Wednesday, June 3, 2009

The Future is So Bright (I gotta wear shades)

Washington State may be in it's current fiscal crisis for a few years to come according to the Rockefeller Institute and a Wall Street Journal analyst. Donald Jay Boyd, senior fellow from the Nelson A. Rockefeller Institute of Government was quoted in today's Wall Street Journal , that "State tax collections could take five years of more from when the recession began in December 2007 to recover to precession levels."

Journal writer Amy Merrick modeled the course of state tax collections after the start of the recession in the above chart. In 1981, 1991 and 2001 recessions revenues did not return to the precession level for as long as five years. Since population, school enrollments, nursing home slots and overall human service caseloads will grow during that period, our budget deficit could increase.

I blogged earlier on the recovery of unemployment rates in recessions. Looking at the most recent deep recession of 1980-1982, unemployment remained above 9% for three years after the recovery began. Not surprisingly revenue recoveries mirror the course of unemployment rates.

We also face the problem in Washington that our shortfall fixed by federal money ($3 billion) and other one time fixes (roughly $1.6 billion). Cuts amounted to a drastic $4.3 billion reduction.

This of course means that we could start off in a $5 billion hole in the next biennium given current conditions. If the Rockefeller Institute and Wall Street Journal analysis applies now our plight could be worst.

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