State Workers

No cuts yet as revenue drops

The Washington State Capitol in Olympia. (Tony Overman/The Olympian)
The Washington State Capitol in Olympia. (Tony Overman/The Olympian)

State revenue collections slipped again in the month that ended Tuesday, but Gov. Chris Gregoire still is likely to wait until September before deciding whether to order across-the-board spending cuts, aides say.

Gregoire’s budget writers say a congressional vote allowing extra federal aid to the state and other factors – such as the amount of money left unspent at the end of the last budget year on June 30 – leave it unclear whether state general-fund accounts are actually going to be in the red.

President Barack Obama’s signing of H.R. 1586 on Tuesday sends $26 billion to the states, including an estimated $543 million to Washington – potentially $338 million for medical programs serving the poor and $205 million for public schools.

The medical funds are about $142 million less than what majority Democrats wrote into the state budget his year, but the education funds were unexpected and state budget experts are still waiting to see if the state has discretion with the money or if it passes relatively untouched to schools.

“We’re kind of absorbing all of the news we’ve gotten over the last few days and making decisions on the next steps. We may have some decisions in the next couple of days … how we want to be moving forward, especially for the remainder of this biennium,” spokesman Glenn Kuper of the governor’s Office of Financial Management said Wednesday.

Gregoire’s budget team predicts a $3 billion shortfall for the next two-year budget cycle that begins July 1, 2011. And Gregoire has been looking for ways to reduce spending going into that budget – with across-the-board cuts an option if it appears the budget will fall into arrears over the next 10 months.

Another option favored by minority Republicans is a special legislative session, but majority Democrats in the House and Senate ruled that out.

“Obviously the across-the-board cuts option is out there, but probably not relevant just yet – given the numbers,” Kuper said. “That’s not to say that after the next (revenue) forecast in September that won’t be necessary, so we want to be sure we are getting prepared for that possibility.’’

The latest revenue collections report was released Tuesday evening by state revenue forecaster Arun Raha of the Economic and Revenue Forecast Council. It showed collections of major taxes that flow into the general fund were $124.5 million less for the past two months than what Raha predicted in his June quarterly forecast.

There is a lag between economic activity that is taxable and the state’s actual collections, so the smaller monthly collections were based mainly on June economic activity. The collections for the month ending Aug. 10 were about $23.9 million below forecasts, once a couple of adjustments were made for one-time collections and refunds.

The report noted a $10 million drop in cigarette tax receipts, but said it was too early to determine whether that was tied to higher tax rates that took effect this spring. Liquor tax receipts were up by a modest $223,000 for the month.

Raha is expected to issue an economic report on Sept. 3, a follow up tax-collections report on or about Sept. 10 and a quarterly revenue forecast on Sept. 16. It is mainly the forecast information that Gregoire is waiting on, according to Kuper.

The governor also needs to see how much money agencies are turning back from unspent allocations in the budget year that ended June 30. Those details are due any day, Kuper said.

Despite the falling tax collections, Raha’s latest report had some encouraging signs. It said the year-over-year tax receipts for the July 11-Aug. 10 period were actually up by 4.6 percent – compared with a year-over-year decline in the previous month’s report. Once the effect of new tax increases was taken out, the year-to-year increase for the month was 2.1 percent, just below the growth seen in April and May reports.

Raha’s report said Washington’s job growth also is continuing in the private sector, including 4,500 new private-sector jobs in June. That gain was offset by larger losses in public-sector jobs in June, including “a surprising 3,100 jobs” lost in the state and local government sectors, Raha said.

That overall, or net, loss of jobs in June also reflected the Census Bureau’s reduction of 4,500 temporary jobs, although the outlook is better.

“The Washington economy has now added 20,100 private sector jobs in the first 6 months of the year, an average of just more than 3,000 per month,” Raha wrote. “The job gains have been relatively widespread with only financial activities and ‘other services’ showing declines. Even the construction sector has added 900 jobs since the end of last year. The state’s unemployment rate fell to 8.9 percent in June from 9.2 percent in May. Now that we are past the lull in May, we expect a moderate jobs recovery to continue.”