State downgrades revenue forecast
OLYMPIA – A softening economy will leave state lawmakers with $423 million less to spend than they expected this budget cycle, Washington’s chief economic forecaster said Friday.
But the state is unlikely to slip into recession, economist ChangMook Sohn said, citing strong aerospace and software industries and exports bolstered by the weak dollar. In fact, Sohn said, the state’s economy is among the nation’s strongest.
Still, the anxiously awaited revenue forecast was a blow to legislative budget writers struggling to pay for new programs, raises for teachers and higher state medical bills while saving hundreds of millions for the future. It could imperil many of this year’s spending proposals, such as more money for school libraries, a state tax refund to poor families and a property-tax break for homeowners.
Gov. Chris Gregoire had repeatedly called for lawmakers to leave at least $1 billion in savings, but that now looks highly unlikely. The $423 million drop was the largest quarterly adjustment since November 2001. “I think it’s going to be an interesting next three weeks,” said Victor Moore, the governor’s budget director.
The governor, who earlier asked for budget additions of $234 million and a reserve of $1.2 billion, said lawmakers should trim the old budget and scrutinize any new spending. “I have it under the microscope,” she told reporters after the state Revenue Forecast Council adopted the grim forecast.
Gregoire declined to give specifics about programs that can be trimmed or spending that can be postponed, saying she didn’t want to negotiate with lawmakers in the news media. She also declined to say how much legislators should salt away for next year, saying only that “I want a good reserve … a healthy reserve.”
While $423 million sounds like a large sum, Sohn also noted Friday that it’s only 1.4 percent of the 2007-2009 operating budget.
Republicans, outnumbered nearly 2 to 1 in the Statehouse, said the forecast underscores their calls for restraint. “It’s more than you can just put a happy face on,” Sen. Mark Schoesler, R-Ritzville, said of the $432 million drop. “They always say if you’re in a hole, stop digging,” Schoesler said. “I have to look far and wide to find anyone that didn’t get an increase” in the last budget. “The new spending in every conceivable category is just phenomenal.”
Lawmakers in both parties and the Gregoire administration said they will use caution in writing a supplemental budget, although Republicans and groups such as the Washington Policy Center were bolder in advocating spending cuts. The House will propose the first draft next week, probably Wednesday.
Gregoire said she set a conservative tone by telling interest groups “no, no, no, no” when they requested more money. “I curbed expectations,” she said.
Nationally, Sohn said, the economy is clearly slowing, hobbled by a sagging real estate sector and high gas prices. Federal data shows “a short and shallow” national recession in the first two quarters of this year, he said. Since November, job growth, consumer confidence and retail sales have weakened, Sohn said.
In two recent recessions, Washington was slow to slump – and slow to emerge. But in 1991, Sohn said, a national recession bypassed the state completely.
“We believe that that will be the case again in the year 2008,” he said. The state’s economic picture, he said, “will remain slightly positive.”
Real estate – the engine that fueled a long string of better-than-expected state revenue forecasts in recent years – is clearly slowing here, Sohn said. Construction employment hit a peak of 209,000 last year. By the end of 2008, almost 10,000 of those jobs are expected to be gone, he said.
The software industry remains a bright spot, with 2,500 new jobs expected this year and next, he said. And aerospace employment, traditionally a roller-coaster, is expected to continue growing until the fall, then remain steady through 2011.