State economy shows little sign of recovery - Revenue forecasters expect $6 million less than previously predicted


BRAD SHANNON
THE OLYMPIAN

9/19/03

Olympia, WA - What do you think are some of the impediments to the recovery and long-term health of the state economy?

Washington's flat economy will produce $6 million in fewer taxes for state government than previously predicted for the next two years.
And, just as significantly, the jobs base won't grow until at least next year.

"Clearly, Washington is not showing any indication it is recovering as it did in the 1970s and 1980s" during previous recessions when jobs returned in the first year, said Chang Mook Sohn, the state's top economic forecaster, in a report to state legislators Thursday.

Washington is in its second year of recovery without seeing a rise in jobs.

He added: "We are not expecting a strong comeback in the rest of this biennium," which ends in June 2005.

Sohn delivered his somewhat negative, though not overly pessimistic, outlook Thursday in his quarterly briefing of the Revenue Forecast Council, which includes key lawmakers.

The result is mixed for the Legislature, which returns to Olympia in January for a 60-day session to write a supplemental budget for 2003-05.

But there is $100 million set aside in the $23 billion budget to give tax breaks to high-tech and biotech companies whose tax exemptions expire in the next year, said Senate Ways and Means Committee Chairman Dino Rossi, R-Sammamish, who sits on the Revenue Forecast Council.

"We still need to be cautious with any supplemental budget," Rossi said. "I don't see any dramatic changes."

The biennial changes in state spending since 2001 have been much smaller than in the 1970s, '80s and '90s, when double-digit increases were common. The change was a minus-0.6 percent in 2001-03 and 7.6 percent in 2003-05, according to Sohn's report.

The forecast suggests the state might end its two-year budget cycle in June 2005 with $482 million in reserve. Even so, budget writers have shaved their budget pretty close, since $400 million of that is in extra federal money the state is receiving during the period. That cash hadn't been figured into the budget written a few months ago.

"We're in relatively good shape given the difficulty we went through last session ... and the fact we got the money from the federal government to put in our reserve," said Rep. Jim McIntire, D-Seattle, the new chairman of the House Finance Committee.

"This is sort of a no-news-is-good-news meeting," said Marty Brown, director of Gov. Gary Locke's Office of Financial Management. The budgetary effects from caseloads -- including possible school enrollment increases -- won't be known until November, about the time the next revenue forecast is due, he said.

Sohn said the national recession ended in November 2001 but has been uncharacteristically slow to generate new jobs, unlike past recoveries. In fact, Sohn said, the national economy, despite its growth, has shed 600,000 jobs since January 2003, and Washington is losing ground, too.

His national outlook factored in low interest rates and a stimulating series of federal tax cuts, extremely high productivity increases of 6.8 percent, a rebounding stock market, the job losses and Consumer Price Index increases of 1.3 percent over the past year (the lowest since 1.2 percent in 1966).

At the state level, job losses since the end of 2000 have totaled 73,100, including 8,700 lost jobs during the economic recovery period, Sohn said. Losses in manufacturing jobs began well before the recession, starting in July 1998.

Washington's recovery is slower than other parts of the nation, Sohn said, because aerospace and high-tech, which are the state's two high-wage sectors, have been hammered.

Although state general-fund tax collections for the past three months were up $44 million over past estimates, only $13.7 million stemmed from economic activity, Sohn said.

Sohn downplayed the prospect of deflation or falling prices as a major threat to the economy, though he said it is a worry in such sectors as computer technology.

Also on the negative side, Sohn's report noted that initial claims for jobless benefits went up 1 percent in August in Washington, reversing a 4 percent decline over the previous four months. Help- wanted ads also waned in August.

The state lost 8,700 jobs since the recession's apparent end in 2001, with King, Snohomish and Island counties losing 21,700 and the rest of the state adding 13,000. Much of the gain was in the Tri-Cities.