Washington facing slow recovery

OLYMPIA – Washington’s economic outlook barely changed over the last four months as the state’s few bright spots – jobs in aerospace and software – were all but canceled by pending national and international problems.

The state continues to experience a slow recovery, State Economist Steve Lerch told the Economic and Revenue Forecast Council on Wednesday. If current projections hold, it sees an extra $156 million in its main budget – about one-half of 1 percent of a $30.4 billion budget – that wasn’t available when the Legislature approved a spending plan in April.

After several years of dismal economic and revenue forecasts, some council members called that good news.

“Stable is good,” said state Rep. Ross Hunter, D-Medina, chairman of the House Ways and Means Committee and a member of the council. Barring some major crisis, “we will not need to come back into a new special session.”

But state Rep. Ed Orcutt, R-Kalama, the chairman of the council, took a more pessimistic view, saying the state’s economy has “flatlined.” Some people have been out of work for many months and “I’m worried about how long they can hang on,” he said.

Washington has about 100,000 fewer jobs now than when the recession started more than four years ago, Lerch said. At the deepest part of the recession, two years ago, it was down about 200,000 jobs; employment might not get back to prerecession levels until 2014.

The state faces several potential problems beyond its control: a recession in Europe, a slowdown in the Asian economy and the “fiscal cliff” facing the United States at the end of the year, when some tax cuts are scheduled to expire and federal programs face mandatory reductions unless Congress reaches an agreement on a different solution to the deficit reduction.

“Whatever Congress does, it’s going to have an impact,” Lerch said.

Jobs in construction and in state and local government remain below historic levels, and small businesses remain pessimistic, making them less likely to spend on new projects or hire new employees.

There are some bright spots, too, he said. Employment is up in aerospace and software publishing, exports are growing slowly and oil prices are starting to come down.

New-car sales are also up slightly, but that may be because during the recession residents held onto their vehicles longer than normal and now must replace them out of necessity, not just because they want to, Lerch said.

The state relies heavily on taxes on consumer spending, from the sales tax on most products other than food and prescription drugs to real estate taxes.

Those economic factors are among the variables state economists study when developing a revenue forecast for what’s left of the current biennium and the two-year spending period beyond that.

For a two-year budget cycle that covers $30.68 billion in expenses, the state is expected to have about $30.7 billion in resources. That leaves only about $23 million in easily accessed reserves. There’s another $265 million in a special Budget Stabilization Account, but under some circumstances that requires a supermajority of the Legislature to spend.

Marty Brown, director of the Office of Financial Management, said the state’s current budget, which covers spending through June 30, 2013, was “in the realm of OK” at this point.

But the state faces significant added expenses through the rest of this decade on education because of a state Supreme Court ruling that it must spend more to meet its constitutional obligation to cover basic education from kindergarten through grade 12.