Last week, the Economic and Revenue Forecast Council (ERFC) released its quarterly economic and revenue forecast. The forecast includes four months of new Washington employment data and the two recently passed federal pandemic relief packages.

According to the Office of Financial Management, the positive forecast indicates that State revenues have increased by $1.9 billion for the next biennium and by more than $1.3 billion for the current biennium. That means that the State general fund revenues are projected at $5.6 billion for 2021-2023.

The federal stimulus legislation passed this month and December 2020 is expected to lift GPD growth not only this year, but next year as well. Since the November forecast, Washington has experienced stronger than expected retail sales and residential real estate transactions. These factors, when combined with the swift vaccine distribution, are a large contributor to the increase of $562 million to the state’s general fund revenue.

Such economic strength is projected to continue throughout the remainder of the 2019-21 biennium, resulting in a total forecasted increase of nearly $900 million in tax revenue. The state also experienced a significant decrease in unemployment, adding over 16,000 jobs in the month of February alone. Although job openings have gradually trended up since August 2020, there are still fewer opportunities than before the pandemic. This being the case, ERFC projects Washington employment to grow at a rate of 2.2% between 2021 and 2025.

There are a number of other economic indicators pointing towards economic recovery: housing permits issued throughout the state are expected to exceed pre-pandemic levels. Real estate transactions remain at high levels, although large commercial transactions have declined since their December peak.

The strong forecast comes at a critical time for our state budget leaders. Legislators rely on the economic forecast and related information to build an informed, balanced budget. We anticipate legislators will delay the release of the capital and operating budgets to include not only new money realized in the forecast, but other federal stimulus funds available as a result of the American Rescue Plan.

While the operating and capital budgets will likely show signs of economic recovery, the transportation revenue forecast remains grim. Despite greater economic activity in the last four months, pre-pandemic travel patterns have not recovered, resulting in lower gas tax receipts and loss of other revenues like ferry fees and tolls. For more information regarding the transportation revenue forecast, read our review of the recently released transportation forecast.