As we’ve written, the House and Senate budgets being considered in Olympia push state spending increases to unprecedented heights. The expanded commitments, even in normal times, would raise concerns about long-term fiscal sustainability.
These are not normal times, as Washington Research Council economist Kriss Sjoblom writes in a blog post headlined, “Heed the pessimistic forecast.” He reminds readers that the revenue forecast produced three estimates: optimistic, baseline, and pessimistic. As usual, budget writers took the baseline forecast, which added billions to revenue projections, and produced budget proposals that would dramatically increase state spending.
He points out,
Under the pessimistic forecast adopted on February 16, revenue falls short of the baseline forecast by $2,314 million during 2021–23 and by $5,222 million during 2023–25. Under the optimistic forecast revenue exceeds the baseline forecast by $2,534 million in 2021–23 and by $5,546 million during 2023–25. The ERFC assigned 50% to the baseline case, 30% to the pessimistic case and 20% to the optimistic case.
Over the last four days, the likelihood of the pessimistic forecast has risen significantly. At the ERFC’s February 16, meeting, Executive Director Stephen Lerch cited three primary negative risks: a Russian invasion of Ukraine, inflation and the emergence of a new covid variant. In the week since the meeting, Russia has invaded Ukraine, while the U.S. and other nations have imposed economic sanctions against Russia. These sanctions, particularly those related to oil and natural gas, are sure to exacerbate inflation. While we have yet to see the emergence of a new covid variant, I wouldn’t bet against that happening.
A healthy dose of pessimism is in order.
Right. For more, see WRC senior analyst Emily Makings’ account of Wednesday’s Senate Ways and Means Committee meeting.