State's economy surges - The state's revenue picture may be rosy, but lawmakers are urged to limit spending

Associated Press
The Herald

11/18/05

OLYMPIA, WA- Washington's hot economy, still surging with a mighty assist from construction and real estate sales, will boost state coffers by more than $300 million, forecasters said Thursday.

But in the same breath, economists warned of dark clouds on the horizon, and Gov. Christine Gregoire and key legislators cautioned against a spending spree in the upcoming legislative session.

"There's a lot of risk out there," state budget director Victor Moore said.

It's a tempting target: The new revenue update, reflecting the fourth quarterly revenue surge in a row, brings the state's reserves to more than $1.4 billion, about 5 percent of the state budget.

Chief economist Chang Mook Sohn's new analysis for the state Revenue Forecast Council presumes a cooling of the red-hot housing market and consumer spending, and projects continuing high oil prices.

The housing bubble hasn't popped yet, but a cool-down probably is imminent, Sohn said. National housing starts dropped 5.6 percentage points in October, he noted.

"There are many signs that housing is peaking," he said. "We have been expecting that for a long time."

In Washington, the real estate and construction sectors are responsible for half of the new $304.9 million windfall announced by the council. The state will collect another $100 million just from the tax on real estate transactions.

Gregoire will use the new forecast as she finishes the state budget she will send to the Legislature in December. Moore said the plan will include more than $200 million for human services, school enrollment and teacher raises, plus some money for public pensions.

The administration will support at least $176 million in additional pension contributions, and the Legislature should sock away hundreds of millions toward the extra $700 million pension payment that will come due in two years, he said.

"There's a lot of pent-up demand," but lawmakers should rebuff most new spending, Moore said. "We have our eye on (balancing the budget for) '07-09. That's what's important."

"The level of uncertainty is very high," Sohn agreed.

At a glance

Bottom line: State tax revenue is projected to rise an additional $304.9 million between now and June 30, 2007, compared with the September forecast.

Income: $26.34 billion is projected for the two-year cycle that began July 1. That compares with $23.39 billion in the last biennium.

Reserves: $1.45 billion.

Economy: State and national economies are expanding, with the state's outpacing the country as a whole. State employment is expanding faster than at any time since 1997, with 85,000 added to payrolls in the last 12 months.

Associated Press