The ERFC has released their March 2013 Revenue Update so it is time once again for an analysis of their forecast. As a reminder, past ERFC forecasts have over-estimated revenue and under-estimated expenditures by billions of dollars. A healthy skepticism of anything they have to say is therefore in order. Here is a link to the March 20 report:
An Ongoing Employment Disaster
The following table is from an ERFC economic report released earlier this month:
This table confirms that employment remains well below the high water mark in 2007 of 3 million jobs.
Since 2007, we have had 80,000 young adults enter the workforce every year. Obviously, 80,000 young people times 6 years equals 480,000 more young people in the labor market – bringing our total Work force to over 4 million. Few of these young adults have found jobs. Total employment is about 3 million in our State. So with 4 million workers, the true unemployment rate is 25%. This was not mentioned in the economic report or the March 20 revenue report. Instead, they continue to repeat the corporate propaganda that the unemployment rate is only 7.7%. Also not mentioned in the ERFC report was the decline in transportation spending – which this summer will decline from $5 billion annually to $1 billion annually – resulting in the loss of about 80,000 road construction jobs. Instead the report only noted that there were 7,800 fewer jobs than they predicted in November 2012.
A Rapid Rebound in the Housing Sector???
The report also claims that the housing sector is rebounding. But in a prior report, they noted that we are still facing record foreclosures – now above the US average:
Despite the record number of home foreclosures, the ERFC is predicting a dramatic rise in new home starts from the current 27,000 per year to 42,000 per year. This is a 50% increase!!!
The reality is that home starts are more likely to fall in the face of a record “shadow inventory” of vacant homes already stolen by the Wall Street banksters.
Washington residents to loss at least $4 billion this year
The report did note that the higher federal taxes will cost Washington residents $3.5 billion while sequestration will cost another $0.5 billion. The report assumes sequestration will end in July of this year. However, if it continues the actual long term cost to Washington residents could be more than $3 billion. It is difficult to see how State revenue can grow by billions of dollars while personal revenue is declining by billions of dollars. But this is exactly what the March 2013 ERFC report assumes. The revenue forecast for the next biennium is now set at $30.5 billion for the current biennium, $32.5 billion for the next biennium and $35.3 billion for the biennium after that. Since the Great Recession started in 2008, revenue growth has averaged 1 to 2 percent:
Note that the growth in 2011 was due entirely to a change in the way revenue was calculated. In addition, economic growth nationally has been in the 1% to 2% range. Yet this revenue forecast assumes revenue will grow by nearly 7% in the next two years followed by 7% more in the following two years. Below is where we are at in the current biennium. It is looking like $30.5 billion:
Here is the next biennium:
The ERFC claims it will be $32.5 billion – an increase of $2 billion or 7% increase in the next two years.
A rapid reduction in unemployment???
The ERFC is predicting that the unemployment rate will drop below 6%:
But the ERFC is not predicting more jobs!
They claim that jobs by 2017 will only rise to 3.1 million:
So we will have 200,000 more jobs in the next four years. That is 50,000 jobs a year. The first problem is that we have 80,000 more young people entering the job market every year. So 50,000 more jobs per year will increase rather than decrease the real unemployment rate.
The second problem is that the ERFC is apparently unaware of how many workers live in our State. With a total population of 7 million, we have at least 4 million workers. By 2017, we will have at least 4.4 million workers. This means the real unemployment rate will be higher than 25% - not lower than 6%. At some point, the truth about our disastrous economy is going to come out. People cannot spend when they do not have a paycheck.
Déjà vu all over again... a $3.3 billion shortfall???
Two years ago, the ERFC predicted a rapid economic recovery and that State revenue for the current biennium would rise rapidly from $30 billion to $34 billion. I predicted that revenue would remain below $30 billion. Today, the ERFC has acknowledged that it was wrong about the last biennium. It now expects us to believe than revenue will rise to $32.5 billion in the next biennium. Even if revenue does rise to $32.5, we will still have a billion dollar shortfall as spending is expected to be $33.5 billion. In addition, a two billion dollar “down payment” is required by our Supreme Court to fund public schools. This adds another two billion to the shortfall. Add another $300 million due to the fake assumption that Medicare spending would save $300 million by privatization of that program and the net result is a $3.3 billion shortfall. This is assuming that the ERFC is right about revenue going up $2 billion.
Déjà vu all over again... a $4.8 billion shortfall???
But what if revenue only grows by 1% - to $31 billion??? Then the budget shortfall will grow to nearly $5 billion in the next two years. Either way, we are looking at a 10% decline over current State spending levels. This may not seem like much. But when one considers that over half of all State spending is mandatory (including not only public schools, but the billions we give away every year to Wall Street banks in interest payments on $30 billion in public bonds), then the remaining portion of the budget will have to take a 20% cut in order to balance the State budget! This includes not only higher education taking a 20% cut, but also health care, the judicial system and everything else!
There is a better way... Roll Back the Billions in Corporate Tax Breaks!
The one thing not being cut in the current budget is tax breaks to wealthy multinational corporations like Microsoft and Boeing. Those currently stand at more than $40 billion per year and are rising rapidly. Since 2000, these corporate tax breaks have DOUBLED from $20 billion per year to $40 billion per year. It is clear that we can no longer afford these tax breaks for billionaires. Instead of raising taxes on the poor and middle class to fund schools and roads, we ought to return to the tax structure we had in 1981 – a time when our State was 11th in the nation in school funding – by requiring wealthy multinational corporations and billionaires to pay their fair share of State taxes.
Please share this information with anyone you feel may be interested. I have posted a copy of this analysis on Home page of my website: realwashingtonstatebudget.info
David Spring M. Ed.