Last week, the Economic and Revenue Forecast Council adopted the official state economic and revenue forecast and optimistic and pessimistic alternative forecasts. This forecast has been updated with three new months of data since the June forecast. Cumulative major General Fund-State (GF-S) revenue collections from June 11 through September 10, 2020 came in $963 million above the June forecast. This is attributed to a few different factors that have changed since June: the real estate market has been much stronger than expected, retail spending was higher than expected, and personal income was higher than expected.
Overall, the revenue shortfall for the next three years was cut in half from the last forecast in June. According to the forecast released last week Washington can expect a $2.4 billion shortfall for the current biennium, $2.1 billion for the next biennium, and $2.0 billion for the 2023-25 biennium. With $3 billion dollars in reserves, legislators agreed that although this forecast does not solve the problem, it certainly takes away some of the urgency felt in June when there was a $9 billion dollar shortfall predicted over the next 3 years.
It is important to note that there is a large degree of uncertainty associated with the revenue forecast released last week. It is still unclear when we may see a COVID-19 vaccine, how COVID-19 will interact with flu season, how much money will need to be spent on devastation from the recent wildfires in Washington, how decreased air travel will affect the aerospace industry and Boeing, and how much we may or may not receive from the federal government - all of which could have significant impacts on revenue.
The possibility of a special session is still unknown. Some legislators feel that the recent forecast is proof that it makes sense to wait until January when the financial situation is clearer, while others feel like the legislature needs to convene sooner. Overall last week’s dramatic change from the June forecast was good news, however there is still a great deal of uncertainty. You can view the full presentation here.