Relatively rosy state budget forecast expected

OLYMPIA – Washington might get the most optimistic budget outlook in years today when state economists deliver the latest revenue forecast.

The demand for state services may be lower and the amount of expected revenue may be higher than last November, signaling a shift of more than $500 million to the good.

Things may be so good, in fact, that on Wednesday Republicans were already worrying the forecast could take the pressure off majority Democrats to agree to some long-term reforms the GOP has been pushing.

The caseload forecast, which measures costs of state programs ranging from students in public schools to families receiving assistance and medical care, could be down by as much as $340 million for the fiscal cycle that ends in June 2013. That demand is tied partly to the economy but also to demographic factors, such as how many school-age children live in the state.

Earlier this week, Gov. Chris Gregoire said she expected today’s revenue forecast for the coming 17 months would be “flat” – neither up nor down from the November figures. After several years of declining revenue as the state struggled with the recession, Gregoire called that a win: “It’s the new happy to be flat.”

Declining revenue forecasts last September and November prompted her to propose some $2 billion in cuts in an effort to close the gap between expected tax collections and projected expenses and leave a cushion for any further drops in revenue. She also suggested a temporary sales tax increase to “buy back” some of the worst budget cuts she was proposing for public schools, colleges, social programs and public safety.

Although Gregoire also asked legislators to move quickly to close the budget gap, final budgets by the House and Senate have been waiting on today’s economic forecast.

On Wednesday, leading Republicans said they believe that forecast may project revenue growing by as much as $200 million over the rest of the biennium. Combined with the drop in demand for state programs, that would be a shift of as much as $540 million.

“It looks like a gift,” said Senate Minority Leader Mike Hewitt, R-Walla Walla. “It does not fix the structural problems going forward.”

Republicans have called for major reforms in growing state programs in exchange for supporting budget plans proposed by Democrats. With pressure easing on the budget, Hewitt and House Minority Leader Richard DeBolt, R-Chehalis, said there may be an urge to muddle through with small changes rather than accept major reforms that cut expenses in the future.

There may be another $18 million bump to the budget in the offing: Republicans and Democrats may have reached a deal on eliminating a tax exemption that five large banks receive for making first mortgages in Washington.

Rep. Kevin Parker, R-Spokane, said recent studies indicate neither the state nor first-time homebuyers see the expected benefit from that tax exemption for those five banks, although there is a benefit for mortgages from smaller community banks. Parker will work with Rep. Reuven Carlyle, D-Seattle, on a bill to drop the exemption for five of the nation’s largest banks: Wells Fargo, Key, Citibank, Chase and Bank of America.

Eliminating a tax exemption requires bipartisan support, because like a tax increase it requires a two-thirds majority in both chambers.