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Arun Raha, executive director of the state Economic and Revenue Forecast Council, issued his monthly revenue report Thursday, and it presaged the likely sour news he will announce with his quarterly revenue forecast Sept. 15.
Gov. Chris Gregoire is bracing for grim news and announced Monday that state agencies must start looking for ways they can cut 5 percent or 10 percent of their budgets – if it becomes necessary – just months after a $5 billion budget gap was closed mostly through cuts in projected spending.
“Our guarded optimism about the second half prospects of the national economy has given way to a sinking feeling of pessimism,” Raha wrote. “The national economic outlook has weakened significantly since our last forecast. The European economy is in no better shape as its sovereign debt problems have now spread beyond Greece to Italy and Spain.
“To add to the mess, although Congress was able to lift the federal debt ceiling in time to avoid a default on U.S. bonds, it was not timely enough to prevent a debt rating downgrade by Standard & Poor’s … . Bond, equity and commodity markets are now all pointing to a sharp economic slowdown ahead.”
He added that “consumer confidence is in the tank. The risk of the national economy slipping back into recession has increased significantly.”
Raha’s behind-the-scenes advice was a factor when Gregoire announced preparations for further cuts.
His report of $9.4 million fewer tax collections than was forecast in late June brings the total shortfall since then to $30.8 million, or 1.3 percent, for the state’s general fund, which pays for schools, prisons and some health programs.
Even so the state’s budget should have a reserve of about $162 million through June 2013 – depending on his Sept. 15 forecast.
Raha said retail sales-tax collections were up 2.9 percent year over year, and business and occupation taxes were up 1.4 percent. But real-estate excise taxes were 6.3 percent below forecast and down 8.7 percent from a year ago. Liquor tax collections in July were up $64,000 above forecast; but property taxes, licensing receipts and cigarette tax receipts for July were below forecasts.
On another note, Raha said some U.S. Department of Commerce data show personal income estimates for Washington were up $1.3 billion for the first quarter than he had estimated in his June revenue forecast. But he went on to say he believes those figures were suspect, and his own estimates suggest a lower number is in order for his next report.
AEROSPACE HIRING
Raha also said aerospace has added 6,200 jobs since the low mark of May 2010, eclipsing all losses since the previous 2009 employment peak. And he said The Boeing Co. is growing and the aerospace sector should continue growing for a couple years.
But he reported a mixed outlook for housing, and had caution in his jobs report.
“In Washington, payroll employment grew only 2,500 in June compared to our forecast of 4,800 net new jobs,” Raha wrote. “The private sector added 3,100 jobs in the month of which more than half (1,600) were in the aerospace sector. The manufacturing sector added 1,700 jobs in June but only as a result of the strong aerospace growth. Excluding the 1,600 net new aerospace jobs, manufacturing employment was flat.”
Construction, financial activities services lost 600 jobs, while software added 500 jobs, Raha reported.
ANOTHER SESSION?
Rep. Gary Alexander, R-Thurston County, is among those who hope Gregoire brings budget leaders to the Capitol to talk over options after the revenue forecast to see if action is needed before January.
And if it is needed, Alexander said he’d like to see budget writers come up with a plan before coming to Olympia for a one-day special session. That is the model lawmakers used successfully and in a bipartisan way last December.
Brad Shannon: 360-753-1688 bshannon@theolympian.com www.theolympian.com/politicsblog
CORRECTED to show that the revenue reserve is through June 2013.
