“Retail sales and B&O taxes appear to have reached bottom and are showing signs of improvement. Not so with use tax yet,” he said. He said people purchasing items online and not paying sales tax costs the state $85 million.

Overall, Raha said the council is reducing the revenue projection by $118 million.

He said in fiscal year 2012, the state will finally return to fiscal year 2008 revenue levels.

“Before I conclude, let me thank you for taking my advice for buying cars” and spending more on holiday shopping. Now, for his next request: “Please buy a house. Or, a strip mall!” Too much? “At least pay your use tax.”

“If things go well, we’ll have dug out of the hole we’re in by fiscal ‘11.”

Now, for questions:

What effect does this have on the budget writing process?

Rep. Ross Hunter said the forecast is “well within the planning parameters” that the House is using. “I believe that’s true for the Senate as well.”

What’s the “official” number?

Victor Moore said it’s about $2.8 billion under what was initially forecast. Someone else suggested $2.7 billion. It’s somewhere around there.

When will Gov. Gregoire talk about a tax package?

Victor Moore said “all the moving pieces have stopped moving” and that we’ll hear from Gov. Gregoire soon.

Tags: Revenue forecast

Here’s the statement from the Office of Financial Management on today’s revenue forecast:

OLYMPIA – The February revenue forecast for Washington state government shows projected General Fund revenue down $118 million for the remainder of this biennium, which ends June 30, 2011. The figure was released today by the Washington State Economic and Revenue Forecast Council.

Included in the forecast was the loss of $154 million through the Dot Foods court case, which cost the state revenue from certain out-of-state companies operating in Washington. Absent that decision, a positive forecast would have occurred. Gov. Chris Gregoire has proposed a legislative fix to this loophole, which would recover a portion of the lost revenue. (more…)

Tags: Revenue forecast

“We nailed our last forecast,” said Arun Raha. He said that’s the first time that’s happened since he arrived.

“And better yet, it is positive,” he said. Pause. “Where’s the applause?” The crowd obliged, then he told them not to get “carried away.”

Raha said the DOT foods case will cost the state $60 million.

(more…)

Tags: Revenue forecast

Today:

- Gov. Chris Gregoire discussed a package of bills to increase public safety, including one to create a “guilty and mentally ill” conviction.

- Chief economic forecaster Arun Raha told me the state’s out of a recession, and that the next forecast could bring cheers (possibly a joke).

- People all over the world watched a two-hour hearing on decriminalizing and legalizing marijuana.

- The Senate Early Learning Committee heard about how closing the $2.6 billion budget gap can have a negative or positive effect on the 2011-2013 budget — depending on what money is used.

- The House Ways & Means Committee heard testimony from UW, WSU and other universities about the impact of the Book 1 budget. If it passed, more than 1,000 of the 4,000 students at WSU receiving a state need grant would see that help disappear. The remaining 3,000 would see their grant cut in half.

- The state paid out a record $3.97 billion in unemployment claims in 2009. The county that got the biggest chunk of money? King County — their population of more than 121,000 unemployed received $1.1 billion in benefits.

Tags: Day 3, public safety, Revenue forecast, review, state need grant, unemployment

Sen. Rodney Tom, speaking to reporters after the revenue forecast (which you can read about below), said he think the state will “be making cuts that we never dreamed of and considering revenue packages that we never dreamed of.”

He said the $2.6 billion can’t be made up easily through cuts — particularly since this is a supplemental budget year.

“The stock market is always a leading indicator by about a year. Stocks are up significantly,” he said. “We need to make sure that when we’re looking at the decisions both on the revenue side and the cuts side, that we’re taking a long-term view … too often we get in the expediency of the day.”

Rep. Ross Hunter: “Unlike the federal government … we don’t get to print money,” he said the state also can’t carry a deficit. “I’m concerned about the impact in consumer confidence … but we will balance the budget … because we have to.”

Hunter said consumer confidence is more affected by national news than local actions.

Sen. Tom said most other states have similar revenue problems, regardless of whether they’re Democratic or Republican controlled. “All of us need to work across the aisle,” he said.

Tags: Revenue forecast, taxes

As said in an earlier blog post, the Revenue Forecast is required to do three forecasts: An actual, pessimistic and optimistic.

Raha puts odds on each forecast turning out to be right. In past forecasts, the odds on the pessimistic forecast have been as high as 25 percent. This time, it’s lower: 10 percent.

But: “There is a possibility that this … will turn out to be not enough,” he said. Meaning: There’s a chance the pessimistic forecast could turn out to be right. A 10 percent chance, but a chance nonetheless.

Tags: Revenue forecast

Since the state relies on sales tax, consumer confidence is key to the state’s recovery.

So  … when will consumers get a bit more confident?

Raha, the state’s chief economic forecaster, said it will happen when unemployment starts dropping. He thinks that will be sometime in the third quarter of 2010.

Tags: Revenue forecast, taxes

Rep. Ross Hunter was asked about revenue raising measures.

“The House is going to obviously look at this. We’re going to do what we do every year, which is balance the budget … it does look to be very painful this year,” he said. He said it’s important to balance the impact of all the choices.

As for putting a tax measure on the ballot, he said it would only have an impact on the last six months of the biennium. If something is passed during the legislative session, it would have 15 months. Translation: If taxes are to be increased, it would likely be done by the Legislature, according to Hunter.

Sen. Joe Zarelli said this is a difficult situation and that it’s “very hard” for the majority party to put this budget together. “We’ve got to, I think, surgically take a look at the delivery models we have in many different programs,” he said. Whether it’s General Assistance Unemployable or voicemail, “we’ve got to look at whether there’s a better way, more efficient process.”

“The sooner we act, the better off we will be. I remind you all that, as of January, we have 18 months left in the biennium,” Zarelli said. Referring to the “bow wave” of budgeting, he said cuts made sooner will save the state more money — which means fewer cuts in the long run.

Tags: Revenue forecast, taxes

After Raha’s presentation on the forecast (see blog post below), others on the panel have a chance to ask questions.

Rep. Ross Hunter asked how Raha arrived at the numbers.

“Right now, what’s holding us back is that we are basically facing a crisis of confidence,” Raha said. “Usually in a recovery this deep, you tend to also have pent-up demand, which is once people can go out and spend,” they buy the things they need plus all the things they need but haven’t bought. But, that’s not happening: Instead, consumers are mired in debt and reassessing what their needs are.

By law, the state has to prepare a pessimistic and optomistic forecast. Rep. Hunter said the last pessimistic forecast came true, and there’s “nothing else bad left to happen” — meaning it can’t get that much worse. Raha corrected: “There are fewer bad things that can happen.”

Similar to previous forecasts, Raha said this is a U-shaped recession: It dropped quickly, will bounce around the bottom for a bit, then will eventually recover. He said the question is just how wide the bottom of the U is.

The forecast voted to adopt the forecast.

Victor Moore from the Office of Financial Management, said the state will have to make up about $2.6 billion in the supplemental budget. “It’s getting to be kind of numbing to us,” he said.

A reporter asked if the Business and Occupation tax could be increased as part of a plan to address the revenue drop. “Absolutely not,” said Rep. Ed Orcutt.

Tags: Revenue forecast

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