Governor Orders Furloughs, Cancels Some Pay Raises As Washington Shows $9B Drop In Revenues

This chart shows Washington state revenues dropping by seven percent in fiscal year 2021, but increasing in subsequent years. CREDIT: Economic and Revenue Forecast Council
This chart shows Washington state revenues dropping by seven percent in fiscal year 2021, but increasing in subsequent years. CREDIT: Economic and Revenue Forecast Council

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Updated June 18, 2020, 10:20 a.m. PT

In a move not seen since the Great Recession, Washington Gov. Jay Inslee on Wednesday canceled pay raises for some state employees and ordered furloughs for many more through at least this fall. The move came the same day a new state revenue forecast projected an $8.8 billion drop in tax collections over the next three years.

“COVID-19 has hit our state hard and our economy has taken a severe hit as a result,” Inslee said in a statement announcing the spending reductions. “These are very difficult decisions but they are necessary to address the financial shortfall that we are facing.”

An hour after the governor’s announcement, the new revenue forecast was released. While it was worse than an unofficial forecast in May, it wasn’t as bad as some had anticipated it might be.

Overall, the forecast anticipated a $4.5 billion drop in revenues for the current two-year budget cycle ending in 2021 and an additional $4.3 billion reduction for the next biennium.

“The impact of lost economic activity from the COVID crisis will extend for many years,” warned the official forecast.

The dire numbers reflect the impacts of the COVID-19 triggered recession, which officially began in February. Since then, more than a million people have lost their jobs in Washington, and tax collections, with the notable exception of cannabis taxes, have plummeted.

For example, the state’s real estate excise tax has fallen to 2014 levels and sales tax collections are projected to tumble by more than $2.5 billion through the middle of 2021. Curiously, cannabis sales have skyrocketed during the pandemic resulting in record cannabis tax collections over the past couple of months.

But the forecast comes with a big dose of caution.

“There’s a lot of uncertainty about how consumers and how businesses will react to COVID-19 going forward,” said Steve Lerch, the state’s revenue forecaster.

He noted that consumer confidence and hiring perked up nationally in May as the economy started to reopen. But Lerch also cautioned that until there’s a COVID-19 vaccine or therapy, it’s unlikely the economy will recover fully.

Another wildcard is whether Congress will pass a bailout package for states and local governments this summer.

In some respects, the worst may not yet be over. The forecast assumes a loss of nearly 13,000 aerospace jobs from March through September, driven in large part by Boeing layoffs. Another bleak spot is exports, which are down 35 percent year-over-year in Washington.

If the forecast contained a bright spot, it’s that state revenues show a steady increase beginning in fiscal year 2022, after a projected seven percent decline in fiscal year 2021.\

The new fiscal outlook prompted majority Democrats in the Legislature to call for a combination of cuts and revenues to balance the budget.

“I’m saying everything is on the table right now,” said state Sen. Christine Rolfes, the Democratic chair of the Senate Ways and Means Committee. “The goal is do no harm, but we cannot recover the economy until we have the virus under control and that requires spending money.”

In one sign of the COVID-19 economic cliff, travel at Sea-Tac airport plummeted beginning in March. A new state revenue forecast shows Washington tax collections could drop nearly $9B over the next three years.

In one sign of the COVID-19 economic cliff, travel at Sea-Tac airport plummeted beginning in March. A new state revenue forecast shows Washington tax collections could drop nearly $9B over the next three years. CREDIT: Economic and Revenue Forecast Council

Meanwhile, minority Republicans renewed their call for an immediate special session to begin reducing spending now. On July 1, roughly $1 billion in new spending is set to kick in.

“We should stop that new spending,” said state Sen. John Braun, the ranking Republican on the Ways and Means Committee. “Some of that new spending is good stuff, we all agree it’s good stuff, but when you’re in this kind of a situation the last thing you need to do is spend more.”

Braun also noted that even with the recession losses, the state is still expected to take in more revenue during the next two-year budget cycle than in the current one. That’s likely due in large part to Democrats passing a robust tax package in 2019.

But Democrats insist that an austerity-only budget would be devastating. Inslee’s budget director, David Schumacher, noted that state agencies re