Steve Lerch, a state economist, is predicting about that this two-year state budget cycle will bring in about $60 million less than predicted four months ago.

Lerch was speaking to the state's Economic and Revenue Forecast Council.

In the 2009-2011 budget cycle, he thinks, the hit will be worse: $163 million less.

The reasons aren't suprising: high oil prices, "somewhat lower" employment, nervousness about the economy and fears about home values translating into lower consumer confidence and spending.

The good news: things are worse elsewhere in the U.S.

"That doesn't mean it (the economy) is maybe where we'd like to see it," said Lerch, "but we still continue to do better than a relatively weak U.S. economy." Gas stations and grocery stores, in particular, are doing well.

The real estate excise tax -- a windfall in recent years that fueled a large surplus in state coffers -- has dropped off dramatically. Lerch says it's the worst downturn in those tax receipts in more than two decades.

"We're assuming one more quarter of really pretty big decline in real estate excise receipts," he said.

"That's a dramatic decline off of a really big high," observed Rep. Jim McIntire, D-Seattle.

True, Lerch said. In recent years, the real estate tax had jumped by 20-40 percent a year.

What's this mean to state services, payroll and programs? Probably not much for now. Much of the $60 million decrease has already been factored into state budget planning for this two-year cycle, according to state budget director Victor Moore. And although it's a lot of dollars, it's a small percentage of the state's $33 billion general-fund budget.

"Not much of a change," said McIntire.

The hit in the '09-11 budget cycle is more worrisome. Sen. Joe Zarelli, R-Ridgefield, yesterday suggested a state hiring freeze to hold down state payroll growth. But so far there haven't been widespread calls for such a move.

"The problem is we made spending commitments based on that abnormal growth" in recent budget years, he said.

Legislative budget staff have estimated the state budget shortfall in the 2009-2011 budget cycle to be $2.5 billion, which would be a major hit. Moore suggested that it's likely to be less, although he wouldn't put a figure on it.

For now, Moore said, the state is curtailing unessential travel, reducing meeting costs, and looking for other ways to save.

"We know it's essential that they start paring back," he said.

Lerch predicts that the housing market is likely to start recovering by the end of this year. And he foresees "weak but positive" employment growth on the horizon.

"We're forecasting that Washington is not going to be in a recession," he said.

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