New Forecast Puts State in Current Year Deficit; $5 Billion Shortfall Ahead

If Apocalypse Now hadn't been taken, pundits would be affixing the label to today's revenue forecast: Down $1.9 billion for this biennium and the next, deepening the hole to $5 billion.

Although the link is not yet up on the Economic and Revenue Forecast Council site, The Council just finished the grimmest session in memory. Here is the press release and notebook. Adam Wilson has his preliminary story here.

New forecaster Arun Raha maintains a long tradition of deadpan delivery, matter-of-factly reporting that "an official recession has not yet been called, it it's certain it will be." Following a recitation of grim economic news, including historically low consumer confidence, he states, "We are not immunce to these immense headwinds that are buffeting the economic landscape." His best-case prediction for holiday shopping is no decline in sales from the previous year.

Then, the hard news: In the current biennium, revenues will come in $503 million below forecast, dropping the total to $28.6 billion.

The big drop comes in the 2009-2011 biennium: Down $1.4 billion.

Raha points out that, biennium to biennium, there wil be a 5 percent increase in revenues. State budget director Victor Moore later comes back to that point, observing that in 2009 there is an absolute decline of about 4 percent in revenue, the uptick comes in the second year of the coming biennium.

State agencies will immediately be asked to find additional savings in the current biennium, in the neighborhood of $300-400 million. Legislative action to further reduce or reshape current biennial spending can wait until the session convenes in January. Sen. Joe Zarelli says lawmakers' first order of business should be putting together a supplemental budget that reduces spending.

Zarelli, who has been a consistent budget hawk, says, "A crisis is defined by your ability to respond to it." And sounds confident that lawmakers will find a way to do it.

With a $5 billion gap to close, the question of tax hikes came up. So far, the members of the forecast committee, which includes legislators who will play critical budget-writing roles, said that their focus would be on budget development. Rep. Ross Hunter mentioned the Priorities of Government process used by then-Gov. Gary Locke to write a no-new-taxes budget following the 2001 recession. Sen. Craig Pridemore, while saying "everything's on the table," kept the focus on priorities and acknowledged the damage tax hikes would inflict on the economy.

Rep. Ed Orcutt asked the right rhetorical question: "If the economy is this tough, how could the citizens afford more taxes?"

Raha estimates that the economy will begin to recover in the third quarter of 2009, but there will be no "real traction" until the middle of 2010.

Bleak as the budget picture is, our long-term focus must be on laying the foundation for sustained economic growth and a healthy business climate. Increasing costs now would severely damage our prospects for emerging from this recession in a strong competitive position. The WashACE agenda remains the best prescription for the times.