Office of Planning & Budgeting

September 29, 2022

September Revenue Forecast reduces projections for the 2023-25 Biennium, as growth slows more than anticipated

Overview

The Economic and Revenue Forecast Council (ERFC) released its September revenue forecast on September 21, 2022. We noted in our previous blog post that the June forecast showed continued economic growth, but warned growth was slowing in the face of rising inflation and interest rates, as well as continued supply chain disruptions and other economic challenges. However, this updated forecast showed growth slowing more quickly than anticipated in June.

In Washington state, personal income and building permits are lower than forecasted in June, and continued high inflation poses significant challenges. The Federal Reserve increased interest rates by 0.75% at the time of this forecast and has indicated they are likely to increase them again by a similar amount by the end of the year. While there have been significant improvements to supply chain issues, and reductions in COVID-19 cases, both still provide significant disruptions to Washington’s revenue collections. However, revenue collections remain robust overall, and this is considered a relatively modest change to the forecast from June. As a result, total state revenue projections were increased by $43 million in the 2021-23 biennium, and projections were reduced by $495 million for the 2023-25 biennium.

While a decrease in taxable activity was highlighted in the June forecast, the decline has been sharper than expected. This is largely a result of decreases in personal income, construction employment, and housing permits, which is a result of high inflation, interest rates, and economic uncertainty. Subsequent reductions in forecasted Real Estate Excise Tax (REET) and Revenue Act collections over the next biennium have contributed to the forecasted revenue reductions overall.

There are some positives in the forecast changes since June, including employment numbers being up for both Washington state and the U.S. In addition, revenue collections remain strong overall, despite the reductions in forecasted collections over the next biennium.

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:

  • $63.2 billion for the 2021-23 biennium, 18.9 percent over the 2019-21 biennium.
  • $65.5 billion for the 2023-25 biennium, 3.7 percent over the expected 2021-23 biennium.
  • $70.1 billion for the 2025-27 biennium, 7.1 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 decreased by $19 million in the 2021-23 biennium and $21 million in the 2023-25 biennium. Forecasted WEIA revenue is now $747 million for the 2021-23 biennium, $787 million for the 2023-25 biennium, and $834 million for the 2025-27 biennium. The decreased forecasts are largely due to weaker than expected collections since the June forecast and lower economic activity projected going forward.
  • The forecast for Education Legacy Trust Account (ELTA) revenue was increased by $27 million in the 2021-23 biennium but decreased by $18 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. The initial increase in the forecast is related to increased estate tax collections, but the subsequent decrease is due to lower expected REET collections over the next biennium.

This latest revenue forecast was released just after the University of Washington submitted its 2023-25 biennial budget requests to the legislature. These requests served largely to fund areas most impacted by the pandemic, including student support services, high-demand enrollments, UW Medicine, and others. They 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 November and will inform the development of the Governor’s 2023-25 biennial state budget proposals. Stay tuned to the OPBlog for updates on 2023-25 state budget requests and the next state legislative session in January 2023.