At its quarterly meeting today, the state Economic and Revenue Forecast Council (ERFC) updated its forecasts of state revenues. These new forecasts reduce the amounts available over the remainder of the current biennium and the next biennia by $452 million.

Budget reports from legislative fiscal committees typically roll up four accounts: the general fund–state, the education legacy trust account, the Washington opportunity pathways account and the workforce education investment account. Budgeteers refer to the roll-up as “funds subject to the outlook” (NGFO). Under the four-year balanced budget requirement, positive ending balances are required for both the current and the following bienniums for the NGFO as a whole.

For the NGFO, the new forecast for the 2021–23 biennium is $63,190.8 million; this is $43.4 million more than had been estimated in June, when the ERFC last met. This total includes a gain of $72.2 million due to stronger than expected economic activity offset in part by a $28.8 million reduction due to a ruling by the state Board of Tax Appeals exempting certain R&D expenditure from sales tax. The new forecast for the 2023–25 biennium is $65,503.7, $495.4 million less than the June forecast. Of this reduction, $117.0 million is due to the Board of Tax Appeals decision.

From 2019–21 to 2021–23, the forecasted NGFO revenue growth rate is now 18.9%. From 2021–23 to 2023–2025, the forecasted NGFO revenue growth rate is 3.7%, which is less than the forecasted 5.6% inflation between these two biennia.

As always, the ERFC also adopted optimistic and pessimistic alternative forecasts for the general fund–state. Under the optimistic scenario, revenue exceeds the baseline forecast by $1,455 million in 2021–23 and by $4,562 million during 2023–25. Under the pessimistic scenario, revenue falls short of the baseline forecast by $1,688 million during 2021–23 and by $5,571 million during 2023–25. The ERFC assigns a 15 percent probability to the optimistic scenario and a 35 percent probability to the pessimistic scenario.

ERFC’s forecast was made before today’s meeting the Federal Reserve Board’s Federal Open Market Committee. Materials released at the end of that meeting suggest that interest rates will be higher next year than the ERFC currently forecasts.

The handout from the meeting is here; TVW video of the meeting is here.