Seattle Bubble

Here’s the latest installment of “Government Revenue Bubble,” courtesy of the Tacoma News-Tribune:

Washington’s hot economy, still surging with a mighty assist from construction and real estate sales, will boost state income by more than $300 million, forecasters said Thursday.

But in the same breath, economists warned of a slowdown, and Gov. Christine Gregoire and key legislators cautioned against a spending spree in the upcoming legislative session.

“There’s a lot of risk out there,” said state budget director Victor Moore.

It’s a tempting target: The new revenue update, reflecting the fourth quarterly revenue surge in a row, brings the state’s reserves to more than $1.4 billion, roughly 5 percent of the state budget.

Chief economist ChangMook Sohn’s new analysis for the state Revenue Forecast Council presumes a cooling of the red-hot housing market and consumer spending, and projects continuing high oil prices.

The housing bubble hasn’t popped yet, but a cool-down probably is imminent, Sohn said. National housing starts dropped 5.6 percentage points last month, he noted.

“There are many signs that housing is peaking,” he said. “We have been expecting that for a long time.”

In Washington, the real estate and construction sector are responsible for half of the new $304.9 million windfall announced by the council. The state will collect another $100 million just from the tax on real estate transactions.

We’ll see if they can resist the urge to sink the money into recurring expenses. I have to say I’m quite surprised and somewhat suspicious that the Governor-for-now “cautioned against a spending spree.” Usually there’s nothing the government enjoys more than spending our money (on programs that are for our own good, of course).

(David Ammons, Tacoma News-Tribune, 11.18.2005)