As Special Session looms, today’s revenue forecast confirms need for new approach
The Economic and Revenue Forecasting Council (ERFC) released new projections today that reduce tax revenues for the remainder of the 2011-2013 biennium by approximately $1.4 billion dollars, down an additional $122 million from September’s quarterly revenue forecast.
The Legislature will convene for a special session on November 28th. In order to close the budget gap and provide additional reserves, they will need to identify roughly $2 billion. Now more than ever that we must increase our resources in order to maintain investments in health and education — investments that will put us on the path to recovery and job creation.
Unlike previous economic downturns, the Great Recession's impact on state revenues has been dramatic and long-lasting. As the graph below shows, even after adjusting for inflation, state tax revenues for fiscal year 2011 – four years after the start of the Great Recession – were 12.6 percent below 2007 levels. This number is projected to increase to 13.3 percent below 2007 levels in fiscal year 2012. By contrast, during the previous “Dot Com Burst Recession” of the early 2000s, revenues had fully recovered to pre-recession levels after only three years. After six years they were a robust 16 percent higher than they were in 2001.
It is important to note that the decline in projected revenues is due to a slow global economic recovery and economic uncertainty in European markets.
The Governor’s preliminary 2012 supplemental budget, which contained deep cuts to public structures such as healthcare, job supports, higher education, and public safety, would significantly erode the standards of living for all Washingtonians.
We must pursue a balanced approach which involves new revenue as well as targeted investments that assist in economic recovery. We outline our vision in our Framework for Prosperity.
As we address our immediate needs, we must also enact long-term structural changes to ensure we have a sustainable revenue system for the future. We recently released a proposal to tax capital gains in Washington state. A capital gains tax would help our state recover more quickly following future economic downturns.
