After Raha’s presentation on the forecast (see blog post below), others on the panel have a chance to ask questions.

Rep. Ross Hunter asked how Raha arrived at the numbers.

“Right now, what’s holding us back is that we are basically facing a crisis of confidence,” Raha said. “Usually in a recovery this deep, you tend to also have pent-up demand, which is once people can go out and spend,” they buy the things they need plus all the things they need but haven’t bought. But, that’s not happening: Instead, consumers are mired in debt and reassessing what their needs are.

By law, the state has to prepare a pessimistic and optomistic forecast. Rep. Hunter said the last pessimistic forecast came true, and there’s “nothing else bad left to happen” — meaning it can’t get that much worse. Raha corrected: “There are fewer bad things that can happen.”

Similar to previous forecasts, Raha said this is a U-shaped recession: It dropped quickly, will bounce around the bottom for a bit, then will eventually recover. He said the question is just how wide the bottom of the U is.

The forecast voted to adopt the forecast.

Victor Moore from the Office of Financial Management, said the state will have to make up about $2.6 billion in the supplemental budget. “It’s getting to be kind of numbing to us,” he said.

A reporter asked if the Business and Occupation tax could be increased as part of a plan to address the revenue drop. “Absolutely not,” said Rep. Ed Orcutt.

Tags: Revenue forecast

The state’s unemployment rate will reach a peak in the spring of 2010 at about 9.8 percent, says Dr. Arun Raha, the state’s chief economic forecaster.

He said at the beginning of the revenue forecast council that they’re ratcheting down their estimates for revenue collections for the state. He said the model he used for reaching the earlier numbers had been untrustworthy. Raha, a noted joker during the dim revenue forecast council meetings, told the crowd that this wasn’t the only time he’d been led astray by a model — but last time, he was “much younger and unmarried.”

Back to the forecast: He said consumer confidence is “stuck” and unlikely to show significant improvement until the spring.

Raha said small, regional and local banks were faring better at the beginning of the economic downturn, but now they’re doing worse. “The reason … is that their portfolio has a larger exposure to commercial real estate loans, which lagged housing loans” in defaults. “The number of regional and local bank failures has been steadily decreasing around the country.

“This is the second shoe dropping,” he said. “It’s effect will be to slow down the recovery,” he said, noting that it’s a “smaller shoe” than the first.

He said it’s more difficult for smaller businesses to get loans. “The reason this is significant is that most of the new jobs created in this economy are from small businesses,” Raha said. “The continuing credit crunch for small businesses is effectively inhibiting growth for the country’s largest employment sector.”

Raha said the state is recovering from an overabundance of construction, too. He said the federal $8,000 housing tax credit has given housing a boost — and that the credit has been extended until April will help.

“We don’t expect a recovery in nonresidential construction this biennium,” he said.

Car sales are at about 60 percent of normal levels, and the federal “cash for clunkers” program, while it did provide a boost to car sales, may have just pulled what would have been future business into one month.

“We are witnessing a synchronized global recovery with both the Euro zone and East Asia in recovery,” he said. “Since March, the dollar has depreciated by a little over 12 percent, making our exports more competitive.” Why is a weaker dollar good? For trade-dependent Washington, it makes our exports more affordable for everyone else, he said.

Good news: Washington will outperform the nation in personal income growth. “Of course, it really doesn’t matter to me if people don’t spend this income,” he said.

Real estate excise tax collections are up, he said, but it’s mostly from the number of transactions. The value per transaction is also up.

Raha said income is growing 8.4 percent faster than revenue. “That can only happen if consumers aren’t confident enough to spend,” he said, meaning the state won’t collect sales or real estate tax from that income.

“One perk of being an economist is that, unlike accountants, we regularly go back and change our numbers without going to prison,” he said, to laughs around the room.

On that note, Raha said the current forecast is $760 million less than the previous quarterly forecast. Cumulatively, that’s $5.8 billion down from what they originally expected. That means the state expects to collect about $28 billion in the biennium.

And: The cuts the Legislature made last session aren’t enough. There’s another $2.6 billion or so in cuts (and/or raised taxes) that need to be made.

Tags: Revenue forecast

Tune into TVW at 10 a.m. for the Economic and Revenue Forecast Council’s quarterly revenue forecast — this is where the state’s economists predict how much tax revenue the state expects to collect. The Governor and legislators will use the number to build the supplemental budget.

And if you’re not feeling like watching it live, just check back on the blog. I’ll be at the meeting, typing along as they talk. After it ends, I’ll have an interview with two lawmakers who sit on the forecast council.

Tonight at 7 and 10 p.m. on Inside Olympia, host Austin Jenkins will interview Arun Raha — the state’s chief economic forecaster — and Sens. Rodney Tom and Joe Zarelli.

Tags: forecast council

Tomorrow at 10 a.m., you can watch TVW live or check in right here on the blog for the Economic and Revenue Forecast Council’s latest report on how much tax revenue the state expects to collect.

This meeting will be a crucial one: Gov. Chris Gregoire is putting together her budget — to be released in mid-December — now. In January, the Legislature will convene for a brief session, in which they’ll have to hammer out their own version of a budget with a couple billion dollars of cuts, taxes or a combination of both. Gregoire, the House and Senate will have to agree on something by March 11 — the scheduled adjournment date.

After the forecast council, keep reading the blog: I’ll post two exclusive interviews with Reps. Ross Hunter and Ed Orcutt — both are lawmakers who sit on the Economic and Revenue Forecast Council. I’ll ask them what the forecast means for the state, what the options are and how revenue swings can be smoothed over in the future.

And after that, tune into TVW at 7 and 10 p.m. for Inside Olympia. We’ll have much more on the Revenue Forecast.

Tags: Revenue forecast

On The Impact tonight, host Jessica Gao is focusing on schools:

Federal Way Public Schools lost its “fair funding” lawsuit, after the State Supreme Court overturned a lower court ruling in favor of Federal Way.  As it sits at the bottom of the funding allocation bracket, the district argued that funding formulas set back in the late 70s violate the state constitution’s provision for a “general and uniform system of public education.”

Tonight, Gao talks with Randy Dorn, the State Superintendent of Public Instruction, about what the ruling means for the future of education funding.  Dorn also gives us a preview of a major policy speech he’s scheduled to make on Thursday.  You’ll  hear some specifics on his new plan to raise the bar on math and science.

Plus, the Washington State Board of Education is developing proposed legislation to require state intervention in persistently low performing school districts. Gao looks at how the plan would work, how it would be funded, and whether it could be a sustainable, long-term solution.

The Impact airs tonight on TVW at 7 and 10 p.m.

Tags: education, The Impact, TVW

Randy Dorn, state schools superintendent, will deliver a “major policy speech” about math and science requirements for high school graduation on Thursday at a gathering of school superintendents.

The speech will be available at tvw.org on Friday afternoon, and will be played on Friday evening at 7 and 10 p.m.

Tags: graduation requirement, Schools

The October unemployment figures have been released, showing an increase to 9.3 percent. September was initially reported as 9.3 percent, and August was initially reported at 9.2 percent, but both were later adjusted down by a couple points after further Employment Security Department analysis.

According to preliminary October results, the state now has 120,000 fewer jobs today than we had at  this time last year.

“Leisure and hospitality was the industry with the largest decline in October, down about 2,900 jobs. Other industries that showed job declines in October were manufacturing, down 2,300; retail trade, down 1,400; aerospace product and parts manufacturing, down 700. Three other industries – transportation, warehousing and utilities, professional business services, and construction – each dropped about 600 jobs.”

The upside: Government added about 900 jobs in October.

 For the full report, go here.

Tags: unemployment

Brad Shannon at The Olympian has a post up on what Gov. Chris Gregoire had to say about the state budget picture this morning. In short, when the next revenue forecast comes out on Thursday at 10 a.m. (live on TVW and live-blogged here), she thinks it could look pretty ugly.

She and her staff distributed a “budget story” that lays things out, including a sobering bit about how big $2 billion is. How big? Well, you could close every single community and technical college as well as the departments of Revenue and Commerce and … you still wouldn’t be there.

The revenue forecast is on Thursday. Gregoire will release her budget in mid-December. And by March 11, when session convenes, the Legislature and Governor will need to have passed a budget that accounts for billions in unexpectedly absent revenue since last year’s tough budget session. Stay tuned.

Tags: Budget, Gov. Gregoire

Tune into TVW right now (or watch online) for the caseload forecast. The forecast tells lawmakers an estimate of “caseloads” — meaning prisoners, children in schools, people needing day healthcare, and other state assistance.

The forecast is an important piece of the upcoming budget forecast — the team of economists takes into account caseloads, revenue collections, global economic indicators and more to give lawmakers an idea of how much money they have to work with in the budget.

So: Tune in for the caseload forecast. So far, they’ve said the housing voucher program for those released from prison is on track.

Tags: caseload forecast

This week’s Q&A is with State Treasurer Jim McIntire, who sat down for an interview in late summer (elections-related Q&As took precedent for a bit, but now we’re back to state leaders). McIntire talked about a nail-biting bank fail on his third day in office, legislation that will help keep public deposits safe, and how he helps manage about $60 billion of taxpaer money.

What follows is the complete interview. Enjoy!

Q: I don’t think a lot of people know what the state Treasurer does. How do you describe your job?

McIntire: Actually we just redid our web site and we have a great description on there and there’s a lot of information. One of the things we’ve done is highlight some performance measures that focus on some of the key activities of the Treasurer’s office.

One of the things that we do is that we are responsible for investing all of the short term cash reserves for the state. We have roughly $3 billion in cash. The state’s monthly expenses are about $3 billion. What we’re trying to do is to maximize that money, but first we have to make sure it’s safe and secure. It also has to be perfectly liquid so we have complete access, and then we want a good return. We go after return only after the first two.
If you look at the returns we’ve been getting, we tend to do better than what you would find in a private sector market. We actually do pretty well.
So, we manage that short term balance and we do the same thing with local governments that choose to put their money in the Local Government Investment Pool – the LGIP is about $8 billion. In total, we’re managing about $11 billion for state and local government. That’s all very liquid, it’s all essentially in government securities in various forms. There’s no commercial paper. We do probably about $24 million a year in earnings. We’re very careful about how we invest that and we’re fairly large and we can anticipate the timing on a lot of it. So we have the ability to say here’s the core to that portfolio. We can invest some of it for longer periods of time knowing that this is what we’re not likely to have to dip into.
The other thing that we do is that the Treasurer is the only statewide elected official that sits on the statewide Investment Board. So I spend a fair amount of my activities on the state Investment Board on the unemployment insurance trust fund and other trust funds for universities, etc. In our combined trust fund, we have probably $48 billion. Overall it’s probably close to $60 billion in total investments. The combined fund is the one that has all of the pension fund dollars in it. That is something that I spend quite a bit of time worrying about. There are nine other voting members – (the pension account) is one that we continue to focus on. If you look at the performance measure, we’ve exceeded what we’ve considered our benchmark, which is the return for all other major public sector investment funds; we’ve exceeded their returns or had less than their losses for all of the 10 years.
So we’re doing quite well. The long-term assumption that we build the pension funding around is that we will have an 8 percent return on these funds. This fund has had, even with all the problems in the last year, an average of 7.9 percent. So we actually believe that the values in this fund will come up and respond pretty well as we come out of this recession.

The other two major areas as you probably know is that we issue all the debt for the state — or most of it — meaning we issue bonds here. We expect that this fiscal year we’ll issue about $2.25 billion in new debt for the state to finance – that’s for transportation, schools, universities and other capital projects. We’ve managed to avoid the spikes in the market and continue to issue debt. We’ve maintained a strong credit rating — we’re a Double A-rated state. We issued $3 billion in debt – the biggest piece was a transportation bond for $300 million – and those got the lowest interest rates that we’ve got in 30 years. We feel like we’re doing things pretty well.
The fact is that the state treasurer handles all of the cash transactions means we pay all the bills, handle all the receipts. We process $400 billion of transactions a year. When you think about that, it’s important to pay attention to how well we do that part of it as well. Our cost per transaction is substantially lower than the cost per transaction that other banks experience.

So if you look at the private sector benchmark that other banks experience, they average about 14 cents per transaction. We’re at 2 cents. Relative to the private sector, that saves us $1 million a year (in transaction fees).
My intent in redesigning the web page is to bring some light on what is it that we do. It’s not voodoo, it’s not black magic. We want to make it very transparent, to give the public and others the measures that we work with.

Q: What are the biggest challenges of your job?

McIntire: The biggest challenge when I faced when we came into office was with the public deposit issue. We had, on my third day in office, a bank fail. It was a small bank in Clark County. But part of the job in the Treasurer’s office is to look out for the public deposits for state and local governments in Washington. The Public Deposit Protection Commission meets and basically we approve where state and local governments can deposit their money. We set the regulations around that.

When I came in, the bank in Clark Co. failed on my third day in office and they had $24 million of public deposits. We discovered that we had one of the lowest collateralization policies in the country.

Q: What does that mean?

McIntire: Typically when an outside depositor makes a large deposit, the bank will, often in a Certificate of Deposit, buy a security to give them a little bit higher return than what the local government is going to get paid. But that difference is the bank’s profit.
Our requirement was 10 percent – meaning the bank had to keep 10 percent of that money on hand. So when that bank (in Clark County) went into receivership with the FDIC and the bank was sold, it turns out that there was $15 million in public deposits missing. On my fourth day in office, I got to tell the other banks that they had to make up the difference. (more…)

Tags: McIntire, state treasurer, Thursday Q&A