March 17, 2021 Economic Forecast: silver linings and rainbows

The cloudy skies of the June 2020 revenue forecast were replaced with rainbows and silver linings in today’s forecast. On the one hand, it has blown away all expectations, but on the other, some of the rosy forecast is due to one-time only money activity in the form of stimulus. Here are the details:

This time last year (March of 2020), the revenue forecast was up $298M, as the pandemic was just starting to kick in. At that point, observers were predicting doomsday by the next revenue forecast in June.  Today’s forecast is up $1.340B for the remainder of this biennium, and $1.949B in more revenue for next biennium is forecasted.

David Schumacher, Director of Office of Financial Management, stated we are “back to normal;” in other words, back to where the state was a year ago.

Some highlights:

• This amounts to 5.5% increase of revenue over last year, largely due to Revenue Act collections (specifically retail sales, B&O taxes, public utility taxes and sales of non-cigarette tobacco products).

• The U.S. GDP was 2% in November and it’s 6.5% now in March! Big change.

• $3B in reserves in the state budget will continue to grow.

Washington’s Chief Economist, Steve Lerch, cautioned in his forecast today that the economy is stronger largely due to containment of the pandemic, the wide availability of vaccines, and federal stimulus money.  These things are temporary.  He believes this rapid growth will slow down some in the next biennium.

Democratic legislators were quick to point out that creating programs that put new budget pressures on spending would be the wrong thing to do.  There were lots of questions and discussion about how they can spend new federal stimulus money, and that there is a federal restriction that the money cannot be spent to offset any tax cuts.

Meanwhile, budget writers in both chambers are busy preparing budget proposals for release starting next week.  WPPA will update membership once those are publicly available.