Office of Planning and Budgeting

Yesterday, the Economic and Revenue Forecast Council (ERFC) released its September revenue forecast, which increased projected General Fund-State (GF-S) collections by $334 million for the current 2015-17 biennium and by $125 million for the upcoming 2017-19 biennium. As a reminder, there will be one more revenue forecast in November before Governor Inslee releases his proposed 2017-19 biennial budget in anticipation of the 2017 legislative session.

Here is a quick summary of the total projected GF-S revenue for each biennium:

  • $37.765 billion for the 2015-17 biennium, 12.2 percent more than 2013-15
  • $40.377 billion for the 2017-19 biennium, 6.9 percent more than 2015-17
  • $43.630 billion for the 2019-21 biennium, 8.1 percent more than 2017-19

Behind the numbers:

  • Revenue collections from June to September were $225 million higher than forecasted in June, but over half of that increase was attributed to several large (and one-time) audit-related payments of past-due taxes.
  • This forecast noted slightly stronger personal income and employment compared to the June forecast.
  • Strong retail sales, housing construction, and real estate excise tax (REET) collections continue to create positive revenue trends.
  • Risks to the revenue forecast include weak labor productivity and slow economic growth (both in the U.S. and globally).

Any excess revenue collected in the 2015-17 biennium will contribute to reserves (est. $1.8 Billion) that will be available to spend in the 2017-19 biennium, however, the state continues to face significant budgetary challenges in complying with the State Supreme Court’s orders to fully fund K-12 education.

Stay tuned to the OPBlog for updates on revenue forecasts and the upcoming 2017 legislative session.

Last week, the Economic and Revenue Forecast Council (ERFC) released its June revenue forecast, which increased projected General Fund-State (GF-S) collections by $294 million for the current 2015-17 biennium and by $126 million for the upcoming 2017-19 biennium. This is an improvement over the February forecast, which had predicted slower revenue growth in both biennia (see our blog post here). As a reminder, there will be at least three more revenue forecasts between now and when the legislature sets the 2017-19 budget.

Here is a quick summary of the total projected GF-S revenue for each biennia:

  • $37.431 billion for the 2015-17 biennium, 11.2 percent more than 2013-15.
  • $40.252 billion for the 2017-19 biennium, 7.5 percent more than 2015-17.
  • $43.575 billion for the 2019-21 biennium, 8.3 percent more than 2017-19.

Behind the numbers:

  • The forecast attributed the increase to strong sales of large commercial properties and rising home prices.
  • Other positives included growth in housing permits and increases in inflation, which typically result in greater retail sales, business taxes, and property taxes.
  • Slight decreases in U.S. and Washington state personal income forecasts continue to have a negative effect on the revenue forecast.

According to a press release from the Governor’s Office of Financial Management, “With the latest forecast, the state is now projected to have nearly $1.5 billion in total reserves at the end of the current biennium and more than $1.4 billion at the end of the 2017–19 biennium. Those reserve figures, however, do not take into account the multibillion obligation the state faces in the next biennium to meet its constitutional obligation to fully fund basic education.”

As a result, state agencies, including the UW, have received instructions to severely limit requests for new programs or policy initiatives in their requests for state funding in the 2017-19 biennium.

Stay tuned to the OPBlog for updates on revenue forecasts.

On Wednesday, the Economic and Revenue Forecast Council (ERFC) released its February revenue forecast, which reduced projected General Fund-State (GF-S) collections compared to the November revenue forecast (see our blog post here). The GF-S revenue forecast decreased by $67 million for the current 2015-17 biennium and by $442 million for the 2017-19 biennium. While the revision to the 2017-19 outlook is not inconsequential, there will be at least four more revenue forecasts between now and when the legislature will set a 2017-19 biennial budget – plenty of time for the outlook to change.

  • Total projected GF-S revenue for the 2015-17 biennium is now $37.137 billion, 10.3 percent more than the 2013-15 biennium.
  • Total projected GF-S revenue for the 2017-19 biennium is now $40.125 billion, 8 percent more than the 2015-17 biennium.
  • The forecast included an initial forecast of GF-S revenue for the 2019-21 biennium of $43.441 billion, 8.3 percent more than the 2017-19 biennium.

Behind the numbers:

  • The forecast attributes decreases in projected revenues to slower than expected growth in the U.S. and Washington state economies.
  • Washington exports declined for the first time since 2009.
  • Other negative factors cited in the forecast include lower forecasted personal income growth, reductions in housing permits and property tax growth, and lower tax receipts due to low oil and gas prices.
  • Some positives include slightly higher than expected tax receipts since the November forecast, increases in hourly wages, and the fact that lower oil and gasoline prices are a positive for consumers.

The Governor’s Council of Economic Advisors, which advises the Governor on the state of financial matters, offered a slightly more pessimistic revenue prediction based on the ERFC February Forecast, predicting additional decreases in forecasted GF-S revenue of $55 million in 2015-17 and $202 million in 2017-19.

Budget writers in the House of Representatives and the Senate will use the February Revenue Forecast to set expenditure levels for their 2016 supplemental budget proposals. House and Senate budget proposals are expected to be released the week of February 22. The last day of the regular session is March 10.

Stay tuned to the OPBlog for updates on budget proposals from the House and Senate when those are released.

On Wednesday, the Economic and Revenue Forecast Council released its November revenue forecast, which projected a slight increase to General Fund-State (GF-S) collections over the September revenue forecast. The GF-S revenue forecast increased by $113 million for the current 2015-17 biennium and $30 million for the 2017-19 biennium.

  • Final GF-S revenue collections for the 2013-15 biennium were $33.666 billion.
  • Total projected GF-S revenue for the 2015-17 biennium is now $37.204 billion, 10.5 percent more than the 2013-15 biennium.
  • Total projected GF-S revenue for the 2017-19 biennium is now $40.567 billion, 9 percent more than the 2015-17 biennium.

Behind the numbers:

  • The forecast attributes the higher projections to strong performance in auto sales and service-providing industries.
  • Cannabis revenue from Clark County fell after Oregon legalized marijuana, but statewide revenues have continued to grow.
  • Concerns cited in the forecast include weaker-than-expected job growth, a dip in exports, and a manufacturing decline in the United States and Washington state.
  • The forecast assumes that the Federal Reserve will gradually increase interest rates starting in December.

According to a Spokesman Review article, expenditures in the 2015-17 biennium are expected to exceed the $37.204 billion in expected revenue. Further complications include a costly wildfire season, the $100,000 per-day fine that the state Supreme Court levied on the Legislature for failing to come up with a plan to boost public school funding, and voter approval of Initiative 1366, which will reduce state sales tax by 1 percent if the Legislature doesn’t approve a constitutional amendment to require a two-thirds vote for tax increases.  David Schumacher, director of the Office of Financial Management (OFM) is quoted in the Spokesman Review article as saying, “What this means, of course, is that there will be very little room for new spending in this year’s supplemental budget.”

Governor Jay Inslee will use the November revenue forecast to craft his 2015-17 supplemental budget proposal, which is expected to be released in December. Stay tuned to the OPBlog for updates on the Governor’s budget proposal when it is released.

State Higher education Executive Officer (SHEEO) announced its annual release of State Higher Education Finance (SHEF) report for FY14, which provides a comprehensive review of state and local funding, tuition revenue, and enrollment trends for public higher education.

National trends and Current status of state funding for higher education

On average, state and local support per full time equivalent (FTE) student was $6,552, a slight increase from $6,215 in 2013. Net tuition collections per FTE student is at $5,777, a 2.7 percent increase from 2013. Two rather interesting findings were highlighted in the report:

  • State and local support was 57.3 percent in 2014 as a share of per-student total educational revenue available to public institutions of higher education.
  • The explosive enrollment growth at public institutions from 2008 through 2011 tapered off in 2012 and is continuing in the downward trend. In 2014 enrollment fell another 1.3 percent from 2013.

Washington State compared to U.S Average

As a reminder, the SHEEO SHEF report combines community and technical college and college/university enrollment, state appropriations and tuition revenue for purposes of this report. In it, they found that enrollment (FTE) increased by 3.5 percent from 2009 to 2014, which is close to U.S. average (3.9 percent). They also found that public higher education in Washington improved in a number of other dimensions; including:

  • 15.3 percent increase in educational appropriations per FTE since 2013, higher than the U.S. average of 5.4 percent;
  • 3.7 percent increase in net tuition revenue per FTE from total educational revenue, higher than the U.S. average of 2.7 percent; and,
  • Total educational revenue per FTE increased by 9.4 percent, which was higher than the U.S. average of 4.1 percent.

However, two years of per-student funding increases might have meant that national average was on the path to exceeding pre-recession funding levels, which was not the case. Educational appropriations per student in FY14 remained 18.9 percent below 2008 pre-recession levels.

Read the full report for more data, analysis and methodological details.

In May 2014, Tripp Umbach, a national leader in economic impact analysis, was retained by the UW to update its 2010 analysis of the economic, employment and government revenue impacts of operations and research of all of its campuses.  The updated Economic Impact Report reveals that University of Washington’s annual economic impact on the state of Washington is now $12.5 billion an increase from $9.1 billion just five years ago.

An article regarding this is posted on Seattle Times as well.

The University of Washington (UW) plans to convert a small section of the UDistrict into a “startup hub” that will help connect UW research activity with the entrepreneurial talent who can help commercialize it. The effort will begin with just one floor of Condon Hall – the old law school, which currently houses departments displaced by other campus construction – but will expand if there is demand. The ground floor will be transformed into an open meeting area, or “mixing chamber,” where University-based entrepreneurs can connect and collaborate with the startup community, including startups that don’t necessarily have a connection to the UW. The third floor may eventually be converted into space for startups. So far, TechStars, Founder’s Co-op, and UP Global (formerly Startup Weekend) are considering taking space on the second floor starting next July.

The Office of Planning & Budgeting and the Office of the University Architect are working on this and other UDistrict planning efforts. To read more about this project, see the article by GeekWire. For more information about UDistrict planning as a whole, see the recent Seattle Times article and visit the U District Livability Partnership website.

On Tuesday, June 18, the Washington State Economic & Revenue Forecast Council (ERFC) released its quarterly update of General Fund-State (GFS) revenues. Compared with the March forecast, expected GFS revenues are up $110 million for the current biennium (2011-13) and $121 million for the next biennium (2013-15), meaning legislators have an additional $231 million to factor into their budget negotiations.

While these changes are positive, they represent very minor adjustments. Under the updated forecast, the state is expected to take in $30.65 billion in the current biennium and $32.66 billion in the next, thus the increases represent adjustments of less than 0.5 percent each.

Most of the positive variance came from increases in forecasted housing construction, taxable real estate activity, and Revenue Act taxes. Real estate excise taxes came in $34 million (34 percent) higher than forecasted and Revenue Act taxes came in $54 million (2 percent) higher—exceeding the January 2008 pre-recession peak. Lower than expected inflation and employment worked against these gains, but weren’t enough to negate them.  Although Washington employment has been slowly increasing in most sectors (especially construction), aerospace and government employment are in decline.

It is important to note that much uncertainty surrounds the council’s 2013-15 baseline forecast due to the Federal sequester, Europe’s recession, and China’s slowing economic growth. The ERFC gives its baseline a 50 percent probability and its optimistic and pessimistic alternative forecasts 20 percent and 30 percent respectively. The optimistic forecast is $2.5 billion above the baseline and the pessimistic forecast is $2.5 billion below.

In addition, it should be noted that, like the March forecast, the June update did not assume any revenue from taxable marijuana sales as the Federal Government’s response to Initiative 502 is still unclear.

Some state lawmakers are optimistic that the new forecast will expedite their budget negotiations; however, the two sides’ have a ways to go before the end of the fiscal year on June 30th (12 days from now). “We’ll get closer as a result of this,” said Representative Ross Hunter during a press conference Tuesday morning.

On Saturday, the Senate released a revised budget proposal, which closely resembles the budget they passed in April. For the UW, the two budgets differ in just a few ways:

  • Unlike the original Senate budget, the revised budget does not include a $12.5M transfer away from the UW Hospital Account;
  • The revised budget does not cut the UW by $3.2M for “administrative efficiencies” that were assumed in the original budget; but
  • Compared to the original proposal, the revised budget provides the UW with $3.2M less in new funding.

The latter two changes essentially nullify each other. A few additional changes occurred with regards to state employee health benefits; we are working to interpret the effects and will provide more information as soon as possible.

As mentioned, the revised Senate budget doesn’t stray far from the original. Just like the Senate’s original proposal, its revised budget:

  • Provides the UW with $479.6M (General Fund and Education Legacy Trust funds) for the 2013-15 biennium—$10.2M of which is one-time performance-based funding;
  • Assumes 0% tuition increases for resident undergraduates;
  • Preserves tuition setting authority, but nullifies that authority if either SB 5883 or SB 5941 pass (the bills would require the UW to decrease resident undergraduate tuition rates by 3 percent for the 2013-15 biennium and limit future resident undergrad tuition growth to the rate of inflation); and
  • Generates “new” funding for higher education by imposing a 20 percent tuition surcharge on international students at the state’s public colleges and universities.

For more information about the original Senate proposal, please see the full OPB brief.

A recent update on our state’s progress toward meeting the Washington Roundtable’s Benchmarks for a Better Washington emphasizes the need for legislative action on education, including protecting funding for our public universities, as well as transportation and business costs.  The Roundtable – a nonprofit, public policy organization comprised of major, local business executives – created the Benchmarks in 2011 as a means to measure and track Washington’s economic vitality and quality of life. The organization publishes annual updates that examine state-by-state comparative data (primarily from federal sources like the U.S. Dept. of Education); assess Washington’s position in key categories; and highlight opportunities for improvement.

The May 2013 update showed that:

  • Washington trails most states in high school graduation rates (ranking 32nd nationally) and bachelor’s degrees awarded per capita (39th nationally).
  • Washington’s road condition rankings have dropped from 16th (2012 ranking based on 2008 data) to 29th (2013 ranking based on 2011 data) and our state continues to rank poorly on bridge conditions (41st).
  • Washington ranks in the bottom third of states for business tax burden (36th), unemployment insurance tax rates (40th) and workers’ compensation benefits paid (50th).
  • However, Washington has held onto its lead in patent generation (5th) and in low commercial and industrial electricity rates (3rd).

The authors argue that Washington must move quickly to improve its education pipeline and align with workforce needs. As 70 percent of Washington jobs will require postsecondary training by 2020, they assert, “It is imperative that Washington prioritizes higher education and does a better job of preparing its citizens to succeed.”

In Monday’s edition of CrossCut, Roundtable President, Steve Mullin, urged lawmakers to focus on two key topics during the remaining weeks of session:  education and transportation. He specifically called for legislators to ensure our colleges and niversities have the funding they need to develop necessary talent. “Decision time is here,” he wrote, “Education is the driver of prosperity and individual quality of life. Transportation is the backbone of commerce. Both need attention before the 2013 Legislature adjourns.”

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