that might be explained by the fact that people have deferred purchases for so long that they are compelled to buy cars now. Car sales account for about four to five percent of the state’s tax revenue. That could easily tank again. “We are looking at slow economic growth, slow job growth, weak confidence, pretty much the same things you heard me say in February, and again [there is] a great deal of concern about the uncertainties out there.”
For the current biennium, Lerch is projecting $30.4 billion in tax revenue. For the 2013-15 biennium, the forecast is for $32.6 billion in revenue.
In the ‘Realm of Okay’
What the numbers really mean is that the state doesn’t have to make any big adjustments now, and the state might be able to hold off on ringing any alarm bells until the next revenue forecast in September. The state, it should be noted, will have about $265 million parked in a “rainy day” account by the end of next June, meaning that it does have some resources that might be tapped in case of emergency – but the Legislature would have to return to Olympia in special session to access that money.
Marty Brown, director of the state Office of Financial Management, said the budget office is working on a projection of next year’s budget picture, but doesn’t have anything to report at this point. “With the changes the Legislature made [last session] and this forecast, I think we are in the realm of okay,” he said.
That doesn’t take into account the big increases in education spending lawmakers are just beginning to contemplate for next session, as a result of the state Supreme Court’s McCleary decision, which held that the state is not doing enough to fund “basic education.” That might add as much as $1 billion in new obligations.
But for now, lawmakers might be able to count on taking the summer off. “It is not great news, but it is certainly better news than we have seen, after horrific forecast after horrific forecast happening in these meetings,” said state Sen. Ed Murray, D-Seattle, chairman of the Senate Ways and Means Committee. “I am less concerned today than I was before about our need to go into a special session, barring some huge problem.”
State Rep. Ed Orcutt, R-Kalama, chairman of the council and the House Republican member on the panel, said he isn’t quite so sanguine. “Everything I am seeing out there leaves me with a tremendous amount of concern about how much we have got left in the ending fund balance,” he said.