State revenue down $118 million from forecast

OLYMPIA -- The state's economic picture is stabilizing but still precarious, and employment levels likely won't rebound until the second half of 2010, economist Arun Raha said Friday.

Raha told the Economic and Revenue Forecast Council that the state's deficit now sits at about $2.8 billion, with a recent $100 million uptick in demand for state services and a $154 million hit from a court case.

Without the court case, which cost the state revenue from certain out-of-state companies operating in Washington, the state would have seen positive revenue growth -- about $32 million -- for the first time in two years.

Overall, revenue for the remainder of the 2009-11 biennium is down $118 million from the November forecast.

Raha projected it will take two more years to bring revenues back up to 2008 levels.

"The Great Recession may be over, but it has wrought havoc in our economy which will take time to heal," Raha said.

Holding the recovery back are a continued downward trend in unemployment and the possibility that a rebounding housing market will drop again in the second half of 2010 after federal homebuyer tax credits expire.

"Our recovery faces headwinds, and we are not out of the woods yet," Raha said.

On the upside, exports are rebounding and businesses are starting to invest money in equipment and software again.

But the state has yet to recover any of the jobs lost since the recession began.

Raha said he believes job growth will begin this quarter, but will be offset as people who had given up on finding jobs start looking again and people move into the state from other places.

That means the net unemployment rate will continue to rise to an estimated peak of 9.8 percent in the second quarter of 2010.

Raha said it will take a boost in jobs to fully restore consumer confidence and get people spending again.

A couple of bright spots in the forecast were the auto and residential construction markets, the latter of which Raha said was "showing signs of life" because of a pair of federal homebuyer tax credits.

But he worried home sales will fall again when the credits expire in April.

Jeff Losey, executive director of the Home Builders Association of the Tri-Cities, said local developers have the same concerns.

The local market finished last year 6.7 percent ahead after a sluggish start, but that was in part because of the tax credits, Losey said.

"It took awhile to catch on and gain traction," he said. "There definitely is a concern when we hit mid-year."

Losey said the Tri-Cities should have a good year because of a strong start, again because of the tax credits.

"Please buy a house," said Raha, who is known for delivering the forecasts with wry humor. "Or a strip mall. Either of these actions would help our revenues outperform our forecast."