Economic Outlook Survey

Economic uncertainty – across the globe and in our neighborhoods – has become commonplace early in 2019. Although our state has enjoyed nation-leading job and income growth, the murmurs of concern have mounted in many corners. As often as we hear announcements of new jobs, new stores, manufacturing plants, and restaurants, we hear that consumers and employers are losing confidence. Retail sales were down last December. 

Economists are revising their 2019 forecasts, saying growth is slowing. Nearly half of the nation’s  business economists anticipate a recession by the end of next year.

Expectations drive budgets, for families, businesses, and governments. The mechanics are simple. How much money do we think we’ll have? What are our spending commitments? Our priorities? What can we do without? How much should we hold back for emergencies? 

Over the last ten years, state spending has grown 44 percent. And revenue growth in our state has been among the strongest in the nation. Yet, many lawmakers are now calling for new taxes and higher spending.

Against this backdrop, we want to know your thoughts on the state economy. Do you expect continued growth? Are we headed for a slowdown?

 

Friday Wrap I: No quick budget fix, but glimmers of progress

Despite Monday’s upbeat revenue forecast, lawmakers remain high-centered on the tax questions that divided them from the beginning. Although the governor now says the $1.4 billion in new taxes he proposed in December is no longer necessary, he thinks some increase is required. From the NW News Network:

So how big a tax package is Inslee proposing now?

“I don’t have a clear number for you,” he said.

Senate Republicans have a clear number: zero.

Senate Majority Leader Mark Schoesler, R-Ritzville, had a different take on the revenue forecast…No new taxes are needed, he insisted: “We should spend the increase in revenue prudently and get this session done.”

Crosscut’s John Stang likens the different takes on the same news to the Rashomon effect. He also notes that the governor continues to favor cap-and-trade and a capital gains tax. It’s far from clear that House Democrats have the votes for either, though there may be a slight preference for the latter. Regardless, neither is likely to win favor in the Senate.

Jim Camden sums it up in the Spokesman-Review.

Both sides agreed the Legislature could reach a budget agreement and be done by May 28, the last scheduled day of the special session. But neither side sounded very optimistic that would happen. If it doesn’t Inslee said he would call a second special session to start the day after the first special session ended.

Although the current stalemate seems likely to extend for a while, the increased forecast brings the sides closer together. There should be resolution soon. No one wants a repeat of 2013, when stalled budget talks led to the threat of a state shutdown.

 

Despite increase in state revenues, budget talks likely to go in 2nd special session

Yesterday’s revenue forecasts added more than $400 million to projected funds available to state budget writers. Yet, the two chambers remain far enough apart that most expect negotiations, should they commence soon, will require the governor to call a second special session. 

In the Seattle Times, Joseph O’Sullivan has a good account of where things stand.

The parallel universes Democrats and Republicans have inhabited over the writing of the state’s two-year operating budget don’t seem to be inching closer together.

…Democrats question some of the forecast’s assumptions, including the large amount of marijuana tax money it assumes, and say new revenue is still needed. Meanwhile, a trio of Republican senators argue that the state’s budget situation is so rosy, lawmakers can now cut business taxes.

Handling good news seems to be as difficult as accepting bad news.

But Sen. Andy Hill, R-Redmond and chief GOP budget writer, argued that the new revenue projection weakens Democrats’ case for raising taxes.

“At some point you have to say, ‘Holy cow, we have a lot of money,’ ” said Hill. “We should be able to get this job done very quickly.”

O’Sullivan reports a different reaction from Hill’s House counterpart.

The new revenue forecast “doesn’t completely solve the problem,” said Rep. Ross Hunter, D-Medina, the Democrats’ chief budget writer.

Hunter raised concerns over whether the marijuana tax collections assumed in the forecast will pan out.

The first special session is scheduled to end in nine days, on May 28. The new fiscal year begins July 1. As the Columbian reports,

In Washington, special sessions, although technically meant to be “extraordinary,” are more just, well, ordinary.

Since 2000, lawmakers have held 18 special sessions; some years, there was more than one.

The Spokesman-Review gives the reaction of the state budget director

David Schumacher, director of the Office of Financial Management, said the additional revenue should make it easier for budget negotiators to find a middle ground. If the revenue projections had been this strong last Nov-ember, Gov. Jay Inslee would not have proposed the tax increases for his budget, and House Democrats likely would have had a smaller tax package also, Schumacher said.

The projected revenues from marijuana taxes remain a forecaster’s volatile variable. Nonetheless, in a phrase we don’t like very much, the forecast is what it is – the official number lawmakers rely on to write their budget. The revenue boost should make it easier to get that job done, though probably not by May 28.

Slight bump in revenue collections, recovery here still on track

The Economic and Revenue Forecast Council’s March 11 update contained some good news for the state. 

In the last three months the Washington economy added 31,600 jobs, a very strong 4.1% rate of growth (SAAR). In contrast, employment grew at an average rate of 2.9% during the previous 12 months. The construction sector added 7,700 employees in November, December, and January. We believe that unusually mild weather accounted for some of the strong growth in construction employment. Manufacturing employment rose 3,600 in spite of the loss of 400 aerospace jobs. Private services-providing employment grew 18,800 in the three-month period and the public sector added 1,400 jobs.

Revenue collections were up a bit. 

Major General Fund-State revenue collections for the February 11 – March 10, 2015 collection period were $16.7 million (1.6%) higher than the February forecast. Revenue Act collections came in $21.6 million (2.3%) less than forecasted while non-Revenue Act collections came in $38.3 million (38.9%) higher than forecasted. Most of the surplus in nonRevenue Act collections came from real estate excise taxes. The forecast included a $13.3 million audit payment that did not occur during the collection period but is still expected to occur. Had the payment occurred as expected, collections would have been $30.0 million (2.8%) higher than forecasted.

The Washington Research Council takes special note of migration into the state and concludes,

This is a clear sign that the economy is returning to normal.

Normal is good.