The September revenue forecast adopted by the Economic and Revenue Forecast Council again increased projected tax collections. And, as the summary slide above shows, the increase is substantial: $927 million.
Some takeaways from the revenue notebook:
The state economy continues to look strong overall.
We expect a 2.4% increase in Washington employment this year which is up from the 2.0% increase in the June forecast. We expect above-average growth through the remainder of the forecast as the economy continues to recover from the recession. We expect employment growth to average 2.2% per year in 2022 through 2025 compared to 2.3% per year in the June forecast. Our forecast for nominal personal income growth this year is 6.5%, up from 6.0% in the June forecast. Personal income growth will slow next year as the extraordinary stimulus of the last two years is withdrawn. We expect personal income growth of only 1.7% in 2022 compared to 1.5% in the June forecast. Our new forecast for nominal personal income growth in 2023 through 2025 averages 5.3% per year compared to the 4.8% rate in the June forecast.
Employment remains below pre-pandemic peak.
We have three months of new Washington employment data since the June forecast was released. Total nonfarm payroll employment increased 60,700 in June, July, and August which was 5,700 less than the increase of 66,400 expected in the forecast. Washington employment is now 125,400 (3.6%) lower than at its February 2020 peak. Private services-providing sectors added 48,000 jobs in June, July, and August. The manufacturing sector added 2,100 jobs despite the loss of 200 jobs in aerospace manufacturing. Construction employment increased by 1,900 jobs. State and local government employment increased by 9,500 jobs in the three-month period but federal government employment decreased by 800 jobs.
Inflation and COVID are threats.
Threats to the U.S. and Washington economies include the uncertain impact of COVID-19 and the potential for higher inflation.
And, overall, the state has a whole lot more money to spend, save, or give back in tax reductions.
The preliminary total of GF-S, ELTA, OPA and WEIA revenue for the 2019-21 biennium is $53.132 billion, 15.3% higher than 2017-19 biennial revenue. Forecasted total revenue for the 2021-23 biennium is $59.341 billion, an increase of 11.7% over expected 2019-21 biennial revenue, and forecasted total revenue for the 2023-25 biennium is $63.082 billion, an increase of 6.3% over expected 2021-23 biennial revenue.
The Associated Press reports,
Steve Lerch, the chief economist and executive director of the council, noted that since the last update there has been improvement in employment numbers, both nationally and in the state, and that the residential real estate market remains strong. Downsides include higher inflation, rising COVID-19 cases and ongoing supply chain issues.
The Washington Research Council writes,
At its quarterly meeting today, the state Economic and Revenue Forecast Council (ERFC) updated its forecasts of state revenues. These new forecasts add more than $1.8 billion to the amount available over the current biennium and next bienniums…
As always, the ERFC also adopted optimistic and pessimistic alternative revenue forecasts for the general fund–state (which produces 95% of total NGFO revenue). Under the optimistic scenario, revenue exceeds the baseline forecast by $2,962 million in 2021–23 and by $5,642 million during 2023–25. Under the pessimistic scenario, revenue falls short of the baseline forecast by $3,046 million during 2021–23 and by $5,750 million during 2023–25. The ERFC assigns a 20 percent probability to the optimistic scenario and a 30 percent probability to the pessimistic scenario.
We anticipate tax talk should be muted in the upcoming short 2022 legislative session, but there may yet be more scrambling to further increase spending. The temptation should be resisted.