Revenue forecast: $2.6B “This is the other shoe dropping.”

The state’s unemployment rate will reach a peak in the spring of 2010 at about 9.8 percent, says Dr. Arun Raha, the state’s chief economic forecaster.

He said at the beginning of the revenue forecast council that they’re ratcheting down their estimates for revenue collections for the state. He said the model he used for reaching the earlier numbers had been untrustworthy. Raha, a noted joker during the dim revenue forecast council meetings, told the crowd that this wasn’t the only time he’d been led astray by a model — but last time, he was “much younger and unmarried.”

Back to the forecast: He said consumer confidence is “stuck” and unlikely to show significant improvement until the spring.

Raha said small, regional and local banks were faring better at the beginning of the economic downturn, but now they’re doing worse. “The reason … is that their portfolio has a larger exposure to commercial real estate loans, which lagged housing loans” in defaults. “The number of regional and local bank failures has been steadily decreasing around the country.

“This is the second shoe dropping,” he said. “It’s effect will be to slow down the recovery,” he said, noting that it’s a “smaller shoe” than the first.

He said it’s more difficult for smaller businesses to get loans. “The reason this is significant is that most of the new jobs created in this economy are from small businesses,” Raha said. “The continuing credit crunch for small businesses is effectively inhibiting growth for the country’s largest employment sector.”

Raha said the state is recovering from an overabundance of construction, too. He said the federal $8,000 housing tax credit has given housing a boost — and that the credit has been extended until April will help.

“We don’t expect a recovery in nonresidential construction this biennium,” he said.

Car sales are at about 60 percent of normal levels, and the federal “cash for clunkers” program, while it did provide a boost to car sales, may have just pulled what would have been future business into one month.

“We are witnessing a synchronized global recovery with both the Euro zone and East Asia in recovery,” he said. “Since March, the dollar has depreciated by a little over 12 percent, making our exports more competitive.” Why is a weaker dollar good? For trade-dependent Washington, it makes our exports more affordable for everyone else, he said.

Good news: Washington will outperform the nation in personal income growth. “Of course, it really doesn’t matter to me if people don’t spend this income,” he said.

Real estate excise tax collections are up, he said, but it’s mostly from the number of transactions. The value per transaction is also up.

Raha said income is growing 8.4 percent faster than revenue. “That can only happen if consumers aren’t confident enough to spend,” he said, meaning the state won’t collect sales or real estate tax from that income.

“One perk of being an economist is that, unlike accountants, we regularly go back and change our numbers without going to prison,” he said, to laughs around the room.

On that note, Raha said the current forecast is $760 million less than the previous quarterly forecast. Cumulatively, that’s $5.8 billion down from what they originally expected. That means the state expects to collect about $28 billion in the biennium.

And: The cuts the Legislature made last session aren’t enough. There’s another $2.6 billion or so in cuts (and/or raised taxes) that need to be made.

Tags: Revenue forecast