State budget bonanza: Forecast jumps by $739 million

Washington’s rekindled economy will pump an unexpected $739 million into the state treasury, significantly easing lawmakers’ efforts to bridge a huge budget gap, revenue forecasters said Thursday.

The good news, the largest quarterly increase ever, was called “the luck o’ the Irish” on St. Patrick’s Day by the House finance chairman.

It touched off an instant debate over whether tax hike should be off the table as lawmakers deal with a $1.5 billion spending gap.

Key Democratic legislators said a tax increase still looks unavoidable.

Democratic Gov. Christine Gregoire said she’ll spend the weekend deciding on her new budget-and-revenue proposal, but insisted that the rosy forecast is no silver bullet.

Minority Republicans and conservative watchdog groups said the extra money should definitely mean no new taxes.

Anti-tax initiative sponsor Tim Eyman thundered, “They have been given more than 700 million good reasons not to raise taxes.”

The new forecast from the state Revenue Forecast Council was unexpectedly robust. Most budget-watchers had expected an increase of between $200 million and $300 million.

But ChangMook Sohn, the state’s chief economist and the council’s director, forecast the unusually large increase — $301 million more in the fiscal year that ends June 30, plus an additional $438 million in the upcoming two-year budget cycle.

That will more than absorb a $518 million revenue loss from two recent state Supreme Court decisions, including elimination of the state estate tax. That revenue loss was part of the previously calculated $2.2 billion budget gap.

Once the $739 million in new revenue was subtracted, the problem shrank to about $1.5 billion.

Victor Moore, the state budget director, said that number includes unavoidable cost increases to provide basic services, plus discretionary increases such as pay raises for teachers and state employees, class-size reduction, and about 7,000 more higher education slots.

“This is very good news,” Moore told reporters.

The council chairman, House Finance Chairman Jim McIntire, D-Seattle, called it “a wee bit o’ Irish luck.”

But he and Senate budget Chairwoman Margarita Prentice, D-Renton, said the good news isn’t enough to stave off a revenue increase as lawmakers write a $26 billion budget for the next two years. Both spending cuts and revenue increases will be necessary, they said.

“This is definitely good news, but we still have a very big budget shortfall to deal with,” said Sen. Mark Doumit, D-Cathlamet.

Republicans, though, said it’s more clear than ever that the budget can be balanced without new taxes. Sen. Joe Zarelli, R-Ridgefield, ranking Republican on Prentice’s committee, said the Republicans and then-Gov. Gary Locke solved a deeper budget problem two years ago without extra taxes.

“We can certainly do it again,” Zarelli said.

Evergreen Freedom Foundation, a conservative budget watchdog group, and the anti-tax FreedomWorks organization both noted that the upcoming budget cycle will have $1.7 billion more revenue than the current biennium.

“This projection should send a strong message to the governor and the Legislature that they need to stay the course and let our economy continue to recover,” said Jamie Daniels, director of the state FreedomWorks chapter.

Gregoire welcomed the revenue news, but said the state still has a grave budget problem.

“Needless to say, I am really pleased with today’s quarterly revenue forecast,” she told a news conference. “Most importantly, it shows that our economy is gaining traction, that people are getting back to work and that business is increasing.

“But make no mistake, the new forecast is not a silver-bullet solution to our budget problem.”

She said the extra revenue will mostly be absorbed by the impact of the two Supreme Court rulings plus the $100 million in higher caseloads, school enrollment and other costs.

The new projection does mean, she said, that “Draconian cuts” won’t be necessary. She didn’t elaborate, but previously her office had talked about cutting thousands from state-subsidized health coverage and freezing college enrollment.

Sohn said the state’s economic recovery is outpacing the nation’s, with 64,000 jobs added in the last 12 months, including 3,800 good-paying Boeing jobs. The state’s “red-hot housing market” shows surprising strength, generating “just unheard of” real-estate taxes for the state, $1.3 billion in the last two years alone, he said.

But he cautioned that lawmakers shouldn’t just presume the steady expansion will continue.

“We have worries,” he said, including soaring oil prices, the possibility that rising mortgage rates will cool off the housing market, the declining dollar, and geopolitical risks, including the Iraq, terrorism, and tense conditions in the Middle East.