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Recession at bottom, WA forecast dips slightly

Economist: ‘Recovery under way’

OLYMPIA — Dr. Arun Raha, the state’s chief revenue forecaster, expects a slow recovery to continue, with Washington doing better than many other states.

Raha announced a revenue forecast for the remainder of the state’s biennial budget cycle that is down slightly from three months ago. It is the smallest drop since the recession began in 2008, he said.

“The Great Recession may be over, but has wrought havoc on the economy,” Raha said during the meeting of the Economic and Revenue Forecast Council. “Revenues are bumping along the bottom. We are not out of the woods yet.”

Combined with other factors, including a state Supreme Court ruling on taxes, he projected the state currently has a gap of $2.8 billion between what it can expect to receive in revenue and what it would need to pay for all the programs, systems and employees it currently has. The previous forecast predicted a $2.6 billion shortfall.

The forecast for the next biennium, from mid 2011 through mid 2013, calls for growth of about $3 billion, he said.

Any optimism has to be tempered with the realities of tight credit, particularly for small businesses who rely on local banks for their loans, and high unemployment, Raha said.

There are encouraging signs, such as slightly higher than expected spending by consumers at the end of 2009, and sales of single-family homes, which were spurred by an $8,000 federal tax credit for new buyers. Washington is more reliant on foreign trade than most states, and exports are improving.

But home sales could slack off again when that credit expires later this year. The state and nation both have an excess of commercial real estate. Construction, which is a significant job creator, is weak.

Democrats and Republicans who sit on the council had different reactions to Raha’s forecast. Rep. Ross Hunter, a Democrat, said the state needs to use its limited resources to focus tax relief in areas with the highest unemployment and make sure Washington businesses are competing equally, closing some tax loopholes that allow some businesses to avoid paying their fair share.

Rep. Ed Orcutt, a Republican, said the first thing the Legislature needed to do was not harm any recovery by passing a tax increase, and to lower other business expenses such as unemployment insurance and workers compensation.

Gov. Chris Gregoire has said she was waiting for the revenue forecast and a projection of the need for services before releasing a new budget that will call for some cuts and some specific tax increases. Victor Moore of the Office of Financial Management said this morning the governor’s package will be announced next week.

The forecast also generated wildly different responses from groups watching the legislative battles over cutting the budget or raising taxes.

Rebuilding Our Economic Future Coalition, a group of 130 health, education and social service organizations, said in a press release the forecast signals a time for the Legislature to fight cuts to state programs with “a responsible plan to close unfair tax loopholes and identify new sources of revenue.”

The Washington Policy Center, a conservative think tank, said projections for revenue to improve in the coming biennium rely heavily on consumer spending, which could be harmed with tax increases, particularly a proposal in the state House of Representatives to increase the sales tax by 1 percent while unemployment remains high.