Tag Archives: Revenue Forecast

March Revenue Forecast Essentially Flat

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Yesterday the Washington Economic and Revenue Forecast Council released the March economic and revenue forecast.

The forecast is essentially flat. Which is good news these days. According to the report Washington is projected to take in an additional $59 million more than expected in the current fiscal year and $19 million less over the next biennium. Overall policymakers have approximately an additional $40 million to incorporate into their budget discussions.

This is good news given concerns expressed in the last few weeks about impacts on state revenue given the automatic federal budget cuts, known as sequestration, earlier this month.

Though this is a small break in what has been a stream of bad news over the last few years, it is important to note that policymakers still face a substantial budget challenge for the next two years. The Legislature must make up a shortfall of $1.3 billion and make some form of investment in basic education required by the McCleary ruling.

With the revenue forecast out, the next big step in Olympia will be the release of proposed biennial operating and capital budgets. The Senate is expected to come out with their proposed budget in the next two weeks, followed by the House. The Governor is expected to release budget priorities, not a full budget, next week sometime.

Revenues Fall; Special Session Under Consideration

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This morning the September state economic and revenue forecast was released.  The forecast shows the state faces a projected shortfall of $1.4 billion for the 2011-13 biennium.  With approximately $163 million in reserves, this creates a $1.2 billion hole in the state budget.

Washington’s Chief Economist, Dr. Arun Raha set the context for the latest reduction in state revenues. According to Raha, consumer and business confidence continues to be low, uncertainty in the European economy remains high, and  job growth continues to be weak with a steady unemployment rate of 9.3%.

Forecast estimates show a decline in revenue of $500 million in FY12 with the remaining $900 million in FY13. In addition to the $1.4 billion, legislators are focused on rebuilding state reserves, which could make the reductions to the state budget closer to $2 billion.

So what is next. It appears that the Governor and budget writers in both chambers are coalescing around the idea that early action is needed and to accomplish this the best vehicle would be a special session prior to the 2012 supplemental session in January.  If a special session is called there appears to be agreement that it should be short and concise, with most of the decisions being made prior to convening the Legislature.  

Timing for a special session appears to be ranging from the end of October to after the November forecast.

Washington Economist Provides Preview Into Revenue Forecast

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Last week, Washington’s State Economist – Dr. Arun Raha – provided revenue figures that show March actual revenues dipping below expectations.

In his report released on May 11, Dr. Raha stated that, “The job market is improving, but the unemployment rate remains stubbornly high and housing is extremely weak.” The sentiment of this statement is echoed in the observations he puts forth in the May 11 report.

  • The economy recovery has appeared to have hit a road bump. High energy prices have caused growth to moderate, and uncertainty lies ahead.
  • The Washington economic recovery slowed in February and March after fairly strong growth at the end of 2010 and the beginning of 2011.
  • Major General Fund-State (GF-S) revenue collections for the April 11 – May 10, 2011 collection period were $157.7 million (13.3%) higher than the March forecast. The healthy collections mask a weakening economy. The entire positive variance was due to higher than anticipated one-time revenues from the recently concluded amnesty program and other one-time payments. Excluding them, revenue collections are slightly below forecast. 

In othe words, while the tax amnesty windfall makes the balance sheet look better, revenues were $32.5 million less than projected.

Dollars continue to trickle in from the amnesty program for businesses that originally was banked for $24 million and has climbed to nearly $350 million. It’s one-time money, however, and was used partially to shore up the June to July apportionment shift that helps bridge the gap in the fiscal year that ends June 30.

The next revenue forecast will be on or before June 20, and the news isn’t expected to be better – and may continue the downward trend due to high gas prices and a state economy that has remained flat.

Across-the-Board Cuts; State Revenues Decline

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Today Governor Gregoire directed state agencies to reduce their 2009-11 budgets by 6.3% beginning October 1. The Governor did not provide any discretion with regard to how the reductions should or would be applied.

The across-the-board cut imposed by the Governor comes on the heels of this morning’s release of the September state economic and revenue forecast.  The forecast shows the state faces a projected shortfall of $770 million for the 2011 fiscal year.  With $250 million in reserves, this creates an immediate deficit of $520 million for the state.

Washington’s Chief Economist, Dr. Arun Raha set the context for the latest reduction in state revenues. According to Raha, job growth is anemic, the housing market is in search of a bottom, and small businesses are still challenged in the credit environment. 

What the state is facing is not risk (defined as the unknown knowns) but uncertainty which are the unknown unknowns.

“Things will eventually get better, but at a slow and uncertain pace,” Raha said. “That cannot be entirely reassuring, but that is the best that I have at this time.”

State Revenue Declines

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State revenues fell again for the second month in a row.

The latest revenue collections released earlier this week showed revenue collections were $124.5 million less than was predicted in June.

Additional details regarding revenue will emerge over the next month. In September the Economic and Revenue F’orecast Council is expected to release an economic report (Sept. 3), a follow-up on tax collections (Sept. 10), and the quarterly revenue forecast (Sept. 16).

State Revenue Forecast Shows Fewer State Dollars

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This morning the Washington Economic and Revenue Forecast Council released the June state revenue and economic forecast. The forecast estimates that Washington will receive $203 million less through June 11 than was forecasted in February.

Washington State Economist Arun Raha stated that the decline in expected state revenue is a result of disappointing employment reports in May and housing data that shows a significant pullback in activity following the expiration of the home buyer’s tax credit.  In the end it appears that the recovery for the state will be slow and uneven.

State budget deficit for 2011-13 Biennium -$3 billion

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The Washington Office of Financial Managment (OFM) expects that the gap between state revenues and “basic spending pressures” will be approximately $3 billion next biennium.

In a report that provides state agencies, including higher education, with operating budget instructions for the next biennial budget, OFM suggests to provide funding to move current state programs forward, state funds will need to replace nearly $2 billion in federal funds that were made available to Washington during the recession. Part of these funds were used to offset cuts to higher education during the 2009-11 biennium.

In addition, funding requirements for pending funding obligations, statutory requirements to support important reforms in basic education, and restoration of voter approved commitments to reduce class size (I-728) and provide cost of living adjusts for teachers (I-732) add another $2 billion in spending pressures.

Though this adds up to a shortfall of $4 billion, OFM project that new revenues will provide $1 billion to close the gap, leaving $3 billion to be settled by the state.

So one may ask is there any good news.

In the report issued by OFM, indications show that Washington is experiencing much stronger revenue growth of 8.8% for FY 2011. Though this growth is relative to a new, much lower revenue base, it is definitely a positive note when compared to the drop in revenue in the last two years.

As Washington nears the 2011 legislative session more details will come into focus to provide a much clearer picture of the state budget.  The next big step in the process will be in mid-June when both the state caseload forecast and economic and revenue forecast are released.

House Finance Committee Passes Cigarette Tax Bill

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The House Finance Committee passed out of committee House Bill 2493, which increases taxes on cigarettes and tobacco related products.

House Bill 2493 increases cigarette tax by$1 per package and taxes on other tobacco products are equalized. The substitute bill passed out of committee makes several changes to taxes related to other tobacco products and also requires the revenue generated by the taxes to go into the general fund instead of the Tobacco Prevention and Control Account. 

  • Eliminates the separate Other Tobaccob Product tax classifications for roll-your-own tobacco and capsular smokeless tobacco.
  • Lowers the maximum rate cap on large cigars from $3.025 to 65 cents per cigar.
  • Eliminates the annual $18 million transfer from the general fund to the tobacco prevention and control account (The entire amount is deposited in the general fund). 
  • Makes the tax on moist snuff purely weight based by taxing moist snuff at the per pack rate for cigarettes for each 1.2 ounce can. 
  • Makes the bill effective April 1, 2010, except the tax on moist snuff, which is effective October 1, 2010. 

In addition the bill was amended in committee to specify that the moist snuff tax rate is the greater of: 95% of the sales prices or 83.5% of the per pack cigarette tax rate.

House Bill 2493 now goes to the House floor for further consideration.

Status of Moving Parts as Session Nears End

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Today is the first day of the last week of the scheduled 2010 supplemental session. Though much progress was made over the weekend several major pieces necessary to adjourn without a special session remain in motion.

Operating Budget
The 2010 supplemental operating budget (ESSB 6444) has passed both the House and Senate. The House passed a striker, which strikes the language from the Senate’s proposed 2010 operating budget and replaces it with the House’s proposed operating budget language. As a result the House effectively passed their proposed operating budget using SSB 6444 as the vehicle. The Senate did not concur with the changes made by the House.  As a result, ESSB 6444 is now in conference.

Capital Budget
The House proposed 2010 supplemental capital budget (HB 2836) is on the House floor waiting for further consideration. The Senate proposed 2010 supplemental capital budget (SB 6364) passed out of committee today and now goes to the Senate floor for further consideration.

Revenue Legislation
Though several revenue-related bills have been heard recently in various committees two revenue-related bills have made it into the end-game. Senate Bill 6143- sales tax and closes loopholes –  and Senate Bill 6874 – increases tobacco product tax.  Senate Bill 6143 is on the House floor awaiting further consideration. It is expected that the House will strike the language in SB 6143 and replace it with language that reflects the House’s proposed revenue package. Senate Bill 6874 is also on the House floor awaiting further consideration.

Caseload Forecast Up; Results in Increase in State Budget Deficit

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Today the Washington State Caseload Forecast Council released the latest report on public program and service caseloads.  It is not surprising the demand on public services (i.e. health and human services, public education, and corrections) continues to rise.

According to the Council, the rise in caseloads has resulted in an additional $96 million reduction to the state budget. The change pushes the state’s budget deficit to about $2.7 billion.

Though the state budget hole seems to have increased today the true size of the budget deficit will not be known until this Friday (February 12). On Friday, the Washington Economic Forecast Council will release the February economic and revenue forecast for Washington.

A preview of what might be expected was provided earlier this month. According to the preview of the forecast state revenues have increased slighlty by $45-50 million.

If the preview proves to be on the money, then the hit to the state budget ($96 million) would be reduced by nearly half .

$96 million decline – $45-50 million in revenue= $51-46 million additional budget reduction

So stay tuned…