As unemployment claims soar and revenues plummet, Washington Research Council examines past budget actions.

Another grim Monday morning survey of the economic costs of the pandemic response.

Washington’s unemployment claims may approach 1 million in next Thursday’s update, reports Paul Roberts in The Seattle Times.

The National Association of Business Economists reports the stark toll..

The National Association for Business Economics reports in a survey released Monday that economic prospects have nosedived, with 86% of the 107 NABE members who were surveyed expecting a shrinking gross domestic product over the coming year. And for the first time since the Great Recession, which ended in 2009, more business economists reported falling sales than rising sales at their companies over the past three months.

Governing magazine reports whopping hit state budgets are expected to take.

Moody’s Analytics, a financial research firm, projects that the shrinking economy could translate into a revenue drop for states of between $158 billion and $203 billion, or 18 to 23 percent. That’s in fiscal 2021, which begins on July 1 for most states. The variation is based on how soon the economy starts to open up. The longer it takes before people feel safe enough to congregate in offices, factories and shops, the worse the economic pain will be…

Dan White, director of fiscal policy research at Moody’s Analytics, says if the economy remains mostly frozen through the summer, it could take six to seven years for the resulting job losses to be erased, a scenario he calls “unfortunately relatively plausible.” Combine the revenue cuts with the increase in service demand, he says, and “some states are going to see 30 to 40 percent of their budgets that need repairing.”

As Alan Greenblatt reports for Governing, state and local governments are asking for significant federal help and a $500 billion relief package is in the works, but the details won’t be known for a while. Regardless, it won’t fully compensate for the lost revenues.

So we again look to the Washington Research Council’s series examining our state’s responses during the Great Recession. In Part 4, the WRC analyzes budget cuts. Read the post for more details. This struck us. Note first the 15.4 percent higher education decrease.

In terms of the NGFO, from the high point in the 2008 supplemental to the low point in 2009–11, spending dropped by $3.271 billion (9.7 percent). Of those reductions, 58.5 percent came in human services, 19.2 percent came in K–12, and 17.2 percent came in higher education. Over the period, human services spending declined by 15.0 percent, K–12 spending declined by 4.6 percent, and higher education spending declined by 15.4 percent.

However, those numbers are net of policy and maintenance level changes. As the maintenance level (the cost of continuing current services) increased, the necessary policy level reductions also increased. (For example, the maintenance level in the 2009–11 budget increased by $3.345 billion and policy level reductions were $5.611 billion, for an overall reduction to appropriations of $2.267 billion.) Over the period from 2009 through 2011, policy reductions were $8.619 billion.

Although actual NGFO spending increased modestly in 2011–13, the maintenance level for the biennium increased by an exceptionally large 19.3 percent. In addition to caseload increases, this included $861 million for Initiative 728 (class sizes) and $318 million for Initiative 732 (teacher cost-of-living adjustments). Both initiatives had been suspended in 2009–11. The maintenance level also included $566 million for projected increases in pension rates.

With that high maintenance level and the loss of ARRA funds, the state had to continue to make policy level reductions through 2012. All told, the Legislature made policy level spending reductions of $13.194 billion from 2009 through 2012 (across the 2007–09, 2009–11, and 2011–13 budgets).

As this chart shows, Washington had ramped up spending ahead of the Great Recession and quickly ramped it up again as the state recovered. Note: ARRA refers to the American Recovery and Reinvestment Act, which provided important relief to state budgets.

One takeaway from the chart: the state recovered quickly and the pre-pandemic economy was strong. The comeback cannot come to quickly. One positive indicator: The governor is allowing some construction activity to resume.