Considering the State's Widening Budget Gap

A new WashACE Competitiveness Brief looks at what the June revenue forecast means for budget writers in 2009, if not earlier. The brief, prepared for WashACE by the Washington Research Council, replicates the Senate Ways and Means Committee outlook, updating it with the new revenue numbers.

...projected expenditures exceed current revenues by $2.7 billion in 2009?11 and $2.5 billion in 2011?13, indicating a structural deficit. As a result, the GFS shows negative balances of $2.6 billion at the end of FY 2011 and $5.5 billion at the end of FY 2013. The shortfalls might be offset somewhat by funds from the budget stabilization account. Under the current economic forecast, in FY 2009 employment growth will dip below the 1 percent threshold that triggers access to those funds [by a simple majority vote].

Construction activity, which played a large part in the revenue boom, comes in for special attention in the WashACE brief.

The ERFC's models did not accurately forecast the recent boom in construction. Our fear is that?symmetrically?the models are failing to foresee a sharp decline that is in the works.   

With the troubles in the mortgage markets, residential construction activity is slowing and the number of new home permits issued is down sharply. Nonresidential construction remains strong, for the time being. But this largely reflects projects that have been in the pipeline for a long time.

As the brief points out, there will be additional revenue forecasts before budget writers gather in Olympia, as well as updated caseload forecasts, which will alter the trajectory of proposed spending on social services, education, and health care. A slowing economy typically increases pressure on the state budget, so the good news there may be hard to find.

Read the whole brief. And ask your legislators how they plan to close the gap.