State’s economy growing, analysts say

OLYMPIA – Washington’s economy is slowly, steadily growing, aided by a sizzling real estate market and the prospect of new Boeing jobs, and should pump an additional $132 million into state coffers, state economists said Thursday.

The new cash isn’t a lot, compared with the state’s $23 billion budget, but will help lawmakers and the governor deal with a looming budget hole that could total $1 billion.

The state Revenue Forecast Council, a bipartisan group of legislators and the state revenue and budget directors, adopted the new, mostly upbeat revenue update on Thursday.

The lame-duck Locke administration will await a November update before finalizing a two-year budget proposal for the 2005 Legislature and the new governor. The budget office also needs fresh projections of caseloads and school enrollment, as well as the final price tag for state employee collective-bargaining agreements, said state budget chief Marty Brown.

Gov. Gary Locke, on a trade mission to Asia, released a statement saying the new forecast shows that the state is on a slow path to recovery. He said big fiscal challenges remain for the Legislature and the next governor, in part because of soaring health care costs for nearly 1 million low-income and disabled people.

State economist Chang Mook Sohn, the council’s director, said the state economy is pulling out of bleak times, albeit very slowly, and is expected to outpace the national recovery.

National monetary policy, including very low interest rates, is driving the latest expansion of the state economy by prompting people to buy houses, Sohn said.

Of the latest $132 million uptick, nearly all of that is due to expanded real estate excise tax collections, he said.

The state charges 1.28 percent of the purchase price of a home.

The tax will bring in an estimated $1.1 billion this two-year budget cycle, up a whopping 32 percent over last biennium, and has become the state’s fourth-largest revenue source, after sales, business and property taxes, he said.

But Sohn also cautioned that the housing market is likely to soften as interest rates rise again.

Sohn said Boeing and the aerospace industry, while only half the size it was just six years ago, is again becoming a benefit to the state economy, rather than a drag. Boeing is expected to hire about 2,000 people for Washington jobs by year’s end and continue the trend in the new year, he said.

Overall, job growth is running a little under 2 percent a year, as the state experiences the slowest recovery in modern times, Sohn said.

Some 32,800 jobs were added in the first eight months of 2004 – 15,300 in the Seattle area and 17,500 in the rest of the state. Previously, Seattle had been losing jobs while other parts of the state were holding steady, he said.

Senate budget Chairman Joe Zarelli, R-Ridgefield, said the sales and business tax receipts are still very soft and that real-estate sales won’t continue at this level forever. The Legislature needs to improve the state’s business climate, and Senate Republicans will try to produce a no-new-taxes budget, he said.

But House Finance Chairman Jim McIntire, D-Seattle, said a more optimistic reading is that Washington will outperform the national economy for the next two or three years.

As for the state budget woes, he said with a chuckle, “We certainly have an excess of expectations.”

Brown and Zarelli said the budget gap could be anywhere from $600 million to $1 billion. Brown said the $1 billion figure including a reserve fund of $300 million.