Washington’s revenue projections are slowing thanks to inflation and an uncertain economy, new forecast says
March 20, 2023 Updated Mon., March 20, 2023 at 9:02 p.m.
OLYMPIA – The state will have less money to spend in the next couple of years than expected amid inflation worries and an uncertain economy.
The news is part of the revenue forecast provided to the Legislature to help lawmakers build a two-year budget to pay for salaries, public schools and programs.
Compared to the last revenue forecast in November, the state’s projected revenue for the two years ending in June is up by $194 million, but the projected revenue for the two-year budget ending in 2025 has decreased by $483 million, according to the state’s Economic and Revenue Forecast Council.
Based on Monday’s forecast, the total lawmakers can spend in the next cycle is $65.7 billion, not including any federal funds or any revenue generated through the new cap-and-trade program. The new program, which had its first auction last month, likely will generate at least another $1 billion over the next two years.
The drop in forecasted revenues reflects slightly lower personal income for Washington residents, higher interest rates and lower than expected collections from the real estate excise tax on the sale of property, said Steve Lerch, executive director of the Economic and Revenue Forecast Council.
Despite the slight drop in revenues, Democratic budget leaders said Monday’s forecast keeps Washington in a strong position to fund new and existing programs.
“This news makes us cautious, but it doesn’t really change our game plan that much,” Senate Ways and Means Committee Chair Christine Rolfes, D-Bainbridge Island, said. “And I feel confident we’ll be able to provide the services people are counting on.”
Sen. Lynda Wilson, R-Vancouver, Republican leader on the Ways and Means Committee, said the state is in a good place financially, but that lawmakers should take a more cautious approach in the upcoming budget.
“Spending has more than doubled in the past 10 years, and the rate of growth simply can’t continue if we want to remain in a sound budget position,” Wilson said.
She added the state should not increase or create any new taxes.
For the most part, revenue collections remain strong in Washington, Lerch said, but real estate and sales tax revenues remain low.
Lower personal income is the biggest driver of spending, which affects how much sales tax and business and operations tax collections the state gets, Lerch said. Similarly, higher interest rates change how people make big purchases, such as cars, furniture or appliances.
Another big driver of the lower forecast: inflation.
“Even though inflation is coming down, it remains high,” Lerch said. “It’s higher than many would like.”
Another possible change in this revenue forecast: the uncertainty of a banking crisis as Credit Suisse and Silicon Valley Bank have closed in recent days, though the fallout on Washington’s economy is still unknown and not accounted for in this forecast, Lerch said.
The budget that lawmakers write in the coming weeks is expected to be smaller than the $70 billion proposal Gov. Jay Inslee released in December, when forecasted revenue for the next two years was slightly higher.
House Appropriations Chair Rep. Timm Ormsby, D-Spokane, said fewer resources are available now.
“We should be very deliberate and make careful steps to ensure the budget decisions we’re making still protect the most vulnerable,” he said.
Rolfes said her team has spent the past few days readjusting its budget to this economic news. The budget Senate Democrats’ release still will reflect the strong position of Washington’s economy, she said. It just will be smaller than the one Inslee proposed.
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