Washington state revenue forecast drops by more than $1 billion over next two biennia

Concerns about the nation’s banking system are on top of worries about historically high inflation.
Photo courtesy Deemerwha studio

Concerns about the nation’s banking system are on top of worries about historically high inflation

Brett Davis
The Center Square Washington

On Monday afternoon Dr. Stephen Lerch, chief economist at the Washington State Economic and Revenue Forecast Council, said he anticipates revenue falling $483 million for the upcoming 2023-25 biennium and $541 million for the 2025-27 biennium, for a decrease of more than $1 billion over the next two biennia.

Lerch noted during the virtual revenue forecast that the recent turmoil in the banking sector – the collapse of Silicon Valley Bank in California and Signature Bank in New York – happened after Washington’s revenue forecast process started. The impact of the demise of those two banks is not reflected in the forecast, he said.

“It’s still unclear, you know, what the ultimate impact of those two banks failing will be,” Lerch said, “but clearly, you know, that is a downside risk that it could become worse.”

Concerns about the nation’s banking system are on top of worries about historically high inflation, which is currently at a little more than 6% on a year-over-year basis.

“That’s certainly an improvement, but well above where anyone would like to see it,” Lerch said. “Certainly well above where the Federal Reserve is hoping to get inflation.”

Pandemic-era inflation peaked at 9.1% in June 2022.

In a sure sign the local economy is cooling off, Washington housing permits for 2023-2027 are anticipated to average almost 2,700 units per year less than projected in November’s revenue forecast.

“Collections have continued to come in pretty well,” Lerch said, referencing a $194 million increase in revenue for the current 2021-23 biennium.

After a 6.4% annual growth rate last month, revenue collections increased 10.8% year over year for January activity.

Lerch does not expect that to last.

“We did see some pretty strong growth,” he said. “We do believe that that’s going to start to slow down.”

Total state revenues are expected to grow 20.7% between the 2019-21 and 2021-23 biennia and 2.4% between the 2021-23 and 2023-25 biennia.

Sen. Lynda Wilson, R-Vancouver, who chairs the Economic and Revenue Forecast Council, said the state’s $4.5 billion surplus should mean the slowing economy does not justify any tax increases.

A fellow senator on the council took a slightly different view.

“The budgets will be reflecting the core values of Washingtonians,” said Sen. Christine Rolfes, D-Bainbridge Island, chair of the Senate Ways & Means Committee. “So I think we’re in okay shape.”

The House of Representatives and the Senate will each release their own state operating budget proposals soon.

This report was first published by The Center Square Washington.

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