State’s revenue forecast jumps by $450 million

OLYMPIA – Washington’s expanding economy, propelled by a construction boom in this era of low interest rates, will pump an additional $450 million into state coffers, the Revenue Forecast Council said Thursday.

The windfall means the state now has a projected reserve of more than $600 million, about 2 percent of the two-year budget.

Majority legislative Democrats, defending the budget and tax decisions they made in April, said about $100 million of the new money will be needed for rising school enrollment and court caseloads next winter. They also said state pension plans, not fully funded in the last session, may get some additional money.

Republicans said the new revenue forecast makes it clear that the Democrats’ tax package of $480 million approved earlier this year wasn’t necessary. Rep. Ed Orcutt, R-Carrolls, called for repeal of “sin taxes” that lawmakers added to cigarettes and liquor, and for repeal of the estate tax.

The forecast council, a bipartisan group representing the Legislature and the administration of Gov. Christine Gregoire, approved a forecast that shows the state treasury growing by an unexpected $109 million in the fiscal year that ends June 30, plus an additional $341 million in the upcoming two-year budget cycle.

The forecast is the second big increase in a row. In March, the projection grew by $739 million and helped lawmakers plug a budget shortfall of more than $2 billion.

The state’s chief economist, ChangMook Sohn, said Boeing and the aerospace industry, Microsoft and the software industry, and the construction sector are leading the way. The state has added 70,000 jobs in the past year, and more expansion is expected, he said.

He lingered over the construction numbers, saying they explain much of the new expansion of the economy and the state treasury. More than 20,000 construction-related jobs have been added in the past two years and the state is outpacing the national rate of home construction, with more than 50,000 new houses going up each year, he said.

The real estate excise tax, 1.28 percent of the price, has gone from an obscure revenue source to a major tax that will bring in $1.4 billion in the new biennium, Sohn said.

Construction-related sales taxes, on materials, furniture and appliances, are swelling the treasury, now accounting for a quarter of all taxable sales and growing much faster than revenue from other sectors, he said.

He did caution that the market is bound to cool off.

“Sooner or later, the correction is coming,” he said. He conceded that he’s been predicting that for some time, only to be proved wrong repeatedly.

Sohn said Boeing and aerospace continue to be a bright spot. The industry is expected to hire 5,800 additional workers this year and 5,000 more in each of the next two years, he said.

Microsoft and the software sector are adding 3,000 jobs over the next two years, he said.

The new forecast, coupled with the tax increases adopted this winter, will boost the revenue for this two-year budget cycle to $23.55 billion. For the two fiscal years that begin July 1, the changes will increase the projected revenue to $25.38 billion.

The council chairman, House Finance Chairman Jim McIntire, D-Seattle, was enthused by the new report, but said in an interview: “It’s kind of bubble-ish. It would be irresponsible to just assume it will keep going.”

For now, he said: “This is terrific news. It shows a strong economy with over 70,000 new jobs. It shows a strong confidence by employers and by consumers.”

Sen. Mark Doumit, D-Cathlamet, vice chairman of the Senate Ways and Means Committee, said lawmakers have reason to be both cautious and optimistic.

Both Democratic leaders defended the Legislature’s decision to raise “sin taxes,” including a 60-cent-a-pack increase on cigarettes and a big increase in the liquor tax, as well as extending a tax on estates of more than $2 million.

McIntire said Democrats would make the same decisions even knowing the size of the new revenue forecast. The Legislature left town with a skimpy reserve fund of less than $200 million, and the new bottom line won’t be extravagant, especially given the need for a supplemental budget next winter, McIntire said.

Minority Republicans said they’re more convinced than ever that a tax increase wasn’t needed.

Sen. Joseph Zarelli, R-Ridgefield, ranking Republican on the budget panel, said if lawmakers don’t get a handle on soaring costs of entitlement programs, they’ll never have enough revenue. The new revenue numbers are “glorious,” but costs are eating the state alive, he said.