We got more bad news on the economy last week – another $63 million decline in the collections data. This was the month of Dec 10 – Jan 10, a very important period in our retail sales data.Â Our total decline for the 2nd quarter of fiscal year 2009 (Oct, Nov and Dec 2008) is almost $200 million. This is on top of the decline in the November forecast. As you can expect, we’re very concerned about the implications here, both for the current fiscal year and for the 2009-2011 budget that we start working on next.
You can read the collections report here: http://www.erfc.wa.gov/pubs/feb09.pdf.
About 2 weeks ago I provided guidance to our budget team to use the pessimistic prediction from our November forecast as the baseline from which to start the budget effort. This means that we assume that the economy will produce $1.9 billion less in tax revenues in the 09-11 biennium, and another $300 million in the current fiscal year. The $200 we’re already down, with 6 months to go leaves me concerned that this may not have been pessimistic enough.
The national economy is in a freefall, with housing one of the most affected sectors. Washington’s tax receipts are very linked to housing – it drives our real estate excise tax revenue, and retail sales are oddly affected by housing sales. People buy new sheets and furniture when they buy a new house. I know every time I’ve moved I’ve had a lot of $100 trips to the hardware store.
If you follow this guidance out you wind up with an ugly picture – Washington’s budget shortfall will be about $8.5 billion, out of about a $30 billion budget. This number includes a larger ending fund balance than the governor proposed: a total cushion of $1 billion instead of half a billion. As the economy becomes less predictable our cushion against risk needs to be larger.The possible upside is the effects we’ll see from the federal stimulus package. I’m not sure I’m excited at the thought of them printing and spending another trillion dollars, but agree that the economy needs a boost. My concern is the amount of pork in the picture. A very simple package would have worked as well. I’ll write more once I figure it out. It’s a seriously moving target to try to analyze, though I understand they’ve settled on a final package to send to president Obama.Â In our budget work we are currently assuming very little from the feds, a safer assumption than counting on a lot of chickens running around. They’re so hard to count before they hatch…