State revenues show modest decrease in March forecast as budget season launches

The March revenue forecast released by the Economic and Revenue Forecast Council (ERFC) predicts a $483 million decrease in revenue for the 2023-25 biennium. This erases most of the unexpected gains of the November 2022 forecast but is still about 2.5% above the level predicted a year ago. The forecast also showed a $541 million decrease for the 2025-27 biennium.

$224 million in lower forecasted real estate excise tax (REET) collections make up a significant portion of the lower revenue forecast for 2023-25. REET collections had been at historically high levels in recent years. However, slowing home sales due to higher interest rates are expected to impact collections. REET activities are 42% less than last year.

The lower revenue forecast will be offset in part by February’s lower caseload forecast levels for demand for several state services such as foster care, long-term care, and corrections that drive expenses in the state budget.

Other concerns were high interest rates, inflation declining at a slower rate than anticipated, slowing building permit activity, and uncertainty related to the war in Ukraine. The recent banking uncertainty was also noted as a risk but is too recent to know any potential impacts.

The forecast kicks off a week of budget proposals, starting with the Senate proposed capital budget released on March 20, and the proposed operating budget scheduled for March 23. Unlike the Governor’s proposed budget, the capital budget proposal does not include the $4 billion referendum for bond authority outside of the debt limit to fund new housing.

City impacts in the Senate proposed capital budget include:

• $400 million to the Public Works Assistance Account, which honors the sunset of revenue diversions to education, but continues the $114 million diversion to the Move Ahead Washington transportation package passed last year.
• $50 million for the State Broadband Office as a federal grant match for the Broadband Equity, Access, and Deployment (BEAD) state grants program.
• Significant additional investments in affordable housing construction and other housing needs, including $400 million to the Housing Trust Fund, $83.2 million for the Inflation Reduction Act HOMES Program, $67 million for Housing Finance Commission Land Acquisition Program, and $50 million grants to match private investment for transit-oriented development.

Check out next week’s Legislative Bulletin for a more complete run down on the Senate’s capital and operating budget proposals.