Article by Erik Smith. Published on Thursday, March 17, 2011 EST.

State Economist Reveals Forecast Today, and Legislature Can Finally Get to Work — Even if Projection is Wrong Again

State economist Arun Raha.

UPDATE: 1 p.m. March 17 — the number has been revealed… and it’s a negative $778 million. Because it is offset by $287 million in good news from the state caseload forecast last week, the total state problem rose about a half-billion dollars, to about $5.3 billion. See story.

By Erik Smith

Staff writer/ Washington State Wire

OLYMPIA, March 17.—The day is finally here. State economist Arun Raha is set to reveal the number the Legislature will have to live with, once and for all – or at least until June, when he has to correct it again. 
            Raha’s tax revenue forecasts are the starting place for the Legislature’s central debate over the budget. With the number in hand lawmakers will finally be able to get to work, correcting their current budget and writing a new one for the next two years. Raha’s projection is the best-kept secret in Olympia – maybe the only real secret at the state Capitol – and his latest projection has been the subject of intense speculation. You might say it’s because so many of his previous projections have been so wrong.

            So you can say his projection today will bring a little certainty to the picture. Except it won’t. 

            Only Sure Thing — It’ll be Wrong

            Ever since the national economy went into a tailspin in late 2008, Raha, director of the state Economic and Revenue Forecast Council, has struggled to predict the amount of tax revenue that the state will receive. He’s supposed to provide an independent, non-political outlook, and his projection dictates the amount that the Legislature can spend when it writes a budget. Or to be more accurate this time around, how much it has to slash.

            Lawmakers started the year figuring that they had to cut about $5.7 billion in planned and projected spending. That number is a little loosey-goosey, because it includes nearly $2 billion in big-spending K-12 programs no Legislature would dream of launching at a time like this. They’ve already made several hundred million dollars worth of cuts. But suffice it to say that they still have a big problem, in the billions-and-billions range – probably somewhere in the neighborhood of $3 billion.

            Raha’s prediction is supposed to be the state’s best guess. The funny thing about it is that by now everybody expects it to be wrong.
 

            Charting New Territory

            It’s not that anyone blames Raha. It’s the economy’s fault. The problem, as Raha has frequently noted, is that there hasn’t been a recession like this one since the Great Depression. Economists weren’t gathering detailed information back then. The kind of data he has to work with dates back to the late ’40s, and it means no computer model was able to predict just how deep this one went, or how sluggish the recovery would be. To be fair, economists in every state have had exactly the same problem. Recovery is supposed to be around the corner, and it just never seems to come.

            All told, Raha has had to cut a whopping $6 billion from the initial forecasts for the 2009-11 budget period. [Note: The number increased by $80 million under the forecast released Thursday.] Raha notes that those initial forecasts weren’t his — they were developed by his predecessors. The first time he had to figure revenue for 2009-11, he cut $4 billion from their  projections. “People said I was crazy, but apparently I wasn’t crazy enough,” he said. Later he wound up cutting another $2 billion from his own numbers. He points out that he also writes “pessimistic” and “optimistic” forecasts, and the uncertainties were so big on the downside that he allowed a rather large 30 percent fudge factor. The funny thing is that the bottom-of-the range “pessimistic” numbers turned out to be the right ones. But those aren’t the numbers people quote.
            Initial projections for 2011-13, which begins July 1, have been cut as well, and you can expect further cuts to that $32.6 billion figure today. [Note: The Thursday forecast reduced that figure by $698 million, to $31.9 million.]

            Since everyone has come to expect bad news, the wisest heads in the Legislature have held off making spending decisions as long as they can. It has turned out to be a good bet. Monthly tax receipts haven’t kept pace with the last projection, in November. Lawmakers have been waiting for today’s number before they make the final corrections in the 2009-11 budget, and before they begin writing a new one for 2011-13.

            Even if this prediction has as many problems as the last ones, lawmakers really can’t wait any longer. The next projection comes June 16, and by that point the 2011 legislative session is supposed to be over.

            An $800 Million Vibe

            So now folks are trying to outguess the guesser. How much was the last forecast off?

            “The pool I’m in, I picked $837 million,” said Senate Minority Leader Mike Hewitt, R-Walla Walla.

            House Minority Leader Richard DeBolt, R-Chehalis, picks $750 million.

            State Sen. Craig Pridemore, D-Vancouver, former chairman of the Economic and Revenue Forecast Council, said he used to think it was going to be somewhere in the $500 million range. “Now I’m getting kind of an $800 million vibe.”

State Rep. Gary Alexander of Olympia, the House Republican point-man on the budget, plays it safe and says somewhere between $500 million and $1 billion.

            House Majority Leader Lisa Brown, D-Spokane, an economist by training, plays it even safer.

            “That’s a tough one for me,” she said. “My sense is that as a country we are in a recovery, a slow recovery phase, and it is potentially jeopardized by high oil prices and international unrest. And that Washington state’s prospects, really over the medium to long term, are very good as a state, with the news about Boeing, and because we have made some good strategic investments in infrastructure and other things – I think our state’s prospects are good. But we’re a sales-tax based economy and spending patterns lag, so jobs have to come back first and people have to feel comfortable with their savings accounts, and then they’ll start spending again, but we have a ways to go before that will happen again. That’s way more economics than anybody wants, I know.”

            Okay, but what about the number?

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