State expected to lose about $238M in tax revenue

OLYMPIA — Continued weakness in consumer spending will help drain another $238 million from Washington's government checkbook and push the state budget further into the red over the next two years, officials said Thursday.

The drop-off in tax receipts, detailed in a quarterly report from the state's chief economist, means there will be more state budget cuts when the Legislature reconvenes in January.

It also illustrates how the likely end of the long recession is not a complete salve for the state's economic woes, since the financial recovery is expected to be long and slow.

"Although we believe the recession has bottomed out, it will take some time for revenues to recover," Gov. Chris Gregoire said.

Thursday's report from the Economic and Revenue Forecast Council called the $238 million loss in tax receipts "modest," compared with the huge drop-offs seen in 2008, when the recession was in full swing.

A large chunk of the reduced revenue — about $110 million — was attributed to softer consumer spending, a key engine in Washington's sales-based tax system.

Chief economist Arun Raha said a return of consumer confidence, including a strong holiday season for retailers, will be critical to helping Washington's economy recover. If consumers don't come off the sidelines, the nation could be at risk for a "double-dip" recession, he said.

"For confidence to improve, the economy has to improve, and people have to feel secure in their jobs," Raha said.

A smaller portion of the lost revenue, about $46 million, was a one-time change tied to a recent court ruling regarding state business taxes on interest earnings.

The rest of the drop-off reflected actual losses in state tax collections from the previous budget cycle and the first two months of this fiscal year.

Overall, the revenue decline pushes the state's balance sheet about $430 million into the red.

There is about $245 million in the state's Rainy Day Fund, which can only be tapped when the state Legislature is in session. But lawmakers will almost certainly face a bigger shortfall when they return in January: Officials said rising demand for state services and other factors could push the deficit closer to $1 billion.

Legislative leaders had been eyeing Thursday's forecast to determine whether a special fall legislative session was needed to balance the books. But key lawmakers said the $238 million downturn was not an emergency, and it could be dealt with in January's regular session.