State revenue jumps; reserves hit $2 billion

OLYMPIA — Washington's robust economy is gradually cooling, but will produce another tax windfall of $126 million, driving the state's reserves to a record $2 billion, state revenue officials said today.

The new projection, unanimously approved by the state Economic and Revenue Forecast Council, comes just a week after a separate Caseload Forecast Council said lower demand for state services will reduce costs by nearly $240 million.

That means legislators and Gov. Christine Gregoire will have well over $300 million in new spending capacity — or to set aside into savings. The governor's budget director, Victor Moore, told reporters the administration supports a strong budget for schools, health care and other priorities, but also would like lawmakers to expand the state's reserves.

The governor's own $30 billion budget proposal, released last December and based on an assumption of a $1.9 billion projected surplus, suggested spending about $1.3 billion and leaving about $600 million in savings, including money in a hard-to-tap "rainy day" fund.

Chang Mook Sohn, the state's chief economist and the council director, said the new forecast represents only minor changes from the November forecast. He said the state economy is still sound, with no recession in sight for the next two years. Construction and home sales are lagging below the torrid pace of recent years, but haven't gone flat, he said.

Sohn said he expects $144.3 million in new revenue to roll in by June 30 and a slight decline, about $18 million, from his November forecast for the new two-year budget period that begins July 1.

The new projected surplus now tops $2 billion for the first time, but much of it will disappear as lawmakers write their new two-year budget. House Democrats announce their plans next Tuesday and the Senate will follow a week later.

The reserve includes about $740 million that lawmakers set aside for pensions, education and health care for use in the upcoming budget.

The current budget is about $27 billion.