OLYMPIA — Washington’s state tax collections are roaring back, with an estimated additional $3.2 billion projected through 2023 as parts of the economy brighten and people get vaccinated amid the COVID-19 pandemic.
Wednesday’s projections by the state Economic and Revenue Forecast Council project an additional $1.3 billion for this current, two-year budget cycle. An additional $1.9 billion increase is forecast for the 2021-23 budget cycle.
That’s a big chunk of money for a state with a current $53.3 billion, two-year state budget that funds schools, parks, prisons, foster care and other programs.
The projections arrive as Democratic House and Senate budget writers will soon release their proposed two-year state operating budgets.
“I would say that this forecast, as well as the help from the federal government, really puts us in a strong position for recovery,” Sen. Christine Rolfes, D-Bainbridge Island, said during the economic council’s Wednesday meeting.
Republicans Wednesday quickly cited the strong revenue projection as a reason why Democrats should not pursue their proposed new tax on capital gains.
“I think this is unprecedented news … that should quell the talk of the need for increasing taxes or creating new taxes,” said Sen. Lynda Wilson, R-Vancouver, during the meeting.
Wednesday’s projections amount to a startling turnaround since last spring, when the economy shut down as the COVID-19 outbreak took hold and a $9 billion shortfall emerged, sparking predictions ranging from another Great Recession to something closer to a depression.
The growth comes, in part, from two different federal stimulus packages — one approved in December and one last week — that have provided direct payments to residents, according to Steve Lerch, director of the forecast council.
Retail activity has improved, said Lerch, which boosts the sales tax, upon which the state heavily depends. Collections for the Business & Occupation tax are also higher than previously forecast.
With residential real-estate transactions continuing to run hot, numbers for the state home seller tax have increased, he said. Meanwhile, the spike in cannabis sales during the pandemic have continued, bringing in more revenue on that front.
All of those increases come, however, as the job market continues to struggle in sectors hit hard by the pandemic.
“Restaurants, bars, any sorts of arts and entertainment businesses and most travel-related sectors continue to see a lot of weakness,” said Lerch. “And we are seeing rising oil and gasoline prices.”
All told, Wednesday’s forecast puts Washington state roughly back to the economic growth that it had expected before the pandemic hit, according to Lerch.
The new expected money comes atop of the billions of dollars Washington is slated to receive through the COVID-19 relief package signed into law last week.
That money is earmarked to help cities, counties and the state, and boost spending on transit, housing aid, schools, vaccinations and contact-tracing as health officials race to tamp down on the virus.
Senate Democrats are expected to release their proposed two-year state operating budget late next week; House Democrats will release their own proposal after that.
Lawmakers are still deciphering which ways they are allowed to use the federal stimulus dollars, said Rep. Timm Ormsby, D-Spokane, which then must be matched against the proposed budgets. He called that exercise “fiendishly complex.”
“We are interested in providing relief to individuals, families and communities,” Ormsby, the chief Democratic budget writer in the House, said during Wednesday’s meeting. “The good economic news here is not widely felt by every Washingtonian.”
One scenario lawmakers are trying to figure out: They might be able to use nearly $200 million in federal aid to fund projects related to COVID-19 in the state’s capital-construction budget, said Sen. David Frockt, D-Seattle.
That could include funding ventilation systems for congregate settings like nursing homes in the capital budget, said Frockt, which is separate from the operating budget.
Legislators must also determine whether a provision in the federal stimulus package barring the use of the funds for tax cuts might derail some proposals, like funding Washington’s long-stalled Working Families Tax Exemption.
There’s also a question about how that might impact efforts in the future to reduce any hikes in the unemployment insurance tax paid by businesses amid heightened unemployment.
Rolfes said she hopes Washington’s Congressional delegation weighs in on that, saying, “I don’t know that their intention was for states to not be able to replenish our unemployment insurance funds.”
In December, Gov. Jay Inslee released his two-year budget proposal. That $57.6 billion plan focuses on, among other things, boosting spending on public health and schools to help recover from the pandemic.
Inslee and most fellow Democrats have continued to push for new revenue, like a tax on capital gains — which passed the Senate earlier this month — in their long-running quest to make the state’s tax system more progressive.
Republicans, who are in the minority in the House and Senate, have released budget proposals of their own that don’t raise taxes. Those proposals came before the billions of dollars in new coronavirus aid.