Revenue forecast shows new approach needed to bolster state economy

The recent wave of bad economic news shows that the prevailing “cuts-only” orthodoxy among policymakers in Washington state is neither wise nor sustainable. Today, our state Economic and Revenue Forecasting Council (ERFC) announced that the softening national economy is projected to lower tax revenues that support our state’s core economic infrastructure by $183 million in the coming 2011-13 biennium. (See the schumdget post "June revenue forecast demystified" for a detailed explanation of the forecast's impact on the state budget.)

Washingtonians must chart a new economic course. By generating new revenues we can rebuild the health, education, and other community structures that are proven to fuel robust and sustainable economic growth and to expand long-term prosperity. 

The discouraging economic and revenue forecast comes just one day after an economically damaging state budget was signed into law that will increase joblessness by unnecessarily slashing health care, K-12 and higher education, and other core state systems. 

This is troubling news. Not only will the enacted 2011-13 budget gravely weaken our economic infrastructure, slowing revenue growth means Washington will not have enough resources to sustain our remaining investments that foster economic growth and prosperity. The graph below shows that state revenues are projected to remain far below pre-recession levels for the foreseeable future.

As the graph shows, after appropriately adjusting for rising gas and energy prices along with other elements of inflation, state tax revenues are projected to remain well below minimally adequate 2007 levels at least through fiscal year 2013. After bottoming-out at 18 percent below pre-recession levels last year, state revenues are projected to grow in the coming years, but will still be seven percent below 2007 levels at the end of the coming biennium. 

As we highlighted yesterday, the sharp cuts to essential health and education structures (which could have been mitigated by sensible revenue increases) in the coming biennial state budget will weaken our already fragile state economy.  In spite of this, some lawmakers have argued that the legislature should have enacted even deeper cuts to economically vital public health and education structures. However, this short-sighted approach would cause even greater economic damage. And those who argue in favor of it blatantly disregard the devastating toll the cuts-only approach has taken on Washingtonians: 

The cuts included in the coming biennial budget will have enormous consequences for workers and families in our state. For example:

• Over $500 million cut from four-year institutions and community and technical colleges means that students will bear a larger share of the costs, reducing access to a higher education. 
• Over $670 million cut from our health care system means that people with low incomes will not have access to glasses and most hearing devices, over 50,000 low income seniors will no longer get assistance with their prescription drugs, and the wait list (currently over 144,000) for health care coverage for low-income, working adults will continue to grow.
• Teachers and state employees will see their paychecks shrink.
• Thousands of people who cannot work due to a disability will see their only income support disappear and those who continue to receive cash assistance will see the size of their cash grant reduced by 42 percent.  

Additional cuts would impose even greater costs on all Washingtonians and would further undermine our economic recovery.

There is a better path forward. In the coming months, policymakers and the public can engage in an honest conversation about reforming our inadequate revenue structure. In addition to long-term reforms, we can adopt sensible revenue enhancements -- such as modernizing our dated state sales tax to encompass new products and services that didn’t exist when the tax was created in the early 1930s. Doing so would allow our state to shore-up the health and education systems that form the backbone of our state economy. Reinvesting in these and other essential community structures is a proven strategy that will restore our state economy while expanding prosperity for all Washingtonians.