Legislature: State's ocean of red ink grows deeper

Thursday, March 20, 2003
By DON JENKINS, Columbian staff writer

OLYMPIA, WA- Washington's projected budget deficit has grown by more than $200 million, the state's chief economist said Wednesday.

He predicted that even a short and successful war won't do much for the state's stagnant economy.

"Regardless of the war situation, the economy here will be weak," said Chang Mook Sohn, whose two-year revenue forecast sets the stage for House and Republican budget writers to finish and present their spending proposals.

At a meeting of the bipartisan Revenue Forecast Council, Sohn predicted general fund revenues of $22.45 billion for the 2003-05 biennium. That sum falls more than $2.6 billion short of the amount of money needed to carry forward state services at current levels. It's $238 million, or 1.1 percent, less than Sohn's November forecast, which provided the basis for Gov. Gary Locke's proposed budget.

Locke balanced his budget by proposing $2.4 billion in cuts. Cutting another $200 million or more can be done, said Dino Rossi, R-Sammamish, Senate Ways and Means Committee chairman. "Yes, it's more difficult, but it's manageable."

Rossi said lawmakers should resist raising taxes while the national economy struggles. "If we keep our heads and don't do that … when the dust settles, Washington state will look like an attractive place to do business."

But Senate Minority Leader Lisa Brown, a Spokane Democrat, said lawmakers should look for new revenue, making the affluent bear part of the burden for filling the deficit rather than putting it on the uninsured and poor by reducing services.

Such an approach would be "more balanced and require sacrifices from all of us," she said.

At a separate press conference, Locke said he would consider "sin taxes" and plugging tax "loopholes," but the Democrat gave no indication that he's changed his opposition to any general tax increase.

He urged legislators to decide which programs are the most important. "We're still focused on our 'priorities of government' process," he said.

Vancouver Democrat Bill Fromhold, vice chairman of the House Appropriations Committee, has proposed raising the sales tax by about a half-penny per $1 for two years to preserve services until the economy improves.

"That idea is not resonating," Fromhold said Wednesday.

In fact, Democrats, who control the House, aren't coming to a consensus on raising "sin taxes" either, he said. "I'm starting to wonder if we're going to get a consensus."

Meanwhile, the no-tax-increase sentiment among Democrats grows, he said. The issue may be, "How are we going to come together and prioritize spending with little or no additional revenue?"

Rep. Jack Cairnes, the lead Republican on the House Finance Committee, said Sohn's cheerless outlook should spur lawmakers to protect business tax preferences, and make workers' compensation and job-safety laws more pro-business.

"The House has not passed one significant piece of legislation that would make this state more business friendly," he said.

Brown cautioned against blaming Washington's business climate for the deficit. Almost every state has a budget problem, she noted.

A reporter asked Sohn what lawmakers could do to improve the economy.

"It is not just the legislators," answered Sohn. "It's you and me and the whole 6 million (Washingtonians)."

Consumers could spend more, and businesses could invest more, he said.

The number of jobs in the state declined by almost 70,000 in the past two years, and Sohn said he doesn't expect the job market to rebound until 2004.

The state lost 50,000 manufacturing jobs while posting small gains in financial, insurance, real estate, government and education jobs.

Consumers, helped by mortgage refinancing, propped up the economy for a while. But Sohn said spending has dropped.

"Clearly, people are not spending at least not on taxable items," he said.

Government revenue continues to grow, but so does school enrollment, prison population, health care costs and other caseload-driven expenses.

Sohn said he expects general fund revenue will grow by about 5.5 percent over the current and next biennium, a four-year period covering 2001-05.

Sohn said the economy still suffers from business overexpansion in the late 1990s, but he put most of the state's troubles on the declining fortunes of dot-com businesses and the aerospace industry.

He called Boeing a casualty of the Sept. 11 terrorist attacks, and said that economic troubles in the Seattle area outweigh gains made elsewhere.

Higher gas prices could take $1 billion out of the state economy in the coming year, costing the average family $470, according to Sohn's report.

Also, lottery proceeds lagged. The state joined the multistate Mega Millions game last year, but that's hurt the state's Lotto game, Sohn said. Lottery revenue estimates for 2003-05 dropped by $50 million over earlier projections.

On the positive side of the ledger, strong liquor sales caused the state to raise its expected revenue from selling alcohol by $3.5 million to $64.4 million over the next two years.

Don Jenkins reports on the Legislature and state government. He can be reached in The Columbian's Olympia bureau at 360-586-2437, or via e-mail at don.jenkins@columbian.com.