Article by Erik Smith. Published on Friday, September 16, 2011 EST.

New Revenue Forecast Points South – Hunter Says the Real Gap is More Like $2 Billion

 

Economist Arun Raha delivers his projection, while members of the Economic and Revenue Forecast Council listen. From left, state budget director Marty Brown, Raha, state Rep. Ed Orcutt, R-Kalama, and state Sen. Joe Zarelli, R-Ridgefield.

SEE ALSO: Latest Budget Crisis Prompts Plenty of Comment

By Erik Smith

Staff writer/ Washington State Wire

OLYMPIA, Sept. 15.—A new forecast from the state’s top economist Thursday handed Washington lawmakers a $1.2 billion shortfall next year and set the stage for another nasty session of budget cuts – maybe a special session, too, and even a public referendum on a tax increase.

            Everything seems to be pointing south, says economist Arun Raha, and there are plenty of warning signs that the nation is headed back into recession. Bad economic news means a hit on state tax revenue, too, and the real question is whether the trouble will stop at $1.2 billion. The actual problem lawmakers face next year is closer to $2 billion, insists House Ways and Means Chairman Ross Hunter, and the way things are going, the state might expect another nasty forecast in November, just before lawmakers head back to town.

            So lawmakers face another round of big budget cuts, made harder by the fact that they have been slashing everything in sight since the Great Recession began in late 2008. This time around, there seems to be more serious talk about tax increases – a move that would require a public vote, perhaps as early as the first few months of next year.

            As Raha delivered his grim projection to a packed hearing room at the state Capitol, he said it probably comes as a surprise to no one. “The aftermath of the Great Recession is turning out to be a never-ending nightmare,” he said. “I truly wish that I could assure you that this nightmare is about to end. But I see no end in sight. The best that I can hope for is that we don’t slip into another recession.”

            Latest Budget Already in the Red

            Raha’s forecast is important because it is the be-all and end-all figure the Legislature uses as it determines how much it can spend. The latest projection means the budget adopted by the Legislature earlier this year is already out of whack by $1.2 billion.

            Just to keep things straight, Raha’s projection is $1.4 billion less than the last forecast in June, and it is $1.6 billion less than the one the Legislature used when it wrote the current state budget. Right now, Raha is projecting $30.3 billion in tax revenue for the 2011-13 biennium.

            It’s not that all segments of the Washington-state economy are plunging, Raha said. Aerospace, software manufacturing and agriculture all seem to be doing well. But the state’s tax revenue is heavily dependent on new construction, one of the areas that has been hardest hit. And as consumer confidence plunges, sales of big-ticket items like automobiles are plummeting – meaning less sales-tax revenue.

            “We have had an unemployment rate of over 9 percent now for several years, and so that does not do much good for consumer confidence, so consumers are not going to be feeling good about their financial prospects,” he said. “They are not going to go out and spend money. They are going to hunker down and try to save what they can, which is what we are seeing. They are paying down debt.”

            So Raha isn’t talking anymore about a recovery that seems to be just around the corner. His latest projections don’t show the state recovering to its pre-recession peak through 2013. When full recovery will come, he’s not saying. His projections don’t go out that far.

            Really a $2 Billion Problem

            State officials have been resigned to bad news since mid-summer, when Congress dithered over debt, federal credit was downgraded and the stock market plunged. The governor’s office ordered state agencies a month ago to begin planning for a 10 percent budget cut. Plans are due next Thursday, though budget director Marty Brown said across the board cuts clearly aren’t going to do the trick. “I’ve met with some of the bigger agencies,” he said. “They can get there, but they go from absurd decisions to beyond-absurd decisions.”

            The real problem is actually closer to $2 billion, Hunter said, because the Legislature has to leave some money in the bank. The state bases its spending on projections, rather than cash on hand. So a cushion of half-a-billion dollars or so is only prudent, he says.

For legislative insiders, probably the most important news out of the forecast is the timing. About half-a-billion dollars of the hit comes before June of next year, and the other $900 million comes in the second year of the budget period. That means lawmakers have to act quickly, but they don’t have to slash everything at once.

            No Enthusiasm for Special Session

            So what’s the Legislature to do? Conventional wisdom normally would be to call a special session and get to work immediately on the sort of rapier-like cuts that only the Legislature can enact. But not even the biggest budget hawks on the Republican side of the aisle are suggesting that. After three years of deep spending cuts, lawmakers say there just aren’t any easy ones left. Going any further will require complex legislation, public hearings and debate. You don’t do that in a day or two.

            “We don’t need to come in here and sit, because I think that sort of sends the message that we saw back in D.C.,” said Senate Ways and Means Chairman Ed Murray, D-Seattle. “So we are going to act, we’re going to do the responsible thing, and we’re going to take some time to get it right.”

             State Sen. Joe Zarelli, R-Ridgefield, the Senate Republican budget leader, is suggesting that the state launch its own bipartisan budget-cutting commission to come up with a short- and long-term plan. He is suggesting an unprecedented approach that would allow legislative leaders to appoint members of the opposing party. “The governor could call us into a special session before January, of course, but it would have to be productive, and that would require a lot of advance work,” Zarelli said. “The last thing anyone needs is weeks of legislative wrangling with little savings to show for it.”

             Meanwhile, the governor is calling a special session. unavoidable. She says it is the Legislature’s job to get its act together. 
 

            Public Tax Vote a Possibility

            Just as big a question is whether the state will turn to taxes to stave off at least some of the budget cuts. It is unlikely that the Legislature would do so by itself, because Initiative 1053, approved by voters last year, requires a two-thirds vote of both houses for any tax increase. Democrats might be willing, but Republicans aren’t.

            However, the measure also allows a tax increase with a public vote, and in the last week there has been much talk in Democratic circles about calling a special statewide election early next year, before the Legislature has to make a final decision on the next budget.
           Murray, who represents an unusual district in central Seattle where it is safe for politicians to talk about tax increases, said a public vote sounds good to him.

            “You saw some of the draconian cuts we did make, to things like teacher salaries. Those choices don’t get better as we look at this problem, and I think we should offer the voters another option. That is my personal opinion, and it is one that I will try to push with my members,” he said.

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