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Spin Control

Economy improving, state budget in black from tax hikes

OLYMPIA — Although the economic recovery “lost steam” in May, the state’s economic outlook is slowly improving and the state’s budget no longer awash in red ink.

What’s keeping it in the black, however, are hundreds of millions in new taxes the state expects to collect through mid 2013, and an as-yet unfulfilled promise of $480 million in federal money.

Arun Raha, the state’s chief economist, said this morning the state’s job growth was “disappointing” in May, after several good months of increases when manufacturing and software jobs improved. In May, most of the job growth was from temporary employment for people helping with the U.S. Census.

Some employers are holding off on new hires…

…because of economic uncertainty, Raha said.

The state can expect an extra $558 million in revenue that wasn’t projected in the spring, but that’s not due to the economy, Raha said. It’s a result of money from new taxes the Legislature approved in a special session that ended in April. The revenue outlook for 2011-13 is up $1.8 billion, and most of that is due to more taxes, too.

One problem the state faces, but is not reflected in the forecast, is a question over an extra $480 million in federal medical assistance percentages, or FMAP, which state officials are counting on to form the ending fund balance to start the next biennium. Gov. Chris Gregoire and Democrats in charge of the Legislature wrote that money into the budget based on statements by the Obama administration and congressional leaders that it would be approved.

It hasn’t yet. A bill that had the money in it failed on a test vote in the Senate Wednesday, and another proposal may get a vote today, and go to the House if it passes.

Sen. Joe Zarelli, R-Ridgefield, a member of the forecast council, said Gregoire’s office should set a “drop dead” date on waiting for that federal money. After that date, it should take steps to cut the budget by executive action or call another special session of the Legislature.

Zarelli suggested that date should be Aug. 1 at the meeting. In a later press release he revised that to Aug. 9, the day Congress is expected to begin its summer recess, and not return until after Labor Day.

Rep. Ross Hunter, D-Medina, another council member agreed the state would have to take some steps in August or September if the Congress hasn’t approved the money.

Marty Brown, Gregoire’s budget manager, said the options for across-the-board cuts the governor can make unilaterally are limited. Basic education, pension payments and debt service can’t be cut, so the Department of Social and Health Services “gets rocked…that’s where the money is.”

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About this blog

Jim Camden is a veteran political reporter for The Spokesman-Review.

Jonathan Brunt is an enterprise reporter for The Spokesman-Review.

Kip Hill is a general assignments reporter for The Spokesman-Review.

Nick Deshais covers Spokane City Hall for The Spokesman-Review.

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