Unprecedented economic crisis leads to growing state budget deficit

On March 19, the Economic and Revenue Forecast Council released an official forecast that, as expected, painted a dreary outlook. The State’s economy has continued to weaken, bringing the State’s budget shortfall to approximately $9B.

Since the "unofficial" forecast presented in February, the State’s revenue for the 2009-2011 biennium is expected to be down an additional $538M. Total revenue for the next biennium is forecasted to be $27.9B, which is $2.1B less than what was expected in the November forecast. Nominal revenue growth between the 2007-09 biennium and the 2009-11 biennium is now expected to only be 0.2%.

The Council reports that weakness in housing activity and auto sales has spread to other sectors of the state economy including non-residential construction, manufacturing, aerospace, software publishing and retail sales.

Previously, there was optimism that Washington would be one of the first states to pull out of the recession. That hope has disappeared and the current forecast assumes that like the rest of the country, Washington will be in recession for most of 2009, leveling out sometime late in the third quarter. Growth is expected to remain flat through the first half of 2010, improving in the second half of the year.

The Council did note that a few positive signs have emerged. Positive indicators include more stable retail sales, "bottomed out" housing starts, steadying used car prices, and profits at some banks. However, this "upside" was tempered with a reminder that consumer confidence remains at record lows, job losses are expected to continue and credit is still tight.

Senate/House budgets released soon

Now that the official revenue forecast has been released, lawmakers have a better sense of the task ahead of them and budgets are expected to be released next week. The Senate is expected to release their budgets first followed closely by the House.

Clearly, a budget deficit of this magnitude will require that significant cuts are made. So far, legislators have not publicly identified specific cuts, but we do know that many of the funds important to cities are on the table. This could include infrastructure funds, public safety funds and potentially general state-shared revenues.

AWC’s legislative staff has been meeting with the budget writers and others throughout the session seeking support for key city budget items. We’ve told legislators that cities – like the State – are experiencing a fiscal crisis. Right now is the time for the State to partner with cities, and recognize that strong local governments are the first step in achieving a strong statewide economy, workforce opportunities for our citizens, and a better quality of life.

We will distribute budget details to you as soon as the budgets are released.

Over the final weeks of the legislative session the pace is guaranteed to be fast. We will communicate important information with you through our Legislative Bulletin and electronic action alerts. Please stay tuned and help us communicate key city messages to your legislators.

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