In the first economic forecast since the adjournment of the Legislature this year, the Washington State Economic and Revenue Forecast Council released their quarterly revenue estimates yesterday that project an increase of $1.4 billion in the current 2021-2023 baseline. This bolsters the budget to total $64.1 billion, an 18.9 percent increase in revenue over the last budget in 2019-2021.
While this initial increase in the current budget is encouraging, the outlook for the upcoming 2023-2025 biennium saw a modest increase of $642 million, a 4.5 percent increase in revenue from the current budget totaling nearly $66 billion.
The modest increase in the next biennium may be concerning when considering the threats to the economy that have occurred since the February forecast, including supply chain issues in addition to inflation and subsequent interest rate hikes. The potential risks to the budget identified by the June forecast include the continuation of rising interest rates that push the economy into recession, which has often occurred in similar historical circumstances, and the potential intensification in Russia’s invasion of Ukraine. Despite these potential risks, the forecast suggested upsides that include the easing of supply chains and the slowing of inflation as well as a de-escalation of the Ukraine invasion.
In addition to their primary forecast, the ERFC produces two alternative forecasts seen through an optimistic and pessimistic outlook that are most often weighed with a 15 percent chance of occurring. While the optimistic forecast showed an even greater increase in 2023-2025 budget than the primary forecast, the pessimistic forecast projected a $6 billion deficit in the upcoming budget and the ERFC increased the likelihood of that realization to 35 percent because of the accumulating downside risks.
The next forecast will be released in September and will be followed by the final forecast of the year in November which the governor will use to craft his 2023-2025 budget proposal.