Despite the economic headwinds of high inflation and a possible recession on the horizon, revenue projections for Washington state’s current 2021-23 biennium increased by $762 million and by $681 million for the 2023-25 biennium.
That's an improvement from the September revenue forecast that had the next budget cycle down $495 million.
That was the word from Economic Revenue Forecast Council Executive Director Stephen Lerch at Friday afternoon’s virtual meeting of the council.
“In the two months since the September forecast, we have had a positive variance of $283 million,” Lerch said. “We had looked at some very strong growth in collections in the first quarter. We thought that would be sort of the high point. We were anticipating a slowdown.”
But that was not the case, he noted.
“We really had that revenue growth slowing a bit too soon,” Lerch explained. “We still do believe that things will slow down, but clearly we had that a little bit sooner than was appropriate.”
Stronger than expected business and occupation tax receipts since September also contributed to the robust revenue forecast.
“The B&O has been one of the big drivers,” Lerch said, adding that large estate tax payments, an increase in auto sales, and online share trading interest earnings were additional factors in the revenue forecast.
He cautioned those economic good times won’t last.
This fiscal year’s revenue growth rate is 11.6 percent. The projected revenue growth rate for fiscal year 2023 is 3.2 percent and -0.2 percent for fiscal year 2024, before rebounding to 4.1 percent in fiscal year 2025.
The drop into the red in fiscal year 2024 is because tax sources that currently go into the education legacy account get shifted to the public works account, Lerch said, reducing funds subject to the budget outlook.
“But in general, you know, we are looking at ... considerably slower growth going forward than what we’ve seen in the last couple of years,” he said.
Total state revenues are expected to grow 20.4% between the 2019-21 and the 2021-23 biennia and 3.5% between the 2021-23 and 2023-25 biennia.
Reactions to the good revenue news broke down along party lines among the legislative members of the council, with Republicans making the case for broad-based tax relief and Democrats urging caution.
Since this biennium’s original budget was written “we have seen revenues go up by $4.5 billion as of last February,” Rep. Ed Orcutt (R-Kalama) said. “Now about another $2.2 billion. That puts us $6.7 billion above the original projections that the original budget was written on.”
He went on to say, “You know, somewhere in here, we have got to figure out some sort of tax relief because we’ve got a lot of people that are suffering out there.”
Orcutt specifically mentioned across-the-board cuts to the property tax and state sales tax.
Rep. Lynda Wilson (R-Vancouver) agreed, but was pessimistic, noting a projected slowing of revenue growth combined with government spending means little chance of broad-based tax relief.
“I would like to see, again, tax relief,” she said. “I’m not sure that it’s going to happen.”
Sen. Christine Rolfes (D-Bainbridge Island) had a different take.
“But I also think that as we go into session, the budget writers are going to be looking at where we stand today and in terms of spending and government programs and looking at the long-term trend,” the Senate’s chief budget writer said. “And we’ll see where we go.”
Rep. Timm Ormsby (D-Spokane) echoed those sentiments.
“The revenue growth is slowing and it’s always very tempting to insert the, you know, very good circumstances as though they’re going to continue,” the chair of the House Appropriations Committee said.
Gov. Jay Inslee will release his two-year proposed budget in December, ahead of the January start of the 105-day legislative session.