Surge in consumer spending eases state budget challenges

A summer surge in consumer spending has erased nearly half of a projected deficit in Washington state’s budget, easing concerns of deep cuts to health care, human services, and higher education amid the pandemic.

With federal pandemic aid in hand and a slowly reopening economy, residents went shopping as tax collections the past three months came in nearly $1 billion higher than predicted, according to a new revenue forecast issued Sept. 23.

But that report, prepared by the state’s chief economist for the Economic and Revenue Forecast Council, shows overall revenue collections are still way down since the spread of COVID-19 led Gov. Jay Inslee to shut down most of the economy in late March.

State lawmakers and Inslee are facing shortfalls of $2.3 billion in the budget that runs through June and another $1.9 billion in the 2021-23 budget they will craft in the next regular session, according to the report. While significant, the forecast released in June predicted a nearly $9 billion deficit through mid-2023.

“This is really good news but we are not out of the woods yet,” said David Schumacher, Inslee’s budget director and a member of the council.

Since June, state tax collections came in nearly $963 million more than had been forecast by economist Steve Lerch.

A huge spike occurred in July, which Lerch noted was the last month that the unemployed received a supplemental $600 per week from the federal government. Many residents impacted by COVID-19 also received a one-time stimulus check of up to $1,200.

Starting this week, those filing unemployment claims due to the coronavirus pandemic may be eligible for another $1,800 boost, which is likely to sustain revenue collections at a pace equivalent to what occurred prior to the pandemic.

On Sept. 23, Republicans on the forecast council said the improved financial outlook is good news. But they renewed their call for a special legislative session to begin dealing with the budget.

“It is good news. It is still bad news compared to the (February) forecast on which we wrote the budget,” said Rep. Ed Orcutt, R-Kalama. “We don’t need to make drastic cuts. We could make some adjustments based on what we know now.”

Sen. John Braun, R-Centralia, the ranking minority member of the Senate Ways and Means Committee, said: “The sooner we get after this the less impact this will be to state investment and social services for our most vulnerable.”

Inslee and majority Democrats have resisted holding a special session. They’ve wanted to see if Congress would provide another infusion of aid to states or another stimulus package for workers. They also wanted to see if state revenues might rebound.

Democrats on the forecast council said that they have been right to wait in order to have a more complete economic picture before taking action that could have led to steep budget cuts.

Sen. Christine Rolfes, D-Bainbridge Island, the Senate’s chief budget writer, said the new forecast “removes some of the urgency of budget cuts.” But, she said, cuts in spending as well as sources of new revenue are on the table for discussion when lawmakers do convene.

“I think this has us … more thoughtful about our approach rather than rushing to have a Zoom special session to cut $2 billion from the social safety net,” she said.

Inslee has taken actions to curb spending. He vetoed some budget items, imposed a hiring freeze and required state employees to take furlough days, though he did allow pay raises negotiated in collective bargaining agreements to take effect.

The next revenue forecast is scheduled for Nov. 18. It will be the last one before Inslee submits his 2021–23 budget proposals to the Legislature in December.

State agencies, as part of their 2021-23 budget requests to Inslee, were directed to identify up to 15% in savings. Those requests, and descriptions of potential cuts, are now posted on the Office of Financial Management website at ofm.wa.gov.

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Information from the Associated Press included in this report.