Office of Planning & Budgeting

June 28, 2022

June Revenue Forecast Increased by $1.5 billion for the Current Biennium, but Cautions that Growth is Slowing

Overview

The Economic and Revenue Forecast Council (ERFC) released its June revenue forecast on June 22, 2022. We noted in our previous blog post that the February revenue forecast showed continued economic growth, despite several challenges posed by emerging COVID-19 variants, supply chain disruptions, and rising inflation. COVID-19 case rates in Washington have since declined and remained relatively low; however, it was noted that the increase in the availability of home testing may impact the reliability of case numbers, given positive cases may not be officially reported. Inflation and interest rates have continued to rise since February, and the latest adjustments made by the Federal Reserve were reflected in this forecast. Despite these continued challenges, total state revenue projections increased by $1.5 billion in the 2021-23 biennium. This is an 18.9 percent increase over the 2019-21 biennium.

Washington has seen a positive variance of $590 million in collections, with most of the unforeseen increase resulting from Revenue Act tax collections. While growth in sales, B&O, real estate, and construction have bolstered revenue collections in the short term, long-term projections are less optimistic. Some of the increase in collections results from the ability of people and companies to maintain their level of real spending in the initial stages of an inflationary period, where taxable activity increases due to increased prices. This may not continue as the cost of goods continues to rise, and people and companies can no longer maintain their level of spending. While the fiscal growth for FY22 was significantly higher than previously forecasted, now at 11.6 percent, the fiscal growth for FY23 and beyond is significantly lower than we have seen in recent years (0.5 percent in FY23). Also of note, the Seattle-area consumer price inflation (CPI) outpaced the national average once again, rising 9.1 percent compared to the 8.2 percent nationally. Seattle home prices were also up 27.6 percent over the year, which set a record going back to the 2000-2001 period of growth.

It was noted that despite the strong growth in revenue collections, there are signs that growth is starting to slow, and there were several significant concerns noted about the direction the economy may be headed. In the U.S. forecast, both GDP and employment are now lower than expected, while in Washington state personal income and employment rates are lower than anticipated. The risks identified in this forecast also skew significantly towards the downside. Rising inflation, interest rates, and intensifying of the Ukraine-Russia conflict pose significant risks, including the potential to push the economy into a recession.

More background on state revenue forecasts is available here.

Near General Fund-State

Here is a quick summary of the total preliminary and projected Near General Fund-State (GF-S) revenue for each biennium:

  • $63.1 billion for the 2021-23 biennium, 18.9 percent over the 2019-21 biennium.
  • $66.0 billion for the 2023-25 biennium, 4.5 percent over the expected 2021-23 biennium.
  • $70.2 billion for the 2025-27 biennium, 6.4 percent over the expected 2023-25 biennium.

Some context behind the numbers for Near GF-S accounts from which the University receives funding:

  • Forecasted revenue dedicated to the Work Force Education Investment Account (WEIA) has been increased by $81 million in the 2021-23 biennium and $56 million in the 2023-25 biennium. Forecasted WEIA revenue is now $766 million for the 2021-23 biennium, $809 million for the 2023-25 biennium, and $851 million for the 2025-27 biennium.
  • The forecast of Education Legacy Trust Account (ELTA) revenue was increased by $80 million in the 2021-23 biennium and $21 million in the 2023-25 biennium. Forecasted ELTA revenue is now $1.8 billion for the 2021-23 biennium, $2.1 billion for the 2023-25 biennium, and $2.3 billion for the 2025-27 biennium.

This latest revenue forecast will be considered as the University of Washington prepares to submit its 2023-25 biennial budget requests to the legislature this September. These requests will build upon investments made in the 2022 supplemental budget, prioritizing several needs across our three campuses.

The next state revenue forecast will be released in September. Stay tuned to the OPBlog for updates on 2023-25 state budget requests and the next state legislative session in January 2023.