More great economic news. My state now officially holds the title for highest unemployment in the nation.
Olympia faces budget hole as state forecasts longer recession
By Drew DeSilver
Seattle Times business reporter
Washington's sputtering economy won't recover fully from its recession until late 2004, state forecasters said yesterday. As a result, state government revenues will drop $265 million from previous estimates, creating a shortfall of at least $2 billion in the coming budget cycle.
The glum revenue news came on the same day Washington officially became the state with the nation's highest unemployment rate.
Chang Mook Sohn, the state's chief economist, blamed the revenue drop directly on a slower-than-anticipated economic recovery.
So far during this recession, Washington has lost 2.5 percent of its employment base — more than any other state except Georgia, and almost twice the national figure.
The losses, Sohn told the council, have been concentrated in metropolitan Seattle, and especially in aerospace. Boeing has laid off nearly 20,000 Puget Sound-area workers in the past year as it confronts a drop in demand for new airplanes.
Boeing, its suppliers and its airline customers are not expected to recover until 2004, Sohn told the state's Forecast Council.
The high-tech and telecommunications sectors also have been heavily hit. In all, Washington lost 50,100 jobs between August 2001 and last month, according to the state Employment Security Department.
Nearly every state in the nation has been grappling with a fiscal crisis, as the national recession has brought the late-'90s gravy train to a screeching halt.
A survey last month by the National Conference of State Legislatures pegged the collective budget gap for the current fiscal year at $57.4 billion; in California alone, the gap is $23.7 billion. Oregon legislators, meeting in their fifth special session this year, are struggling to close a $482 million gap.
In Washington, forecasters now expect the General Fund — the state's main checking account — to take in $22.7 billion during the 2003-05 budget period. Just three months ago, they said the fund would take in nearly $23 billion.
The revised forecast, along with $33.8 million sliced from what's left of the state's revenue for its current budget period, sets up a shortfall of at least $2 billion, budget director Marty Brown said.
With a touch of gallows humor, Brown commented, "We could fill that gap by eliminating the Department of Corrections and all the community colleges."
Lawmakers, who knew they'd have to dig out of a budget hole next year, resigned themselves to the news the hole would be even deeper than expected.
"I guess we expected a (revenue) reduction, but this is more than I thought," said Rep. Helen Sommers, D-Seattle, who chairs the House Appropriations Committee. "This is significant."
Gov. Gary Locke's administration is still putting together its initial budget proposal, Brown said, but the preliminary spending estimate for 2003-05 is about $24.7 billion. That figure assumes maintenance of existing services at current levels, he said, and includes mandated increases in teacher pay and Medicaid payments and projected increases in school enrollment and state-employee health benefits.
By comparison, the state will spend $22.45 billion by the time the current two-year budget cycle ends June 30.
Locke, required by the state's constitution to propose a balanced budget, said in a statement he had ordered an additional 400 state jobs cut and told agencies to designate one-third of their activities as "low priority" — and presumably cutable — as part of developing his new budget proposal.
But Sommers, the House Appropriations chairwoman, said such measures alone won't close the gap. She said her priority next year will be finding savings in the state's Medicaid program and the Basic Health Plan; according to budget chief Brown, Medicaid payments alone are projected to be $500 million greater in the next two-year cycle.
"If you're not going to get anything from K-12 (education) and put all this extra money into health, I don't think you can cut the other agencies that much," Sommers said. "Health is cannibalizing everything else — social services, parks."
Sen. Joe Zarelli, vice chairman of the Senate Republican caucus, predicted his members would not be quick to follow their Oregon colleagues, who are considering tax increases.
Instead, he said, lawmakers should focus on limiting state hiring and trimming spending on such things as travel, equipment and vehicles. The Legislature also should reform the state's unemployment-insurance, workers-compensation and growth-management policies to make Washington more business-friendly, he said.
"I think the real goal for us next session will be turning the business climate around, so we can come out of this sooner rather than later," said the Clark County Republican.
However, several business tax breaks, set to expire in 2003 and 2004, likely will come under close scrutiny next year.
The credits, deferrals and exemptions, largely aimed at encouraging high-tech industries and development in rural areas, were passed in the mid- to late-1990s, when the state was flush with cash and wanted to spread prosperity beyond the Puget Sound area.
Together, the state Revenue Department estimates, they will cost the state $104 million over the next two-year budget cycle.
Yesterday's revenue estimates assume most of those breaks will expire on schedule. If lawmakers decide to extend them, they'll have even more red ink to mop up.
Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com.
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