Fading boom causes gloom in Washington state revenue forecast
(Adapted from my report to the University of Washington Faculty Senate)
If you’re what passes for a “regular reader” of this “newsletter” which has had, to date, just one prior edition, you’ll know that I’ve at least intimated a series of essays focusing on Washington state’s 2024 ballot initiatives. And trust me, dear reader, that content is in the works. But this edition provides some key background information that will help contextualize the debates over initiatives to repeal the state’s capital gains tax and carbon emissions auctions.
You may have seen this picture before. It dates to a difficult period in Seattle history, the “Boeing bust” of the early 1970s. Two real estate agents with dark senses of humor erected this billboard near Sea-Tac in April 1971. The Boeing bust, driven by layoffs in the aerospace industry, broke a chain of 5 years of remarkable growth in Washington state. The population had increased 3% in 1966, another 4% in 1967, another 3% in 1968, and at least 2% in 1969 and 1970. Population growth slowed, then ground to a halt in 1972, for the first time since the immediate aftermath of World War II.
The Boeing bust proved to be nothing more than a temporary blip. The year 1973 ushered in an incredible 48-year period where the state’s population would grow by at least 0.5% every single year. There are now twice as many Washingtonians as there were at the time of the Boeing bust. For comparison, the United States as a whole grew by a comparatively modest 63% between 1970 and 2020.
If you’re counting carefully, you’ve probably noticed the key implication of the preceding paragraph. The Evergreen state’s four dozen glorious years of robust population growth have ended. Since 2021, population growth has hovered between 0.2% and 0.5%, the most anemic three-year period since the end of the baby boom nearly 60 years ago.
You may be thinking this is all good. Traffic in the Puget Sound region has gotten bad enough, maybe if people stop moving here housing costs will stabilize or even decline. The problem, though, is that growth is good for business and what’s good for business is good for state revenue. The number of housing permits issued statewide in 2023 was the lowest since 2014, and this year is on track to be even lower. Sales tax revenue is down year-over-year, not necessarily because consumers are buying less, but because a large amount of sales tax revenue comes from construction supplies.
And this has implications for the legislature. Our elected representatives convened in Olympia last year for a “short” session to fine-tune the budget for the remainder of the biennial period ending June 30th, 2025. They came up with a plan to spend the revenue the state expected to bring in over that period. But since adjourning in March, that expected revenue tally has declined, to the tune of $500 million. And two initiatives on the ballot this November threaten to cut revenue collection still further by repealing the state’s capital gain tax and a program that requires major carbon emitters to purchase allowance permits from the state.
In January 2025, the legislature will convene once again to write a budget for the next biennium, from July 2025 to June 2027. While there is some good news, in the sense that the state expects to have more revenue to work with in the future than it does now (the yellow line is above the gray line in the chart below), the forecasted improvement isn’t itself improving. Some of that increased revenue will be consumed by employee wage and salary increases already written into contracts. And again, it doesn’t take into consideration the possibility of two revenue sources being taken offline by voters this fall.
Put this all together and you get a basic message: this is going to be a very difficult year to ask for things that cost money in Olympia. The legislature is going to look to make cuts in the short term. The appetite for new spending over the next two years will certainly depend on the outcome at the ballot box, but there’s no indication that it will be robust.
Slow growth is also bad news for higher education, as it means slower growth in the number of prospective students, in an environment where enrollments have already been shrinking for years at most institutions. That’s a topic for another day.