Wash. expected to lose about $238M in tax revenue

Continued weakness in consumer spending will help drain another $238 million from the state's coffers and push the 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, likely means more state budget cuts when the Legislature reconvenes in January, Gov. Chris Gregoire said.

The revenue drop 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," Gregoire said.

Gregoire did not mention tax increases as an option to bridge the deficit, and legislative budget leaders also downplayed the likelihood of tax hikes.

"We're looking at cuts first," said Sen. Rodney Tom, D-Medina, vice chairman of the Senate's budget committee.

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.

Overall, that revenue decline pushes the state's balance sheet about $430 million into the red for the budget that runs through mid-2011.

The roughly $245 million in the state's Rainy Day Fund will help fill that hole. But lawmakers probably will face a bigger shortfall when they convene in January: Budget officials said rising demand for state services and other factors could push the deficit closer to $1 billion.

Still, key lawmakers said Thursday's revenue decline was no reason to call a quick special session this fall.

"Special sessions are for emergencies. This is not an emergency," said House Finance Committee Chairman Ross Hunter, D-Medina.

Minority Republicans said the Legislature must cut spending quickly once lawmakers get to work on the budget. Senate minority budget chief Joe Zarelli, R-Ridgefield, said legislators should start developing plans next month, when they hold organizational meetings ahead of the January session.

A large chunk of the reduced revenue reported Thursday - 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.

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On the Net:

Forecast Council: http://www.erfc.wa.gov

Legislature: http://www.leg.wa.gov

Governor: http://www.governor.wa.gov