Economic forecast released; officials urge special session

Economic forecast released; officials urge special session
State officials on the state Economic and Revenue Forecast Council say a special session should start soon in order to address more than $3.8 billion in anticipated revenue shortfall. Photo: freepik.com

A new update from the state Economic and Revenue Forecast Council (ERFC) offered little surprise as to an economic downturn resulting from the COVID-19 response. The “deep recession” has all but guaranteed spending cuts for the current operating budget, and state officials  on the ERFC at its June 2 meeting said those talks should start as soon as possible.

“If nothing else, I think the legislature meeting sooner on this might convey some goodwill to the taxpayers and voters out there in the state that we’re taking this very seriously,” State Treasurer Duane Davidson said. “I think that can help build the confidence which we will need at this point.”

Although an unofficial ERFC forecast estimates that revenue could drop by $7 billion over the next four years, much of that will depend on how long it takes before an economic recovery occurs. The latest revenue forecast update by ERFC from April shows state collections are down by $429 million – or 8.7. percent compared to what was forecasted in February. A preliminary forecast from May showed general fund revenue between April 11-May 10 was $436 million, which was 22.5 percent less than the February forecast.

ERFC Executive Director Steve Lerch told members there’s a “degree of uncertainty right now associated with the path of the economy. Will we have this fast bounce back, or will there be a second spike in COVID-19 cases? How will consumers react when the economy reopens? Lot of things that are tough to know.”

Lerch added that the economic downturn so far has produced unprecedent job loss and unemployment claims. ERFC anticipates there will be 446,000 fewer jobs this year compared to what was projected in the February forecast, while the state Employment Security Department’s latest report shows a total of nearly two million unemployment claims have been filed since March 7.

“We haven’t seen numbers like this before,” Lerch said.

One of the industries most affected has been construction, which was labeled a non-essential activity under Governor Jay Inslee’s stay home order that placed restrictions on businesses. The industry’s employment declined by 47,200 jobs between February and April, while housing permits dropped by 6,700 units compared to what was anticipated in February for this year.

Other industries most impacted include hospitality, education, health services and manufacturing, which Lerch said could experience between 30-50 percent unemployment.

While Rep. Timm Ormsby (D-3) said a special session could address ways to aid struggling businesses, Ways and Means Ranking Member John Braun (R-20) said it’s also an opportunity to look at potential spending reductions such as an upcoming three-percent pay increase for state employees. Though Office of Financial Management Director David Schumacher downplayed the extent to which removing those pay raises could help alleviate the budget shortfall, Braun argued “the sooner we stop digging, as they say, the easier it will be to put this all together later…and that won’t mean there’s not still painful choices.”

Rep. Ed Orcutt (R-20) noted that even if the pay raise issue was put aside in a special session, “that doesn’t stop us from looking at other areas of the budget. If we do something in June or July, you’re looking at 11 months to spread those reductions, if we wait until January…even if we could do something in the first couple of weeks, you limit yourself to five months.”

Senate Ways and Means Chair Christine Rolfes (D-23) said the legislature should wait until ERFC’s updated revenue forecast is released later this month to get a more accurate picture of the state’s financial situation. That forecast will include caseload data regarding state-provided childcare, health care and other services.

“I’m looking at when will we have enough certainty…to be able to call the legislature back and have wise decisions being made,” she said.

ERFC’s next revenue forecast will be released June 15.

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