Office of Governor Gary Locke
FOR IMMEDIATE RELEASE - February 19, 1998
Contact:  Governor's Communications Office, 360-902-4136

Governor urges bolstering savings account to prepare for slowing economy

OLYMPIA - Responding to a new state revenue forecast that anticipates a major economic slowdown in Washington's future, Gov. Gary Locke scaled down the financial plan he proposed in December and recommends putting more money in savings to safeguard future funding for education and other critical services.

He also called on the Legislature to work toward a compromise on transportation funding that would not undermine the state's future financial stability.

"The decisions we make over the next few weeks will affect state finances for years to come," Locke said. "The state's new revenue forecast underscores the importance of living within our means - not just in the current budget cycle, but in the next one as well."

In its first official projection of state revenues for the 1999-01 biennium, the state Economic and Revenue Forecast Council approved a forecast that is $350 million lower than previously assumed by either the governor or budget-writers in the state Legislature. Although the new forecast for the current biennium is $13 million higher than projected in November, council director Dr. Chang Mook Sohn warned that financial turmoil in Asia and cutbacks at The Boeing Company cloud Washington's financial outlook in future years.

In fact, there are indications that the nation could slide into a recession. Data Resources Incorporated (DRI), the national forecasting company that provides U.S. economic information used in developing the state's financial forecasts, now estimates that there is a 25 percent chance of a national recession in the 1999-01 period as a result of the Asian economy and other factors.

Locke said it was necessary to scale back his tax cuts and bolster the savings account because of the new forecast. "The new forecast says that our previous proposals would have led to spending more in the next budget cycle than we would collect in revenue. I believe it's vital for the state to live within its means so we can protect education," he said.

To maintain the state's current financial stability, Locke proposed building a reserve of $700 million - about 3.5 percent of state revenues - to help offset any further erosion of state revenues in the 1999-01 biennium. He also urged the Legislature to abandon a Republican transportation proposal that calls for changes in Initiative-601 so borrowed money could be used for highway improvements and paid off over 25 years.

"The main purpose of Initiative-601 was to curb spending and encourage saving in good times so we wouldn't have to raise taxes or cut essential services when the economy turns down," Locke said. "Yes, we need to take action to improve our transportation system. But no one wants to see a repeat of 1993, when the state was overextended and there was no money in reserve to help ride out a tough economy."

In the supplemental budget plan he proposed in December, the governor proposed a net increase of $33 million in general-fund expenditures, $244 million in tax and revenue reductions, and $582 million in reserves. In response to the new forecast, he now recommends holding new expenditures to $25 million, providing $144 million in tax reductions, and boosting the state's reserves to $704 million.

While Locke still supports reducing annual vehicle registration taxes, his new plan would save motorists $30 rather than $35 per vehicle each year. Several other tax cuts - including tax credits for child care, workforce training, and investments in economically distressed counties - would also be scaled down. His revised proposal still includes tax exemptions for labor costs associated with construction of public schools, higher education facilities, and transportation projects, as well as for toxic-waste cleanup and a variety of other activities.

In addition, Locke now proposes to fund initiatives for local criminal justice, temporary worker housing, and higher Basic Health Plan enrollments through budget appropriations, rather than through revenue transfers. Even so, his revised budget plan is $8 million lower than the one he proposed in December, due to savings in other areas.

Locke said if the state's revenue outlook improves next year he would reconsider initiatives that had been scaled down or eliminated from his initial plan.

"The financial plan I proposed in December recognized the possibility of slow economic growth in the next biennium," Locke said. "That possibility has now become a reality, and I have modified my plan accordingly. I would urge the Legislature to exercise the same fiscal caution in light of this recent forecast."

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