Washington state can expect another two years of increased revenue, according to a new report from the state Economic and Revenue Forecast Council (ERFC). At the same time, concerns about a recession in the next year remain uncertain.
The council anticipates $51.7 billion in revenue for the 2019-21 biennium – a increase of almost $300 million and 12.3 percent from the 2017-19 biennium. That two-year figure is only expected to grow by 2021-23 to $55.154 billion. Part of the revenue increase is due to new taxes approved by the legislature this year, including an increased hazardous waste tax, along with a business and occupation tax surcharge.
Furthermore, for budget planners talk of a recession in the next year has subsided. During the Great Recession a decade ago, state lawmakers during the 2010 legislative session faced a $2.8 billion budget shortfall. In the 2009-2010 fiscal year, the state received $15 billion in revenue, compared to $23.4 billion in the most recent fiscal year.
At the council’s Nov. 20 meeting, Executive Director & Chief Economist Steve Lerch said that the latest baseline economic and revenue outlook doesn’t include a recession, though the pessimistic forecast or “worst-case scenario” has a recession starting next year.
“We look at the data…that might give us some sort of hint as to when a recession is coming,” he said, adding that the results “are on the mixed side. There’s nothing really clearly that says a recession is coming, but there are certainly some things that are of concern.”
One of the problems is that metrics used to anticipate a recession, such as Treasury bond interest rates, are no longer considered accurate predictors.
“The Federal Reserve has intervened strongly in the bond market coming out of the recession,” Lerch said. “(It) purchased a lot of long-term bonds and it could well be that this is no longer the best recession indicator, so I don’t think that really gives us anything concrete.”
Other indicators suggest growth, albeit slow. The Small Business Optimism Index is down six points from August, while a survey of business uncertainty conducted in October by the Atlanta Federal Reserve suggests lower expectations for hiring. Yet Lerch says that is hard to use, because “we don’t know what it looked like during the last recession. Consumers still are looking pretty confident. “If we saw a big consistent decline there, that might tell us something about a coming recession, but we don’t see that there. When we look at some of the potential indicators of recession, we certainly don’t get anything that says: ‘Yes’, or ‘recession coming in the near future.’ One thing, of course, that we can certainly say is there will be another recession.”
However, one area where the state might expect a drop-off in revenue starting next year is the real estate excise tax (REET), which will have a restructured progressive rate beginning in January. According to ERFC’s report, large commercial sales jumped from $1.8 billion in September to $2.2 billion in October – a near 20-percent increase.
“It’s certainly possible that those are essentially moving transactions that might have happened next year into this year to try to avoid the new rate structure,” Lerch said. “We have certainly heard some anecdotal evidence that there are deals that have been made…that were contingent on being done this year. We think it’s reasonable that the November and December numbers for commercial transactions will be fairly high as well.”