Office of Planning & Budgeting

November 22, 2022

November Revenue Forecast Reports Increased Projections for the Current and Upcoming Biennia, While Economic Growth Continues to Slow

The Economic and Revenue Forecast Council (ERFC) released its November revenue forecast on Friday, November 18, 2022. In September’s forecast, we highlighted revenue projections for the 2023-25 biennium and summarized experts’ cautions towards slowing economic growth. This was associated with rising inflation and interest rates, in addition to geopolitical factors including ongoing supply chain disruptions. This month, the forecast maintains a similar cautionary tone while emphasizing that growth is slowing, but not as quickly as projected in September. However, the forecast reported some positives in revenue projections over the next two biennia.

In Washington state, personal income was reported higher than anticipated, but building permits, one of the state’s revenue drivers, were lower than September’s forecast. Recent technology sector layoffs, continued inflation, and the uncertain Ukraine-Russia conflict continue to pose significant risks to the forecast, which continue to weight towards the negative. It was also noted that Seattle-area home prices may have peaked, with seasonally adjusted Seattle home prices falling 2.9% in August, following declines in the previous two months since the June forecast. However, the Seattle-area consumer price inflation continued to outpace the national average, with the seasonally adjusted CPI rising 8.9% compared to the 7.8% increase in the U.S. City Average index.

In addition to the 0.75% increase in interest rates in September, the forecast assumes the Federal Reserve will raise interest rates to a range of 4.75% – 5.0% by March 2023. On-going improvements in supply chain issues and reductions in COVID-19 cases are promising, but still provide significant disruptions and continued risks to Washington’s revenue collections. Nevertheless, revenue collections were stronger than forecasted for this period since September. Consequently, total state revenue projections were increased by $762 million in the 2021-23 biennium, and $681 million in the 2023-25 biennium.

Unlike September’s forecast, where taxable activity was declining, November’s Revenue Act Collections indicate that the current level of taxable activity is higher than previously estimated. As a result, the reported decline in forecasted Real Estate Excise Tax (REET) and the observed growth in Revenue Act collections have collectively contributed to the overall adjustments in forecasted revenue increases in the current and the next biennium.

Amid economic uncertainties, the forecast reported some positives since September, including employment growth both in Washington state and across the country, by over 14,600 and 576,000 jobs respectively. Additionally, Washington state revenue collections remain strong overall, despite the reductions in forecasted REET collections over the next biennium. That said, a looming economic recession, declining employment in the technology sector, and continuing geopolitical instability–in part from the Russia-Ukraine conflict–may adversely impact the projections, which set a cautionary tone to the forecast.

More background on the state revenue forecasts can be accessed on our website.

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:

  • $64 billion for the 2021-23 biennium, 20.4% over the 2019-21 biennium.
  • $66.2 billion for the 2023-25 biennium, 3.5% over the expected 2021-23 biennium.
  • $70.9 billion for the 2025-27 biennium, 7.1% 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 Workforce Education Investment Account (WEIA) has been increased by $5 million in the 2021-23 biennium, $6 million in the 2023-25 biennium, and $10 million in the 2025-27 biennium. Forecasted WEIA revenue is now $751 million for the 2021-23 biennium, $794 million for the 2023-25 biennium, and $844 million for the 2025-27 biennium. The increased forecasts are due to realized higher personal income, expected increase in economic activity due to projected decrease in oil prices, and anticipated stabilization of inflation as well as a decrease in interest rates.
  • The forecast of Education Legacy Trust Account (ELTA) revenue was increased by $196 million in the 2021-23 biennium but decreased by $2 million in the 2023-25 biennium. Forecasted ELTA revenue is now over $2 billion for the 2021-23 biennium, $2.1 billion for the 2023-25 biennium, and $2.4 billion for the 2025-27 biennium. The previous decreases in the forecast were related to reduced REET collections, but the current increases are due to sustained growth in revenue collections, increased consumer spending, and growth in labor productivity.

This latest revenue forecast was released as the University of Washington prepares for the 2023 legislative session and will inform the Governor’s budget proposals. The University has submitted high-priority budget requests 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 February 2023 and will inform the development of the legislature’s budget proposals. Stay tuned to the OPBlog for updates on the 2023-25 state budget request, the upcoming Governor’s budget proposal, and the state legislative session starting in January 2023.