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Updated state economic and revenue projection

Today, the Washington State Economic and Revenue Forecast Council released preliminary results from their quarterly forecast of the economy, including updated projections of how much revenue the state will collect in coming years. The Washington State Budget & Policy Center provides analyses of these reports.

Key findings:

The revenue forecast for the current biennium is about $350 million higher than predicted in June. The 2007-2009 forecast is just over $60 million higher.
In the last quarter, revenue collections were higher than previously forecasted. This was due largely to continued growth in construction and real estate.
New data, including increased revenue collections, shows that the current economic health of the state is better than was previously thought.
The nation's economic outlook is not as strong as was previously believed, largely due to a more negative view of oil prices.

Points to consider:

The reliance of the increasingly positive outlook on construction and real estate is worrisome since a growing number of analysts believe the nation's housing industry is at the height of a "housing bubble."
An increase of $350 million in revenues is substantial and contributes to the state's ability to meet vital needs.
While welcome news, the improved revenue forecast does not solve the state's long-term structural deficit. See our analysis of the June forecast for more information.

Definitions:

Biennium: Washington State government operates on a two year budgeting cycle, called a biennium. Each biennium starts on July 1 of an odd number year and ends on June 30, two years later. We are currently in the 2005-2007 biennium. The legislative session that begins in January will budget for the 2007-2009 biennium.
Housing bubble: Many analysts believe that housing prices have risen too quickly, to levels that cannot continue. When this happens, it is known as an economic bubble. When bubbles "pop" they can slow the economy. So far, Washington State has not shown the signs of a bubble as clearly as the Northeast or California.
Structural deficit: A deficit in one biennium means that the state has more costs than money to spend on those costs. A structural deficit means the the state's revenue structure is not sufficient over the long-term to meet the needs of a growing population.