Dismal economic forecast shows need for bold investments

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By - June 18, 2020

Dire new projections from economic forecasters in Washington state make it abundantly clear that elected officials at all levels of government should be focused on preserving and creating good jobs, addressing the COVID-19 public health and economic crises, and dismantling institutional racism in all facets of our society. Yet too many leaders in our state seem to have adopted the wrong-headed notion that the worsening economy requires cuts to schools, health care, and other investments that support the common good.

That approach would serve only to deepen and prolong the recession while imposing unnecessary hardship on communities already struggling to make ends meet. The harm from a cuts-heavy approach to this recession would be disproportionately felt by Washingtonians who are Black, American Indian or indigenous, Latinx, Pacific Islander, and other communities of color fighting to overcome generations of economic oppression.

The good news is lawmakers still have an opportunity to break out of this damaging mindset and take actions to repair our economy, restore public health, and meaningfully address institutional racism.

How bad is the state economy?

Bad. New projections released by the Washington State Economic and Revenue Forecast Council show that the state economy is careening downward with unprecedented speed. Employers have laid off some 426,000 workers since the pandemic struck earlier this year. That’s more jobs lost than the entire populations of Adams County, Asotin County, Benton County, Chelan County, Clallam County, Columbia County, Ferry County, and Garfield County combined. While forecasters are expecting a slight rebound in the coming months, nearly one in 10 (9.3%) workers will still be unemployed in the final three months of 2020, according to the new projections.

Without major interventions by national and state lawmakers, the economic pain will extend well beyond 2020. State revenues, which are directly impacted by economic conditions, are projected to be $4.5 billion lower than previously forecasted for the remainder of the current state budget cycle, which ends in June 2021. This sharp decline means tax collections will fall $3.4 billion short of the amount needed to sustain funding for schools, health care, and other essential community investments. And revenues are projected to remain $4.3 billion lower than pre-COVID-19 forecasts in the following 2021-23 state budget cycle.

Cutting public services like schools and health care will only deepen the economic hole

Lawmakers at all levels of government should focus their efforts on filling the economic hole created by the COVID-19 pandemic. They should stop promoting actions that would only worsen job losses, funding cuts for important public services, and other economic harms. Notably, some Washington state lawmakers and newspaper editorial boards have irresponsibly called for deep cuts to already declining public investments.

That’s a recipe for an economic disaster. At a time when nearly one in seven workers in Washington state is unemployed, deep state and local budget cuts would mean laying off or furloughing thousands more teachers, nurses, custodians, social workers, and many other frontline workers who patronize local businesses and support the state economy in myriad other ways.

We’ve learned the hard way that knee-jerk budget cuts, which force ordinary people to suffer the brunt of economic downturns, do not work. The federal, state, and local budget cuts enacted in response to the Great Recession served only to hamper the economic recovery and further concentrate wealth among those at the very top. As recent furlough announcements and cut proposals from public agencies in Washington state show, taking resources away from people when they’re already down isn’t just wrong, it’s also counterproductive.

What lawmakers can do

Lawmakers still have ample opportunity to learn from past mistakes and chart a better course forward for our communities, state, and nation.

Federal lawmakers can move quickly to stimulate the economy by increasing resources the federal government provides to states for local schools, health care, housing, and other investments. They should also extend the heightened unemployment insurance benefits enacted in March under the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act, which are currently scheduled to expire at the end of July. The law should be changed so that these and other important stopgap measures for struggling families remain firmly in place as long as the economy remains weak.

Here in Washington, to stimulate the state economy and preserve funding for schools, health care, and other community investments, lawmakers should:

  • Fully tap state budget reserves. Since the last recession, lawmakers wisely set aside some $2.5 billion in the state budget stabilization account, or “rainy day fund,” to be drawn down during a recession or other state emergency. Now is the time to tap those savings and preserve community investments until new, equitable sources of revenue can be implemented.
  • Ensure that the state’s wealthiest households pay their fair share. That means, taxing capital gains, a form of financial wealth that is more concentrated among those at the very top than any other. It also means extending the state estate tax to residents who inherit huge sums of wealth (more than $2 million) from relatives outside of Washington state, and enacting new taxes on the excessive wages and salaries paid to CEOs and other highly paid employees at the largest corporations in our state. Legislation introduced earlier this year that would have allowed King County to fund affordable housing through a small tax on payroll from employees earning more than $150,000 per year could serve as a template for a similar statewide tax.
  • Redirect funding for prisons and policing to supports for those most impacted by the current crisis. The current state budget includes about $2.6 billion in direct funding for prisons and policing, most of which goes to the state Department of Corrections. To begin redressing the impact of generations of police violence against people of color, especially Black people, in our state, lawmakers should heavily scrutinize this area of the budget. This must include responding to demands from Black leaders to redirect resources from public spending on policing and prisons to investments that support community health and well-being like education, healthcare and economic supports.
  • Provide direct cash assistance to struggling Washingtonians. Lawmakers can stimulate the state economy and ease financial hardship by enacting Recovery Rebates, a form of direct cash assistance for residents of Washington state modeled after the recent federal stimulus payments. Added cash would help struggling residents make ends meet while the economy recovers. Family supports provided by the state WorkFirst/TANF program should also be expanded and strengthened. And lawmakers should establish a Worker Relief Fund to provide vital cash supports to undocumented immigrants and other populations that were unjustly excluded from the federal stimulus tax payments and unemployment insurance expansions.

If lawmakers fail to take the bold actions needed to turn things around, Washingtonians from all walks of life will suffer the fallout for decades to come.

About Andy Nicholas, Senior Fellow

Andy specializes in state budget and tax policy. Since joining the Budget & Policy Center in 2009, he has served on a Legislative Task Force on Tax Preference Reform and has conducted numerous analyses of Washington state’s tax code.

Read more about Andy