While projected revenues for the current 2021-23 state biennial budget were increased, projections from the Washington State Economic and Revenue Forecast Council released this afternoon lowered expected collections by $495 million in the 2023-25 biennium. The Council’s forecast projects revenues in the current biennium to increase by about $43 million, bolstering the underlying budget to $63.2 billion.
Lower personal income was a driving factor in the concerning outlook, which has prompted a reduction in retail sales. Additionally, the shortfall can be contributed to a slowing in residential construction has reduced construction employment and construction sales. As interest rates have increased to combat inflation, they too have negatively impacted the forecast as real estate activity and associated taxes have slowed. Finally, $117 million of the $495 million revenues reduction is related to a decision from the state’s Board of Tax Appeals which granted a sales tax exemption to certain machinery and equipment sales related to research and development work.
The forecast does not project a recession. However, downside risks outweigh upside risks. The report projects a 35 percent likelihood of a budget deficit of $5 billion.
The forecast was not all bad news, as projected employment in the state saw improvements. It noted improvement could be realized with increased supply chain recovery, a faster resolution to the Russian invasion of Ukraine, and increases in consumer spending.
Another revenue forecast will be released in November, which will be used by the governor to craft his budget proposal to be considered by the state Legislature when it convenes for the 2023 legislative session in January.