Washington’s economic picture improves, budget shortfall shrinks

OLYMPIA – Washington’s economy has recovered some of the jobs, retail sales and tax revenue that plunged after the COVID-19 pandemic hit, improving its budget outlook for the next three years, but that still leaves the state “well below where we were in February,” the state’s economist said Wednesday.

The projected shortfall to the General Fund budget through June 2023 is about half the $9 billion projected in June when the last economic forecast was released, State Economist Steve Lerch said. The General Fund is the state’s main pool of money which funds education and most state programs and salaries outside transportation.

“It still leaves us well below where we were in February,” he said. The February forecast made before the pandemic was the one the Legislature used to increase the 2019-21 budget and project spending for two years beyond that.

There are also some unknown factors that could change the outlook, Lerch told the Economic and Revenue Forecast Council, a panel of legislators and other state officials. They include whether Congress approves additional jobless benefits to unemployed workers or another round of stimulus payments; whether the virus and its effect on the economy rise or drop in the coming months; and whether Boeing moves production of its 787 jetliner from Everett to South Carolina.

While legislative budget writers of both parties called the forecast good news, they had different ideas on what action it should generate.

Republicans continued their call for Gov. Jay Inslee to bring legislators back into a special session, a call they began issuing in the spring and have repeated since. Inslee has resisted those calls, saying he vetoed some spending in April, has made some additional cuts and ordered state agencies to identify others while waiting to see what aid comes from Congress.

While the economic outlook has improved, that “should not be an excuse for not acting sooner, rather than later,” said Sen. John Braun, of Centralia, the top Republican on the Ways and Means Committee. A special session should be called right away, but in any case before the November election, he added.

But House Appropriations Chairman Timm Ormsby, D-Spokane, said the improving economic news has changed his mind on a quick special session, which he supported when the June forecast called for a drop of more than $9 billion over the next three years.

About $4.6 billion of that projected drop has returned in the current forecast.

“We’re still waiting for the picture to become clear,” Ormsby said. “We do not have all the information we would need.”

While there is some information the state doesn’t have yet, that also will be true in January, when the regular session starts, said Rep. Ed Orcutt, of Kalama, the ranking Republican on the House Finance Committee. Making cuts now could avoid more drastic cuts later, he added.

The tax revenue from the improving economy relieves some of the urgency of budget cuts, said Senate Ways and Means Chairwoman Christine Rolfes, D-Bainbridge Island. There are still some questions of whether they should be addressed in a November special session or in January, she said, but there are also questions of whether the Legislature can conduct a special session with 147 members “on a Zoom call,” she added.

Lerch said the state saw three months of growth in retail sales and in food service sales, which both saw sharp drops before the June economic forecast. Some of that was a result of pent-up demand and could slow down, particularly if the federal pandemic assistance isn’t renewed.

Home building permits are stronger than expected, and the state is collecting higher-than-expected real estate excise taxes from home sales, being helped by low interest rates, he said. The state also had higher-than-expected auto sales.

“People had more money to spend than we thought,” Lerch said.

The state gained some 46,800 jobs in August and the unemployment rate dropped to 8.5% from 10.3%. But the state still has about 247,000 fewer jobs than before the pandemic.

“Some sectors are doing well, some are underperforming,” Lerch said. Among the latter are the construction, accommodations and food-service industries. Air travel at Seattle-Tacoma International Airport is down 70% from a year ago.

On the plus side, legal marijuana sales have been “quite strong” since April, Lerch said.

The state expects to collect an extra $66 million more than previously projected through June, for a total of $980 in the 2019-21 budget cycle, and an extra $68 million in the 2021-23 biennium for a total of $995 million.