Washington budget sag continues

OLYMPIA — Washington’s economic outlook has “weakened significantly” in the last three months, and the state could face a drop of $1.4 billion in the money it has available for its main budget over this two-year budget cycle, the state’s chief economist said this morning. Gov. Chris Gregoire will talk with legislative leaders in the coming days about the prospect of calling a special session to deal with the loss of revenue expected for this fiscal year, which is about $500 million. The four legislators on the panel that approved the budget forecast agreed that a special session might be called, but disagreed on how extensive it might be. Republicans leaned toward a short session to handle agreed-upon cuts; Democrats said it would require more significant cuts to programs which mean changes to existing statutes, hearings, public input and likely amendments. Normal economic times “seem like a mirage in the desert, the closer we get to it, the further it moves away,” Arun Raha told the state’s economic forecast council. “It appears that we are in for, at best, an extended period of muddle-through.” On the plus side, hiring is up at Boeing and the state’s software industry led by Microsoft; farm prices are good and exports, which are a significant factor in Washington’s economy, are improving, Raha said. But state revenues — the taxes and fees collected for general programs and many state salaries — are down $40 million from the June forecasts. The job market is weaker than expected, with the number of new jobs below projections and the unemployment rate holding steady at 9.3 percent. Home foreclosures are expected to rise, adding to the excess inventory of houses on the market. Construction is down, which is a significant problem because it accounts for only 5 percent of the state’s economy but 10 percent of its revenue, Raha said. Outside the state, political gridlock in the nation’s capital and economic problems in Europe add to a pessimistic outlook. Bottom line: “Downside risks outweigh upside risks.” Raha said he’d like to assure the state the economic nightmare was over. “I see no end in sight.” He’s not predicting a double dip recession, but he’s less optimistic now than in June that such a downturn won’t happen. Raha estimates the state will have $500 million less than it is scheduled to spend on all its general fund programs and salaries in fiscal 2012, and $900 million less than projected for the fiscal 2013 budget. Rep. Ross Hunter, D-Medina, the chairman of the House Budget Committee, said the actual shortfall is more like $2 billion, unless the state finishes its budget cycle with no money to carry it into the next biennium and spends all of its Rainy Day Fund. So the question quickly becomes how soon does the Legislature begin meeting to tackle the budget problems. It’s not scheduled to meet until next January, but Marty Brown, the head of the Office of Financial Management, said Gregoire “would probably say she’s very uncomfortable waiting until January.”