Contact: Jason Mercier, Budget Research Analyst
(360) 956-3482

Revenue for 2003-05 up $1.3 billion—$238 million less than planned

Based on the uncertainty surrounding the war in Iraq and the expectation that Washington's economic recovery will not be realized until sometime in 2004, the state's March revenue forecast projects a drop in revenue for 2003-05 of $238 million. This is the news from Dr. Chang Mook Sohn, the state's chief economist. Despite this drop, overall revenue for 2003-05 is projected to be $1.3 billion more than 2001-03—a 6 percent increase.

This information must be put in context with three myths widely circulated around the state.

1.

Myth: State revenue is down.
Fact: State revenue is forecasted to INCREASE by $1.3 billion (6 percent) in 2003-05.

2003-05 estimated revenue $22,452 million
2001-03 estimated revenue $21,163 million
Increase $1,289 million or $1.3 billion.

2.

Myth: State spending is being cut.
Fact: Despite talk of massive cuts, Governor Locke's proposed 2003-05 budget INCREASES state spending by $528 million.

2003-05 estimated expenditures $22,979.4 million
2001-03 estimated expenditures $22,451.4 million
Increase $528.0 million

3.

Our state has a $2.6 billion deficit.
Fact: There is no $2.6 billion deficit. The budget the governor submitted was balanced. With today's news that the revenue forecast would be reduced by $238 million, the governor has a $238 million deficit in his proposed budget (assuming the governor's original $57.1 million ending fund balance)—not a $2.6 billion deficit.

Now to the issue of how our state will recover economically. Dr. Sohn restated his belief that our recovery will lag behind the rest of the nation, regardless of what happens in Iraq. The remedy, according to Dr. Sohn is job growth, which he believes depends on increased profit-margins for business.

Lawmakers have distinctly different opinions on how those jobs should be created. One model is heavily dependent on borrowing and job creation through public works projects paid by increased taxes. The other depends on some borrowing and job creation in the private sector financed by increased business profits.

Senator Lisa Brown (D-3) says some spending cuts can be made, but not enough to balance the budget. Brown believes more revenue is needed and said the "affluent aren't feeling the pinch." She argues for borrowing and "revenue enhancements" to fund various public works projects to create jobs. The governor has not used the "t" word, but he is advocating borrowing to the maximum allowed by law.

Senator Dino Rossi (R-1) and Rep. Jack Cairnes (R-47) believe spending should be cut and taxes should not be increased. They want jobs created in the private sector by making Washington more friendly for businesses to stay and to relocate from other states.

Three points to consider: 1) The last time we experienced nationwide recessionary problems (in the 1990s), states that decreased taxes and cut spending ended up with great gains in revenue. 2) Governor Locke and others want to borrow on future lottery proceeds. This is dangerous. Part of the revenue reduction from today's forecast rests on $55 million less profit than expected from the state lottery due to our participation in the multi-state Mega Millions lottery. 3) Affluent people are the ones who start or expand businesses and create jobs. "Pinching" them further is economic foolishness.

"Dr. Sohn's predictions confirmed what most Washingtonians already know and are trying to communicate to their lawmakers," said Bob Williams, President of the Evergreen Freedom Foundation. "Increasing taxes and trying to borrow our way is the worst possible decision lawmakers could make. We have a spending problem, not a revenue problem."

Evergreen Freedom Foundation P.O. Box 552, Olympia, WA 98507 Phone: (360) 956-3482, Fax: (360) 352-1874 Email: effwa@effwa.org