State revenue forecast plunges $200 million
March 20, 2003
OLYMPIA, WA(AP) -- Washington's tax forecast plunged by more than $200 million Wednesday, as state economists measured the simultaneous impact of the Iraq war, Boeing layoffs, soaring oil prices and a weak national and state economy.
That's the biggest shortfall in state history and reflects the trouble Washington is having crawling out of recession.
A debate over taxes immediately broke out at the Capitol.
Democrats said the deepening revenue problem makes it clear that lawmakers can't fix the problem with spending cuts alone. Republicans retorted that taxes would be the worst possible jolt to the sputtering economy and to the average citizen.
Marty Brown, the governor's budget director, said Locke is reviewing the situation, but the administration has not backed away from its no-new-tax budget the governor has championed for months.
"We need to establish priorities and I very much encourage the Legislature, now that the shortfall has been exacerbated, to do the tough analysis and prioritization that we've had to do," the governor told a news conference.
However, he held open the possibility of finding "millions and millions of dollars" by expanding the state lottery to include more frequent Keno games, closing tax loopholes and raising "sin taxes" on alcohol and other items.
The new projection "just makes a difficult problem that much more difficult," Brown said. "I don't think it makes taxes any easier or cuts any easier."
Chang Mook Sohn, the state's chief economist, told the bipartisan Revenue Forecast Council that the battered state economy is barely limping along at one of the lowest rates of growth in modern times.
The state has been slowly adding a minuscule number of new jobs since last March, but lost 70,000 in the two years before that. Sohn said he doesn't expect any significant job growth until sometime next year.
Boeing will shed about 2,500 more jobs than he forecast last November, he now predicts.
The Iraq war will hurt the aerospace and airline industries, boost oil prices and damage consumer confidence and spending, Sohn said.
"My view is that the war will end soon -- and very successfully," he said.
But he said he expects no big improvement after the war ends, since he sees chronic problems with both the national and state economies.
In Washington, the troubles of the aerospace industry and the high-tech, dot-com companies are an indicator of that, he said. The state economy is "clearly weaker" than forecast just a few months ago and recovery will lag well behind the national economy, he said.
Higher gas prices alone are projected to take about $1 billion out of the state economy, with the average family now expected to pay $470 more at the pump this year, he said.
Sohn said Washington's sales-based economy is suffering because "clearly, people are not spending" on taxable items.
Sohn's new forecast adds $36.8 million to revenue projections for the current two-year budget period that ends June 30, for a total of $21.16 billion.
But the forecast slashes $238 million from an earlier forecast for the biennium that begins in July, for a new projection of $22.45 billion.
The net change is minus $201.5 million.
Sagging support for the state lottery is part of the problem, accounting for a loss of about $55 million from earlier projections, Sohn said. He said the state's decision to join the multistate Mega Millions game hurt sales of Washington's Lotto tickets.
The one bright spot, a hot real estate market, isn't sustainable forever and interest rates will eventually go back up, he said.
In terms of a two-year budget of over $20 billion, the additional $200 million shortfall isn't much more than 1 percent, but it makes closing the budget gap that much harder.
Lawmakers said their basic impulses remained the same as it was before the revenue update.
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