Latest Washington budget forecast eases deficit fears, begs new questions on proposed taxes

(The Center Square) – New revenue forecasts show Washington’s balance sheets may be back in the black for the first time since last spring, raising big questions about the wisdom of proposed taxes.

In the months since Gov. Jay Inslee enacted the state’s first shutdown on March 23, the story of the state’s budget deficit has gotten much brighter. Last spring, state economists projected state revenue to be $8.8 billion short over the next three years. By summer, that number had been cut in half to $4.5 billion. By fall, the state budget deficit tumbled once again to $3.3 billion.

According to the Washington Office of Financial Management’s latest projections, the state’s budget hole is all but closed as state revenue soars to pre-pandemic levels.

The current 2019-2021 budget cycle is taking in $1.3 billion more than prior projections, the agency reports, and the 2021-2023 cycle set to see $1.9 billion more than expected. Those numbers leave the state with a shortfall of less than $100 million, or just 6% of the $1.6 billion the state has sitting in cash reserves.

State economists attributed Wednesday’s striking new figures to improved retail sales, federal stimulus, eased health restrictions on businesses, and improved vaccination rates encouraging more economic activity.

On Wednesday, the state took a big step in bumping up its vaccination numbers by offering priority shots for high-risk workers including bus drivers, grocery store employees, and people working in prisons.

Still, OFM Director David Schumacher noted in Wednesday’s report that many thousands of Washingtonians are still suffering from the COVID-economy, as evidenced by the state’s 6% jobless rate.

The positive budget news threatens to throw a wrench in Washington Democrats’ plan to barrel ahead with two new taxes in the state legislature where they have spent months selling taxes as the only way to plug a mammoth budget hole.

While a Democrat-backed capital gains tax passed the Senate by just one vote this month and is on its way to the House, a wealth tax on the table this session has not passed either chamber. Supporters of the two taxes still contend that the money they could raise is well worth it as the state looks to invest in education, child care, and long overdue housing projects.

“The challenge now is to carefully plan both one-time and ongoing investments that will help the entire state prosper as it emerges from the pandemic,” said state Sen. Christine Rolfes, D-Bainbridge.

Based on Wednesday’s projections, Washington’s general fund balance should now sit at $56.6 billion, up from the state’s $53.4 billion in the 2019-2021 budget. Inslee’s proposed $57.6 billion budget, which calls for taxing capital gains and health insurers, would dip into the state’s rainy funds to make up the difference.

Washington is also set to receive $7 billion in federal money from the American Rescue Plan, which includes $2.6 billion for cities and county governments, according to state Treasurer Mike Pellicciotti.

The notion of new taxes has not sat well with Washington Republicans who insist it could strip the state of its competitive edge and does not stand a chance in court.

“With many families still under enormous financial stress, it is unconscionable the governor and majority party continue to push legislation that would raise taxes on health insurance, cell phones, gasoline, and more,” state Rep. Drew Stokesbary, R-Auburn, said. “And while the capital gains tax may be a convenient talking point, taxing investments and innovators is a surefire way to hamper our state’s economic growth.”

With billions more at their disposal, state lawmakers may now have the incentive to shelve the budget cuts that progressives in the Washington Legislature have feared since last summer.

The Washington Legislature’s 2021 session is now on its last legs as state lawmakers spend the coming weeks passing a final two-year budget before they adjourn on April 25.

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