March 16, 2001
New revenue forecast may be too optimistic, UW analysis shows
This morning’s state revenue forecast – which normally guides lawmakers through key spending decisions – may not fully account for an impending economic slowdown, according to a University of Washington analysis.
The relatively optimistic revenue forecast diverges sharply from economic indicators that point to declining personal income for state taxpayers in the months to come, said Christopher Haugen, policy analyst with the Fiscal Policy Center at the UW’s Daniel J. Evans School of Public Affairs.
“Weakening personal income projections,” Haugen said, “suggest that anticipated tax revenue may not materialize.”
Based on the UW analysis, tax collections will fall $230 million short of the official forecast. An errant state revenue forecast can cause major problems. In March 1993 – the last time the official tax forecast diverged so far from economic indicators – the state underestimated revenues by more than $400 million. That led to surpluses and a cascade of political ramifications including the Initiative 601 spending lid.
This time around, says Haugen, “the Legislature should take care to avoid reliance on tax dollars that may not materialize.”
The Fiscal Policy Center, funded by the Ford Foundation and other sources, conducts research and provides technical assistance to community groups and municipal governments.
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Haugen will be available for inteviews today. He can be reached at (206) 543-0190, cell (206) 276-1356 or haugen@u.washington.edu. The full report is available upon request or by clicking on http://depts.washington.edu/fpc – look for report titled “Revenue Forecast Brings Good News, But Will It Last?”
