Research Council on revenue forecast: The downside risks mean governor should propose a budget with a healthy reserve

Yesterday’s modest uptick in the state revenue forecast comes with a high degree of caution, writes the Washington Research Council. WRC economist Kriss Sjoblom points out,

As always, the ERFC also adopted optimistic and pessimistic alternative forecasts. Under the optimistic scenario, revenue exceeds the baseline forecast by $1,560 million in 2019–21 and by $3,849 during 2021–23. Under the pessimistic scenario, revenue falls short of the baseline forecast by $1,836 million during 2019–21 and by $4,778 million during 2021–23; under this scenario 2021–23 revenue would be less than 2019-21 revenue. The ERFC assigns a 15 percent probability to the optimistic scenario and a 35 percent probability to the pessimistic scenario.

Give some weight to the downside probabilities, he says.

Given the substantial probability the ERFC places on the pessimistic scenario, the governor should propose a budget that preserves a healthy four-year reserve.