Here’s the latest news on the state revenue front. Housing continues to be the life vest keeping the state budget afloat.
The state budget picture got even brighter Wednesday when its chief economist predicted the state would close out its books for the current two-year spending cycle with a surplus of more than $1.8 billion.
ChangMook Sohn, executive director of the state Revenue Forecast Council, said tax collections for the 2005-07 budget period will be $350 million higher than expected, now reaching $27.3 billion.
Collections for the following two-year period will be $62 million higher than previously thought. High employment, strong home sales and more business spending are fueling the growth of tax collections, he said. Although the national housing market is starting to slow down, it’s still strong in Washington, Sohn said.
That means that state is collecting more real estate excise taxes, which are paid on the sale of homes. It also means the construction industry is still producing a lot of jobs. In addition, the kinds of jobs being created in Washington are the higher-paying variety, such as those in construction and aerospace.
On the other hand, consumers are still spending a lot more than they’re earning and that can¹t continue indefinitely, Sohn cautioned. Consumers are tapping into their home equity, credit cards and loans to pay for their spending spree, he said.
Mr. Sohn has been has been warning for a good while now that the pleasant budget picture is unlikely to continue once the housing market in the state really slows down. One would hope that those in Olympia are listening, but personally I’m not going to hold my breath.
Interestingly, the Seattle Times has a different take on the matter. Business reporter Alwyn Scott claims that:
Washington’s growth is being fueled by strong aerospace, software and construction employment, and people moving to the state, which helps underpin demand for houses.
Saying that strong construction employment is (indirectly) fueling demand for houses seems like circular logic to me. But let me take a moment to ponder a few facts about aerospace and software, which are really just code words for Boeing and Microsoft. Together, those two companies provide just under 100,000 jobs in Washington State (Microsoft: 33,000, Boeing: 66,000). I don’t have the totals for all the smaller companies, but if you assume that together they double the total number of jobs in those fields, you’re talking about roughly 200,000 jobs. According to the Office of Financial Management, annual migration is currently at 81,000 people per year. Unless the aerospace and software industries are growing at a rate of 20% per year (40,000 new jobs), it seems like a stretch to me to claim that they are the primary fuel of Washington’s growth. For reference, Microsoft had an unusually high jump in its local workforce last year, increasing their ranks by 13%.
That being said, way down at the end of the article, Alwyn does manage to admit that housing might slow down, and bring the state economy with it:
The biggest risk to the economy is the possibility that house prices will stop climbing, economists said. Washington is the nation’s sixth-hottest housing market, with prices rising 17.4 percent in the year through June. However, high prices and rising mortgage rates are making homes tougher to afford, [Dick]Conway said.
Washington’s home sales already are slowing. Now, with prices slowing down nationally, the question is, “Will Washington state be far behind?” in seeing price gains slow down or decline, Longbrake said.
That’s the question of the hour, isn’t it? Are we super special and magically immune to the housing ills afflicting other cities & states around the country, or are we just the last ones to catch the housing bubble flu?