The new state revenue forecast is out and up … and up and up. Here’s the bottom line:
The forecast of funds subject to the budget outlook is increased by $1,340 million for the 2019-21 biennium and $1,949 million for 2021-23 biennium.
While the increase was widely expected as revenue collections continued to pour in above the previous forecast, we’ll confess that the magnitude of this revision surprises us. Washington Policy Center analyst Jason Mercier puts a St. Patrick’s Day spin on the news and co a reasonable conclusion.
Looks like lawmakers caught a budget leprechaun. State revenues are now projected to have returned to pre-pandemic levels with more than a $3 billion increase projected at today’s revenue forecast. That’s a serious St. Patrick’s Day pot of gold. It is time for talks of imposing a constitutionally suspect income tax on capital gains to stop.
The ERFC reports what’s behind the sharp revision. First the summary slide:
From a revenue standpoint, clearly the positive outweigh the negatives. Next, the longer explanation.
The November 2020 forecast assumed that no additional federal pandemic relief funds would be forthcoming. Instead, a relief package was passed in December that included extended unemployment benefits, direct checks to individuals and other aid. Because of this and other positive economic developments, revenue collections have greatly exceeded our expectations. Cumulative major General Fund-State (GF-S) collections from November 11, 2020 through March 10, 2021 came in $764 million above the November forecast.
The booming real estate market accelerated after the November forecast, reaching a near-record high in taxable activity in December as strong residential sales were joined by a large spike in commercial sales. Subsequently, real estate excise tax (REET) collections came in $182 million higher than forecasted. REET collections for the current biennium are now expected to be $245 million higher than previously forecasted. The REET forecast was increased by $88 million for the 2021-23 biennium and $55 million for the 2023-25 biennium.
Most of the collections in excess of the forecast were from Revenue Act taxes (the main category of GF-S taxes including retail sales and use, business and occupation, public utility and non-cigarette tobacco products). Cumulative Revenue Act collections came in $562 million higher than forecasted. This relative strength is expected to continue through the remainder of the 2019- 21 biennium, resulting in a total forecasted biennial Revenue Act tax increase of $890 million. The forecast of higher state income and faster employment growth has also increased forecasted Revenue Act receipts by $1.89 billion for the 2021-23 biennium and $1.92 billion for the 2023-25 biennium.
This graph shows the revenue trend; it’s positive every year.
Wednesday’s projections by the state Economic and Revenue Forecast Council project $1.3 billion additional for this current, two-year budget cycle. An additional $1.9 billion increase is forecast for the 2021-23 budget cycle.
That puts Washington state about back to the economic growth expected before the pandemic hit, said Steve Lerch, director of the forecast council. That comes, however, as the job market struggles in sectors hit hard by the pandemic, he added.
That last bit is important to remember. As we’ve said, a revenue recovery is not exactly the same as an economic recovery, which is one important reason lawmakers should not be increasing business costs by imposing new taxes on still-struggling employers.
The ST adds,
That money comes atop of the billions of dollars Washington is slated to receive through the COVID-19 relief package signed into law last week.
Although, as the ST reports,
[Inslee] and most fellow Democrats have continued to push for new revenue, like a tax on capital gains, in their long-running quest to make the state’s tax system more progressive.
Curiously, the “long-running quest to make the state’s tax system more progressive” does not appear to include consideration of revenue-neutral tax reform. Raising taxes now would be akin to irrigating a flooded field.