State expects $850 million revenue boost over next 28 months

OLYMPIA – Democrats and Republicans alike said it was good news that the latest revenue forecast projects an extra $850 million coming into state coffers through July 2021.

Most sectors of the state economy are doing well, even if the job numbers and some other figures aren’t all as strong as they have been in the recent past, state economist Stephen Lerch said Wednesday.

Legislators disagreed, however, on what exactly that good news is.

For Democrats, it means the tax increases they will propose next week with their 2019-21 state operating budget will be smaller. Even with the $850 million extra revenue projected Wednesday – which would give the state about $5.1 billion more than it will spend in the current two-year budget – it’s not enough to cover the cost of inflation, higher salaries, the state’s extra obligations to public schools and needed improvements in special education, mental health, homelessness and opioid addiction, they said.

“This reduces our problem, but doesn’t eliminate it,” said House Appropriations Committee Chairman Timm Ormsby, D-Spokane, who is working on a 2019-21 budget proposal to be released Monday.

For Republicans, it means tax increases should be off the table and the Legislature should be able to cover existing and new expenses with the money economists expect to come in. Maybe the state could even cut taxes somewhere, they said.

The state’s finances are in the best shape in a decade, since before the recession, said Sen. John Braun of Centralia, the top Republican on the Senate Ways and Means Committee. “I see no reason why we would need new taxes,” he said.

That’s likely to be the debate that will play out over the next six weeks as legislators try to develop a budget that will cover the two-year cycle and balance, at least on paper, over four years.

Democrats will release tax proposals, along with their budget that they contend will make the state tax system less dependent on lower- and middle-income residents. Among the options mentioned is a capital gains tax on certain investment proceeds above $25,000 per year for individuals or $50,000 for a married couple. Critics claim that’s an income tax that would require a constitutional amendment.

Republicans said Wednesday if majority Democrats really want to help the poor and working people, they should use the revenue windfall to cut the sales tax, which takes a bigger share of their income than of the wealthy. They could also cut the property tax or offer more exemptions for seniors, GOP leaders said at a news conference after the revenue projections were released.

The extra revenue is a result of a series of favorable trends in the state and the nation, said Lerch, executive director of the state Economic and Revenue Forecast Council. Although the total number of jobs in Washington was down slightly in February, the growth in jobs and personal income in Washington has outpaced the country overall in the past year and residential construction is strong, he said.

The news is not all positive, he added. A trade deal with China seems less likely than a few months ago and the state’s gross domestic product and employment forecast are down slightly. The impact of the grounding of the Boeing 737 Max 8 on employment and personal income is uncertain.

A minority of economists polled by the Wall Street Journal thought the nation would experience a recession in the next 12 months, although economists “do not have a great track record of predicting exactly when recessions are going to happen,” Lerch said.

But that doesn’t mean it will be a recession of a magnitude like the last one, said Senate Ways and Means Chairwoman Christine Rolfes, D-Bainbridge Island.

“There will be a national recession,” Lerch said.

“And nobody knows when or how bad,” Rolfes added.

Because of mandated state reserves, Washington is in a better position to weather a recession than it was in 2008, said state Treasurer Duane Davidson.