Steep reduction in state revenues projected through mid-2023

Evening at the Washington State Capitol, with flowering cherry trees.

OLYMPIA, Wash. (AP) — As Washington starts a four-step plan to reopen the state’s economy, an unofficial revenue forecast shows the state could face a reduction in projected state revenues of $7 billion through mid-2023 due to the coronavirus crisis.

The numbers were prepared by Economic and Revenue Forecast Council staff at the request of Rep. Ed Orcutt, the council’s chair, and emailed to the full council last Wednesday by Steve Lerch, the chief economist and executive director of the council. It remains to be seen what impact the first projected revenue reduction of $3.8 billion through the end of June 2021 will have on the current approximately $53 billion two-year budget.

The projection for the next two-year budget that lawmakers are tasked with writing at the start of the next regular legislative session in January is a nearly $3.3 billion projected reduction in revenues from July 2021 through mid-2023.

In the email to the council members, Lerch noted that because there are several data points that were not yet available at the time of the informal forecast, and because staff had to make several assumptions based on what they know from the impacts of COVID-19 in the state, “there is substantial uncertainty in the forecast at this point.”

“There are two things that worry me: one, that it might be right and two, that it may be worse,” Orcutt, R-Kalama, said of the early snapshot of state revenues in the wake of business closures because of the coronavirus pandemic.

The official quarterly forecast is June 17, and Orcutt said that will reflect more of the data from April, the first full month of the state’s shutdown.

Washington Gov. Jay Inslee announced Friday that the state’s stay-at-home order — in place since March 23 — would be extended through at least May 31 and said there will be a four-stage phase in for lifting of restrictions.

Day use activities at most state parks and some outdoor recreation like hunting, golfing and fishing resumed Tuesday. Previously Inslee announced the resumption of existing construction projects, and retail curbside pickup, automobile sales and car washes can start by mid-May. The next phase, which Secretary of Health John Wiesman said is expected to start June 1, would allow camping, new construction, and in-store retail purchases, with restrictions. Barber shops and salons could also reopen at that time, and restaurants could reopen at half capacity and table sizes limited to five.

There will be a minimum of three weeks between each phase, though Inslee said some counties with lower numbers of cases and deaths may be able to move to the second phase of the reopening schedule if approved by the Department of Health.

David Schumacher, the head of the Office of Financial Management, said the informal revenue forecast released last week falls within the range of what his office had been expecting. He said that to deal with the immediate problem of the current biennium, the state would likely use most of the more than $3 billion in total projected reserves, which still leaves lawmakers with about $800 million to deal with.

Schumacher said that while state officials hope additional federal stimulus money to the states to help blunt the impact of lost revenues comes through, they can’t assume that will happen. And he is hoping for better projections during the fall updates on revenue, in September and November. In the meantime, Schumacher said he plans to send a letter later this week to state agencies to prepare them for the the level of cuts they should prepare to see if the official revenue forecasts throughout the year continue to show large reductions in projected revenue. A percentage of potential cuts hasn’t been determined yet, he said.

“If it turns out we get good news somewhere along this process, that would be great and I would be happy to put all of my cut options in the garbage,” he said. “We just have to be prepared.”

Democratic Sen. Christine Rolfes, the Senate’s chief budget writer and a member of the Economic and Revenue Forecast Council, said that after lawmakers tap their reserves, “everything is on the table” when it comes to the rest. That includes potential furloughs and pay freezes. She said more economic analysis needs to be done on potential taxes.

“I’m not confident right now in which tools you use when you’re trying to regrow the economy, given this is not a normal recession,” she said.

But the most immediate problem, Rolfes said, is dealing with the ongoing outbreak, and then dealing with the fiscal impact from it.

“The more we can beat back the virus the more confident we can be in our economic regrowth,” she said.

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